Technology investors have placed enormous faith in Singapore, one of the Four Asian Tigers in the late 20th century alongside Hong Kong, South Korea and Taiwan, thanks to its political stability and robust legal and regulatory framework.
The country’s diverse cultural traditions with four official languages – English, Mandarin, Malay and Tamil – also makes it an ideal global financial centre.
E-commerce firm Alibaba and digital media company ByteDance are among the China-based technology companies that are bolstering their operations in Singapore, joining the American counterparts including Amazon, Facebook, Google and Microsoft that have had a much longer history in the country, reported Financial Times this month.
This is accelerated by the ongoing China-United States trade dispute, making Singapore the new tech hotspot that provides strategic access to Southeast Asia and the greater Asia-Pacific region. In addition to China and the US, global corporate venturers and traditional venture capitalists are vying for relevance in disruptive areas including cloud computing and artificial intelligence in the city-state.
Singapore’s corporate-backed deal volume and value have grown exponentially in the past decade, according to Global Corporate Venturing Analytics data, having achieved a record 81 deals last year and a peak in terms of dollars at $6.3bn the year before.
From a global viewpoint, in 2019 Singapore came in eighth by deal volume, with 83 deals logged by GCV Analytics, while it ranked 11th in terms of corporate-backed deal value, amounting to about $1.5bn.
Graham Howes, Singapore-based managing director of Asia for BP Ventures, UK-listed energy company BP’s strategic investment arm, told GCV: “Singapore’s long history of trading has helped shape it into a thriving international hub, with a social and cultural environment that can feel familiar to multiple nationalities. This helps foreign companies bridge cultural differences and enables them to focus on building strong business links to larger external markets – both within Asia and beyond.
“Singapore has also adopted a range of good business practices, alongside clear and transparent regulations, which has created a very secure environment to conduct business in and from.
“Impressively, this has all been created without restricting startups with bureaucracy, allowing companies to establish themselves rapidly, act with agility and scale up quickly. One great example of this is how businesses in Singapore apply leading-edge technology. The city is establishing itself as a location where technology can be demonstrated at scale in real-world environments, delivering practical solutions that can be adopted by the cities of the future.”
Public and private
Low Ka-Hoe, chief strategy officer for engineering firm ST Engineering who oversees its corporate venturing unit, ST Engineering Ventures (STEV), also commented: “Singapore has a strong reputation for its public-private partnerships and it is no different in the innovation sphere.
“The Singapore government has committed S$19bn (approximately $13.5bn) over 2016-2020 under the Research, Innovation and Enterprise 2020 (RIE2020) plan which aims to support and translate research, leverage science and technology to address national challenges and to build the innovation and technology-adaptation capacity of Singapore companies to drive economic growth through value creation.
“Under the RIE2020 plan, the Singapore Government has prioritised research funding in four technology domains – advanced manufacturing and engineering, health and biomedical science, services and digital economy as well as urban solutions and sustainability.
“This has spurred the growth of Singapore’s innovation and enterprise landscape, with Singapore gaining global recognition as a regional innovation centre with knowledge institutions and enterprises driving disruptive innovation. According to Startup Genome, Singapore is ranked 14th on their list of Top 30 Global Startup Ecosystems in 2019.
“Being at the heart of Asia, home to 53% of the world’s urban population, Singapore is also an ideal location to focus on smart city solutions, which is growing at a 10-year compound annual growth rate (CAGR) of 10% and could easily exceed a market size of more than $2.1 trillion by 2025 [according to Zion Market Research].
“Asia leads the global urbanisation megatrend… With rapid urbanisation, major cities around the world face the same issues including traffic congestion, security concerns, need for infrastructure support and sustainability. Many are turning to smart city technologies to solve these problems, and Singapore is no different with its Smart Nation initiatives.
“As a leading developer and user of smart city solutions, Singapore is home to some of the biggest companies that are innovating, testing and collaborating to develop and commercialise smart city solutions for Asia. The Singapore government has shown its strong commitment to work with companies to boost their innovation capacity to develop new products and services that can address global markets, either through building in-house capabilities or working with other partners under the ambit of open innovation.”
Regarding Singapore’s unique ecosystem, Tong Hsien-Hui, head of venture investing for SGInnovate, Singaporean state-owned investment firm, explained: “All ecosystems have their strengths and weaknesses. For Singapore, we lack a large domestic market, which means that from inception, local tech startups need to focus on solving large regional or global problems and cannot be satisfied with just looking at the domestic market.
“On the other hand, Singapore benefits from being the regional headquarters for many large global multinational corporations (MNCs). This allows our most innovative people to work on problems that can be quickly validated, as interactions with these MNCs will expose them to a global view of the challenges or opportunities they face.
“Not having a large local market also means that consumer-facing innovations are less likely to originate in Singapore. However, a lot of very successful business-to-consumer companies still choose to domicile themselves here although their key markets are in other parts of the world.”
Above: Tong Hsien-Hui, SGInnovate
BP Ventures’ Howes agreed that Singapore has strong regulatory support that instigates innovation. He said: “The government has done an excellent job of establishing enterprise agencies that have a clear and defined business agenda that reduce barriers to entry, without compromising on strong governance. As a result, Singapore has seen a growing number of accelerators and incubators establish themselves and to build positive track records. Two great examples of this work are Ecolab and SGInnovate.
“Singapore is also leveraging its position as a hub for international travel. Innovation and investor events are becoming more established and drawing in an increasing number of high calibre participants.”
ST Engineering’s Low highlighted the tight-knit nature of the Singaporean entrepreneurial and business networks. He noted: “The Singapore innovation ecosystem has grown over the years by developing market-led innovation, driving more co-innovation development, catalysing more smart financing, and developing a pool of innovation talents. These initiatives have resulted in a large increase in the number of the knowledge institutions and startups based out of Singapore, and the increased collaboration among these knowledge institutions, startups and local small and medium-sized enterprises (SMEs).
Above: Low Ka-Hoe, ST Engineering
“We are also seeing increasing interest by large local corporates and MNCs in establishing corporate venture capital (CVC) presence in Singapore as part of their overall growth and open innovation strategy. According to the Singapore Venture Capital and Private Equity Association, CVCs in Singapore and investing into Singapore-based companies have been growing at 24.7% CAGR since 2014 to be worth $1.02bn in 2018. Increasingly, Singapore-based CVCs are branching out to be connected to greater innovation systems globally, which speak to the growing appetite of local large corporates to invest in startups to help them access new capabilities, novel technologies and disruptive business models, and potentially grow new or adjacent markets.
“In particular, we are observing strong potential in partnerships with startups where these large local corporations can leverage the agility of a startup to experiment, innovate and co-create for the region and beyond. In this regard, we at ST Engineering established our own CVC unit in 2017.
“Our CVC unit was set up to collaborate with early to growth-stage startups, and we look at companies with underlying capabilities that augment our group’s businesses, especially in high growth areas such as robotics, autonomous technology, data analytics and cybersecurity.
“We do not view our investments from a purely financial perspective. Rather, our aim is to build successful, collaborative relationships with our startups, where we take a minority stake and collaborate with them, combining technologies and expertise to co-create breakthrough solutions.
“Our startups have the opportunity to integrate into our global business ecosystems, networks and distribution channels, and tap on our expertise and resources. As a leading technology, defence and engineering group with firm foothold in Asia, we believe that startups can benefit from, and leverage us to expand in the region. To date, we have made five investments, of which we led four.”
Evolution
Concerning the development of Singapore’s emerging technology economy over the years, SGInnovate’s Tong said: “The Singapore innovation ecosystem has undergone several phases of evolution. In the beginning, research that came out from our Institutes of Higher Learning and Research Institutions were licensed to foreign MNCs. It then went through a stage where most startups were digital startups trying to address specific problems.
“Today, the landscape has evolved into one that has a greater variety and richness in the kind of companies coming out of the Singapore ecosystem. They range from genetic sequencing companies to startups in the cleantech space, addressing the problem of carbon emissions in data centres.
“Rather fittingly, it could be said that the story of the Singapore ecosystem is the story of SGInnovate. We started as an investment firm under the then-Infocomm Development Authority of Singapore, with the mandate to invest in digital economy startups. Nearly four years ago, in response to the changing ecosystem, we became SGInnovate and we are focused on both investing in and helping to grow deep tech startups across a broader range of technologies, under the purview of the National Research Foundation.”
Singapore-based CVCs have also progressed along the way, according to Tong. “Some evolved in line with innovation initiatives undertaken by the corporate head office. Others evolved from financial prudence assessments, where early-stage investments could be deemed as a diversification of risk with potential high returns.
“CVCs remain an extremely important funding source and industry validation for our startups and we have co-invested with companies like [US-listed payment services firm] Mastercard in fintech startups, as well as [China-based medical device manufacturer] MicroPort and [Malaysian–Singaporean healthcare group] IHH Healthcare in medtech companies.”
In this highly synergistic scenario, Howes said BP Ventures can offer a valuable, global perspective into different markets, especially around what foreign competition looks like in terms of delivery, scale and market presence.
“Our approach in Singapore mirrors that of our other regions,” Howes noted. “We take a very collaborative approach and work with CVC peers on deals that can create valuable synergy – where we can both bring something different to an opportunity. Beyond CVCs, we work closely with financial VCs, if the fit with their investment mandate is right. We are also in frequent conversations with incubators and accelerators to collaborate on strategically relevant areas. University research can often be too early-stage for us, but we track it closely for originality to spot if research is an incremental update or a fundamental breakthrough.”
ST Engineering, on the other hand, has accumulated substantial domain expertise in certain strategically important areas, Low said. “We continue to build strong and differentiating tech capabilities, IP portfolio and a pipeline of tech-enabled products and services. Besides strengthening our internal expertise in areas such as data analytics and cybersecurity, we reach out to collaborate and co-create with external technology partners and key players in various global startup ecosystems,” he added.
“For instance, we are a key strategic partner of the Singapore government in its Smart Nation drive. Our memorandum of understanding (MOU) with Singapore’s Economic Development Board (EDB) aims to create globally competitive industry ecosystems in Singapore.
“Under the MOU, ST Engineering and EDB will work together to identify and develop growth strategies for targeted industries such as robotics and smart mobility. Our scope also includes leading and participating in consortia and alliances with MNCs, local large enterprises, SMEs and startups to offer end-to-end solutions, and collaborating with external technology partners to innovate and commercialise new products, services and solutions internationally.”
Above: Graham Howes, BP Ventures
ST Engineering is a global technology, defence and engineering group specialising in the aerospace, electronics, land systems and marine sectors, added Low. The group employs about 23,000 people across offices in Asia, Europe, the Middle East and the US, serving customers in the defence, government and commercial segments in more than 100 countries.
With more than 700 smart city projects across 130 cities, ST Engineering continues to help transform cities through its suite of smart mobility, smart security and smart environment solutions. Headquartered in Singapore, the group reported revenue of S$7.9bn ($5.7bn) in the financial year 2019 and it ranks among the largest companies listed on the Singapore Exchange. It is a component stock of the FTSE Straits Times Index, MSCI Singapore, iEdge SG ESG Transparency Index and iEdge SG ESG Leaders Index.
STEV also actively participates in syndicates, according to Low, who remarked: “We have also invested alongside other top-tier VCs and CVCs as we believe that a strong consortium of VCs and CVCs will bring the most value to startups, and hence indirectly to our collaborations. We have been focusing our efforts on building relationships, especially with other tech centres, and also engaging with VCs and startups in the US, Israel, Europe and China. To create a more sustained engagement with key startup ecosystems and also to signal our commitment, we have set up permanent corporate venturing offices outside of Singapore, in Silicon Valley and Tel Aviv which are staffed by venture professionals with strong knowledge of the local investment and startup landscape, and networks.”
SGInnovate is an early-stage deep technology investor with the broader aim to grow the deep tech ecosystem and startups, Tong said. “All the stakeholders mentioned are important components to achieve this mandate. As part of the government, we work with these stakeholders and our partners to raise awareness of new emerging technologies and their impact on society so that regulations can evolve in tandem with technology advancements,” he explained.
“We work with universities both locally and overseas to ensure we have a finger on the pulse of new developments and the nature of companies that will grow from such technologies. We work with incubators and accelerators for dealflow opportunities and provide support for our portfolio companies, and we also work with VCs on identifying opportunities where our mutual strengths can be helpful to companies we jointly invest in.
“For CVCs, we work with them in a number of ways. While co-investment is usually the ultimate outcome, we also work with them on validating the impact or need of emerging technology and how relevant it is to the market in the immediate or near term. We also have programmes where we serve as the eyes and ears of CVCs who may not be based in Southeast Asia, but need to know what is happening here and where the investment opportunities lie.”
