A bubbling cauldron of Start-Up 2.0 firms

Unlike those of the dotcom era, new tech start-ups have better record and potential

Eleven years have passed since the dotcom bust killed most tech start-ups. Today, a cauldron of new tech start-ups is bubbling, about to break through the lid.

Foreign technopreneur-investors have contributed to this. They have relocated to Singapore to invest in local start-ups. Facebook co-founder Eduardo Saverin, 29, started Anideo, a mobile app development firm. He also wants to invest or has invested in local start-ups. Mr William Klippgen, founder of Tigris Capital, came to get his Masters in Business Administration from Insead here in 2003 and stayed on to fund local tech firms.

So did American Eric Tachibana, an IT professional cum serial entrepreneur who also teaches entrepreneurship part-time at a local university. He has invested in local start-ups. Serial entrepreneurs like Singaporean Wong Meng Weng, 35, who launched two start-ups in the United States, have also returned home to start a seed fund called JFDI.

They were attracted by Singapore Inc: the pro-business policies, the safe environment, the legal framework and the abundance of government funds as well as the entertainment buzz created by the F1 grand prix and the integrated resorts and critically, a market.

Mr Saumil Nanavati, 34, a Canadian serial entrepreneur who started mobile location service Chalkboard, said: “South-east Asia is the next frontier, especially Indonesia, Malaysia, Thailand and the Philippines. Together with Singapore, they account for 372 million people, a number which is slightly larger than that in the United States.”

Based in Singapore, he can reach the regional markets easily.

Mr Michael Yap of the Media Development Authority (MDA) agreed: “Singapore has a new advantage called market. Not the local market, but the South-east Asian and Asian market.”

Growing affluence and the penetration of smartphones have made the regional market more attractive now than in previous years, said Mr Yap, the MDA’s deputy chief executive.

Thousands of local start-ups in the last decade have mushroomed, with dreams of becoming Asia’s Google, Facebook or LinkedIn. They are different from the dotcom upstarts formed between 1995 and 2000 and which received millions of dollars in funding – mainly from private investors and venture capital firms mostly in the US – without having any revenue, customer and/or technology to show for it.

In comparison, the new wave of start-ups have a better record and potential. Take Garena, for example, which seeks to improve the playing experience of online gamers by building a software that reduces latency for massive multiplayer online (MMO) games. It has about 60 million users in 200 countries.

The new wave of Start-Up 2.0 firms have built their own technology, global customers and offices and/or local/global goods market. Increasingly, they are becoming acquisition targets. In fact, six of these companies including TenCube, Brandtology and JobsCentral have already been snapped up in the last 12 months, making their founders millionaires.

This spate of acquisitions has never been seen before. Clearly, there is money to be made in tech start- ups. Although acquisition costs were not disclosed, industry observers said Brandtology went for the highest price ranging from eight figures upwards.

The country benefits too. A 2010 Deloitte Consulting report noted that the interactive digital media (IDM) segment – where most start-ups are focused on – created 8,117 new jobs between 2007 and 2009.

Money from the Government has attracted more tech start-ups to form. The Government has mostly funded newly formed start-ups which are in urgent need of cash to prove their ideas are viable.

Between $400 million and $500 million has been made available by the National Research Foundation between 2006 and 2010 for individuals or investor funds for this purpose.

Start-ups have access to $50,000 grants that are disbursed through agencies such as MDA and Spring Singapore, which get the money from the Foundation. Most are in the IDM segment such as online shopping portals, games, cellphone apps and social networks. Foreign investors can get money to set up tech incubators which fund and mentor local start-ups.

One special scheme allows the Government to co-invest 85 per cent of the funding for new projects with the private investor taking up the rest. The risk is highest at the early stage funding, as the business idea has not been proven and private investors may not be keen to part with their money. Hence the Government steps in at this point to shoulder the risk.

Retired but experienced senior IT managers have also emerged to play investor-mentors. Stream Global, a local tech incubator, for example, has seven partners including Mr Bill Liu, 63, who was chief executive officer of Abacus International, an airline reservation business, and president of GreenDot Capital, a tech investment fund. Mr Liu and his partners boast two centuries of managerial and innovation experience which they can use to guide their five start-ups.

Every year, these investors get to listen to potential tech start-ups at various business plan challenges and competitions including Startup Weekend, Echelon, TechVenture, SingTel App Challenge and, coming up in November, Demo Asia.

Start-ups jostle each other for slots in these events in the hope of landing an investor.

No community is complete without a meeting place. Hackerspace, a clubhouse for geeks in Bussorah Street, aims to do just this. Described as the Zouk of geekdom, it was started by JFDI’s Mr Wong. Visiting and local software engineers, founders and investors drop in to hang out with geeks, chat about new ideas or even scout for new hires.

What next?

The most pressing issue is talent. Said Mr Nanavati: “With Singapore’s immigration policies, we cannot bring in the best matched talent, who will pay taxes, rent an apartment, buy from the local stores. This is going to hurt every start-up and it is hurting my company every day.”

The lack of talent is also stopping top-tier American start-ups such as Evernote from opening its Asian headquarters here. Mr Darius Cheung, vice-president of software firm McAfee, said there will be at least 10 to 20 engineering jobs created if such companies locate here. Mr Cheung was co-founder of TenCube which was acquired by McAfee last year.

There are also not many tech buyers who are familiar with start-ups in this region, noted Mr James Chan, who manages Neoteny Labs, an incubator nurturing eight start-ups.

“The rate of acquisition may be affected,” he added.

Old mindsets also need to be changed. In the US, most start-up employees take a lower salary, but get stock options. Even secretaries accept this. The payoff is when the start-up becomes successful. Then their stock options are worth a pile.

Singapore also does not have enough professionals who support start-ups, for example, agents to market intellectual property to potential customers elsewhere. Also needed are accountants and lawyers who are familiar with helping tech start-ups navigate funding arrangements and hiring policies.

Still, more exits or buyouts can be expected among Start-Up 2.0 companies, especially those that focus on a technology or a game.

Ms Yong Soo Ping, a director of venture capital firm Walden International, said that companies like Skype (Internet telephony) and Zynga (publisher of the popular game Angry Birds) would be more appealing to people in this region.

Technopreneurs also need to generate more innovative ideas and be aggressive in their goals, said Mr Cheung, adding that it does not matter if they fail because they are likely to start again. This churn is needed if the tech ecosystem is to be sustained.

Today, the tech cauldron is only bubbling. For the lid to blow off, the weaknesses and gaps must be addressed; only then perhaps Singapore might just become Asia’s Silicon Valley.