The Singapore ecosystem: Growing into adolescence

• One report ranks Singapore ecosystem as 10th best, another knocks it down
• Such reports reflect a shallow understanding of what constitutes a startup ecosystem

PEOPLE can't seem to agree on Singapore these days.

Barely one month after Compass released its Startup Ecosystem Ranking 2015 report qualifying Singapore as the 10th best startup ecosystem in the world, a new report by the folks over at SparkLabs Global Venture resoundingly dismissed that claim with some good, ol' fashioned shade.

In an interview with Singapore tech blog e27, Bernard Moon, managing director at SparkLabs, said: “We know that from looking at a lot of Singaporean deals that 1) There is a lack of Series A investors; and 2) There is definitely a lack of historical exists. We would never put Singapore in our top 10, maybe even top 20.” (Emphasis mine).

Let’s get one thing straight: I’m a staunch proponent of the Singaporean startup ecosystem. I’ve worked in it for many years. I take a very positive approach to the ‘pay-it-forward’ mantra (and conversely, I am hyper-critical of those that don’t play by that rule). I am extremely loyal to Singapore and am an avid supporter of its growth and potential.

But Bernard isn't entirely wrong.

Reading article after article, you’ll note that companies are all ‘exiting.’ And to the layman, it's hard not to interpret these are unequivocal wins. But that isn’t necessarily true.

Many early-stage VC (venture capital) funds often refer to a rule of thumb when doing a gut-check on their portfolio: 50% to 60% of a given fund portfolio will die or exit for less than 1x return on investment; 30% to 40% will make 1-5x returns; and less than 10% will make 5x and above.
 
Bear that in mind next time you hear of a startup being acquired for an undisclosed amount of money.

And to be brutally honest, Singapore really hasn’t had a history of exceptional exits. Yes, we had Luxola. Yes, we had Nonstop Games. Yes, we had Viki. We’ve had exits, we’ve had good returns, we’ve had some home runs, but we’ve had far more exits with returns that probably weren’t exceptional, and certainly didn’t result in fund-making returns.

We’ve had real wins, but not enough to denote a trend.

A mature, sustainable ecosystem is not defined by those kinds of exits. It is defined by the exits that make massive windfall returns for investors and entrepreneurs.
 
These exits communicate to existing and potential investors and entrepreneurs alike that yes, Singapore is growing; yes, you can develop a successful company here; and yes, if you do exceptionally well, you can see a life-altering financial return.

To borrow a football example, no one jumps out of their seats for a short pass, but they sure as hell do for a winning goal. And if your home team only has a history of doing the former, it’s hard to see them winning the World Cup.

So no, there does not yet exist a history of critical wins, and our previous wins are certainly not enough to really put Singapore on the map (or, some may argue, to be listed on some arbitrary list of ‘top ecosystems,’ whatever that means).

Yet.

Let me be blunt, Singapore has done an incredible job at fostering its startup ecosystem. This is no exaggeration. The number of countries that have done what Singapore has is exactly one: Israel – and it should be noted that Israel’s startup ecosystem predates Singapore’s by a good 15 to 20 years.

Startups per capita has grown in orders of magnitude; entrepreneurs are smarter and more regionally- and globally-thinking; there are so many more funding options now compared with even three years ago, that it’s genuinely incredible.

Granted, a startup ecosystem is defined not only by new startup formation, but by exits, and in that respect, Singapore isn’t quite there yet.

But that doesn’t mean they aren’t coming.

There’s a tremendous difference between a lack of exits and a lack of potential exits.

You have dozens of companies now receiving investment from heavy-hitters in the VC space. You have dozens of companies that were started several years ago, but continue to thrive and secure investment round after round. These companies go from strength to strength, supported by smarter investors with larger cheques.
 
There is several billion dollars’ worth of acquisition potential across South-East Asia, especially Indonesia and Singapore. Add to that the dozens of other startups soon reaching that maturity level, along with dozens of new funds focused exclusively on the region.

It’s clear that Singapore’s ecosystem isn’t in its infancy anymore, but it’s not yet mature enough to start achieving those mammoth exits.

Instead, Singapore is just hitting puberty. Its ecosystem is in its adolescence.

The reason why I am so critical of Bernard Moon – and indeed, other similar reports, even those more complimentary of Singapore like the Compass Ranking – is because they reflect a shallow understanding of what constitutes a startup ecosystem.

While many reports seem to ignore the importance exits play in defining and growing an ecosystem, other reports, like Bernard’s, totally discount potential exits, especially when considering the relative strength of these companies vis-a-vis previous iterations within a given ecosystem.

It’s not fair to compare Singapore’s adolescence with more mature adults. It’s like asking a junior college athlete why she can’t compete with professional footballers.

But to continue the metaphor, Singapore has shown itself to be a tremendously talented athlete, having achieved in 15 years what no other country has done since the concept and vision of ‘Silicon Valley’ entered the public consciousness.
 
An adolescent ecosystem is a far better descriptor for Singapore, one that is realistic about its success but nevertheless cognisant of its potential.
 
More importantly, that descriptor can easily be applied to other tech ecosystems around the world, and can serve both as a bellwether of success and a reminder that not all ecosystems become ‘mature’ overnight.
 
It’s a process, a gradual process that is best reflected in the way these ecosystems grow from infancy to fully-grown mature ecosystems.
 
I’m looking forward to seeing how Singapore grows up, as I am with respective ecosystems across South-East Asia, Africa, and Latin America.

Then again, maybe I’m just being moody. Puberty can do that to a kid.
 
Justin Hall is a principal at Golden Gate Ventures, an early-stage fund based in Singapore. You can reach him via Twitter at @JVinnyHall. This article first appeared on his blog and is reprinted here with his kind permission.
 
Previous Instalments:
 
Only cockroaches and startups left when unicorns become extinct

Don’t get washed by liquidation preferences
 
When the first cheque can kill you
 
The runaway train of startup valuations stops in SEA
 
Moving the goalposts: How exits are changing across SEA

  
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