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Singapore sustainability set to be tested

By Paul Mackintosh - 26/03/12

Following on from my time in Singapore, at least part of it as a guest of the Singapore Venture Capital Association (SVCA) for their networking evening, here is some more feedback from the Lion City, and reflections on its positioning as a venture cluster. Anecdotally, the feedback is not that positive. Start-ups and high-growth companies created under the generous support and investment programs appear to be thriving; but informed sources suggest that their technology and intellectual property is just not that great, and few stand much chance of commercial viability. And unfortunately, the same environment that nurtured these companies may guarantee their failure.

Look, for example, at the SVCA. This “was formed in 1992 under the patronage of the Economic Development Board (EDB) to promote and foster the growth in this sector”, states the SVCA’s own website. In contrast, the Hong Kong Venture Capital and Private Equity Association “was formed based on a recommendation in the Working Party of the Hong Kong Association of Banks' study of venture capital”. Essentially, it was more a ground-up community exercise initiated by Hong Kong’s business and financial community – a private enterprise solution. The British Venture Capital Association was started up as to “to secure recognition from the government and policy organisations”.

I have spoken to entrepreneurs in the past who say that the real problem in Singapore is that growing private companies face insurmountable competition from the state-connected entities under the Temasek umbrella and elsewhere, as well as limited local capital pools to receive companies coming to market. The energy and imagination of the young start-up entrepreneurs seems all too likely to go to waste. Yet the country may need new entrepreneurial infusions more than the proceeds from exporting the products of a growth model that increasingly seems to be failing at home.

Singapore’s infrastructure face growing challenges, as covered last week, perhaps we’re looking at something like the new middle-income trap. That is, a country that makes it to first-world economy status but then fails to transition to the kind of high-productivity knowledge-driven self-regenerating model that the US and (arguably) Germany seem to have achieved. Japan has perhaps fallen into such a trap; vast swathes of Western Europe also. Now Singapore also appears to be hitting the same kind of crunch.

Note that China, even with its huge state sector, is diverse and chaotic enough to support a freewheeling, highly competitive, and very commercially-driven venture capital (VC) ecosystem – which, however, seems to keep the same entrepreneurial spirit of private enterprise as in the US.  Without this, a healthy VC environment cannot simply be legislated into existence – as Singapore shows.