Ico Boom threat­ens Sin­ga­pore’s vc Scene

Ques­tions are raised as to the fu­ture role of ven­ture cap­i­tal firms, es­pe­cially if ICOS be­come an ef­fec­tive and sus­tain­able av­enue for star­tups to raise funds ver­sus tra­di­tional ven­ture cap­i­tal fund­ing.

Singapore Business Review - - CONTENTS -

When Uber bowed out of its South­east Asian op­er­a­tions this year, it sent a clear sig­nal to ven­ture cap­i­tal­ists: trans­port and lo­gis­tics star­tups have had their day. Whilst deals in tech­nol­ogy, trans­port, and lo­gis­tics, have dom­i­nated the scene and should con­tinue to do so as seen in Grab’s $2.5b Se­ries G fund­ing, funds will now start to pour into promis­ing ar­eas such as blockchain, med­i­cal tech­nol­ogy, and ar­ti­fi­cial in­tel­li­gence.

Ven­ture cap­i­tal ac­tiv­ity in Sin­ga­pore is widely ex­pected by an­a­lysts to main­tain solid mo­men­tum not only for the rest of 2018 but also for the next few years due to an in­flux in growth-stage funds, a stronger cor­po­rate ex­pan­sion drive into South­east Asia, and an ex­pected boom in at­trac­tive exit deals. But funds will likely have to fight tooth-and-nail for tal­ent and deals amidst strong com­pe­ti­tion and a grow­ing in­ter­est in ini­tial coin of­fer­ings as an al­ter­na­tive fundrais­ing path.

There have been a record 23 deals that raised US$2.68B of ven­ture cap­i­tal fund­ing in the first quar­ter of 2018, sur­pass­ing pre­vi­ous records.

No­table deals

There have been a record 23 deals that raised US$2.68B of ven­ture cap­i­tal fund­ing in the first quar­ter of 2018, sur­pass­ing pre­vi­ous records, said Kenn Lim, se­nior as­so­ciate at CNP Law. “Whilst we are still in the early half of 2018, we have wit­nessed a vi­brant ven­ture cap­i­tal scene in Sin­ga­pore thus far.”

Aside from the Grab-uber deal, which saw the largest amount raised glob­ally from ven­ture cap­i­tal fund­ing in the first quar­ter of 2018, an­a­lysts said an­other no­table deal in the early part of the year was lo­gis­tics startup Ninja Van rais­ing US$85M in its Se­ries C fund­ing round, which was one of the largest ever raised in the re­gion at that stage.

Th­ese deals, to­gether with ven­ture cap­i­tal firm B Cap­i­tal Group clos­ing out its first fund and rais­ing US$360M, sug­gests that “ven­ture cap­i­tal in­vestors con­tinue to in­vest large pools of money into late-stage com­pa­nies, in part be­cause of the num­ber of uni­corns that have re­mained pri­vate,” said Ken Che­ung, part­ner at Bird & Bird ATMD. He added that so far in 2018 have been pre­dom­i­nantly in the trans­port, lo­gis­tics, and tech­nol­ogy sec­tors.

One tech­nol­ogy deal that was “no­to­ri­ously un­der­re­ported” was GO-JEK’S ac­qui­si­tion of Ma­pan, ac­cord­ing to Justin Hall, prin­ci­pal at Golden Gate Ven­tures. He said the founders and as­sets of that sale will un­der­pin GO-PAY, which he con­sid­ers the re­gion’s first “gen­uinely vi­able” mo­bile wal­let that has “ex­tra­or­di­nary” dis­tri­bu­tion, in­te­gra­tion with many ser­vices, and the po­ten­tial to spin off from GO-JEK.

Hall also flagged the US$25M round by Sin­ga­pore-based peer-to-peer lend­ing firm Fund­ing So­ci­eties that was led by Softbank as one of the deals that high­lights the fi­nan­cial tech­nol­ogy sec­tor’s strong show­ing so far in early 2018. From al­ter­na­tive fi­nanc­ing plat­forms, mi­croin­sur­ance to pay­ments, “this ver­ti­cal will con­tinue to see strong growth over the next two to three years, es­pe­cially as play­ers con­sol­i­date and/or get ac­quired,” he said.

Blockchain’s po­ten­tial

Whilst Lim ac­knowl­edged that the ride-hail­ing and fi­nan­cial tech­nol­ogy sec­tors have been par­tic­u­larly ac­tive, he said the blockchain sec­tor will join tech­nol­ogy as likely the largest re­cip­i­ents of ven­ture cap­i­tal fund­ing mov­ing for­ward. “We ob­served a surge in ven­ture cap­i­tal in­ter­est in crypto-re­lated in­vest­ments,” he said. “An in­creas­ing num­ber of ven­ture cap­i­tal funds are be­ing cre­ated with spe­cific ob­jec­tives of in­vest­ing in star­tups fo­cused on the blockchain tech­nol­ogy.”

“Based on our in­ter­ac­tions with peo­ple in the ven­ture cap­i­tal sphere, it ap­pears that many ven­ture cap­i­tal firms are set­ting up spe­cific fo­cus groups to look into po­ten­tial crypto-re­lated in­vest­ments, for fear of miss­ing out on the crypto band­wagon,” Lim said, adding that other ar­eas that are in­creas­ingly gain­ing in­ter­est amongst ven­ture cap­i­tal firms are the med­i­cal tech­nol­ogy and ar­ti­fi­cial in­tel­li­gence sec­tors. In 2017, sev­eral big ticket ICOS snagged mil­lions out of Sin­ga­pore’s ICO boom, with the likes of Tenx ($80m), Golem ($8.6m) and Qtum ($15.6m) amongst those to have held ICOS from the coun­try.

Ma­tur­ing ecosys­tem

The deep­en­ing of ven­ture cap­i­tal in­ter­est in the lo­gis­tics and fi­nan­cial tech­nol­ogy sec­tors, as well as a broader range of emerg­ing ar­eas, is un­der­pinned by Sin­ga­pore’s ma­tur­ing ecosys­tem. Sin­ga­pore saw ven­ture cap­i­tal in­vest­ment rise to a record level in the first quar­ter of 2018 de­spite a rel­a­tively muted level of ac­tiv­ity. “It is tes­ta­ment to the ma­tur­ing of Sin­ga­pore’s ecosys­tem that a busi­ness such as Grab could be built here to tackle the re­gional mar­ket,” said Chia

Tek Yew, head of fi­nan­cial ser­vices ad­vi­sory KPMG in Sin­ga­pore.

Sin­ga­pore’s ma­tur­ing ecosys­tem will also present ven­ture cap­i­tal funds an op­por­tu­nity to ex­pand more ag­gres­sively into the grow­ing South­east Asian mar­ket, said Che­ung. “The funds sought will be larger and geared to­wards mar­ket ac­cess and client ac­qui­si­tion,” he said, not­ing that ven­ture cap­i­tal com­pa­nies in Sin­ga­pore will con­tinue to lure funds from a wide range of in­vestors, in­clud­ing fam­ily of­fices as well as multi­na­tion­als and con­glom­er­ates seek­ing to di­ver­sify their tra­di­tional busi­nesses.

“Com­pa­nies raised ven­ture cap­i­tal fund­ing for re­gional and global ex­pan­sion as th­ese com­pa­nies raised seed money in re­cent years to build their busi­nesses mainly in the Sin­ga­pore mar­ket,” added Che­ung. “With still low in­ter­est rates and glob­ally syn­chro­nised eco­nomic growth, there is a strong need for ven­ture cap­i­tal to de­ploy funds and make in­vest­ments.”

Lim fore­sees “sig­nif­i­cant” ven­ture cap­i­tal fund­ing to con­tinue flow­ing into Sin­ga­pore in the re­main­ing months of 2018. “Many star­tups in Sin­ga­pore have reached a stage where they are now ready for larger rounds of fund­ing to em­bark on re­gional and global ex­pan­sion,” he said.

Sin­ga­pore, which is seen as the gate­way to South­east Asia, is also ben­e­fit­ing from the re­gion’s ris­ing promi­nence in the ven­ture cap­i­tal scene. Hall noted the rise of Chi­nese in­vest­ments into Chi­nese en­trepreneurs across the re­gion, es­pe­cially in In­done­sia, as seen in Ru­pi­ah­plus and Aku­laku.

In its state­ment after back­ing the lat­est round of Fund­ing So­ci­eties, Softbank Ven­tures Korea said it has been ac­tively in­vest­ing across South­east Asia. “Small and medium-sized en­ter­prise dig­i­tal lend­ing across South­east Asia is where we saw a huge growth po­ten­tial,” it said.

En­gines roar­ing

After a strong start, ven­ture cap­i­tal ac­tiv­ity in Sin­ga­pore will re­main ro­bust for the rest of 2018 due to the launch of more early-stage (seed and Se­ries A) cor­po­rate ven­ture cap­i­tal funds and the re­group­ing of ven­ture cap­i­tal funds to fo­cus on later-stage (Se­ries B to D) deals, said Che­ung, adding that ac­tiv­ity will co­a­lesce around ar­ti­fi­cial in­tel­li­gence, auto tech­nol­ogy, and health tech­nol­ogy.

The ven­ture cap­i­tal mar­ket will likely grow fur­ther this year with more lo­cal star­tups can­vass­ing for funds, said Mar­cus Chow, part­ner at Bird & Bird ATMD, cit­ing a KPMG re­port that ac­tiv­ity should main­tain its strong pace in 2018. “Many of th­ese start-ups which had in ear­lier years got­ten seed fund­ing, par­tic­u­larly from gov­ern­ment schemes, may be seek­ing their Se­ries A or B fund­ing,” said Chow.

Hall is “ex­tremely bullish” on his near-term out­look on Sin­ga­pore’s ven­ture cap­i­tal ac­tiv­ity. “We see at least a dozen growth stage funds com­ing on­line within the next 12 months.”

The vi­a­bil­ity of strong ex­its in the re­gion will be a key theme in 2018 and the medium-term hori­zon, Hall

added. “The for­ma­tion of growth-stage funds and the vi­a­bil­ity of pos­i­tive re­turns from lo­cal and re­gional ex­its will de­fine the re­gion over the next two to three years,” he said.james Tan, manag­ing part­ner at Quest Ven­tures also ex­pects large rounds to con­tinue to dom­i­nate head­lines, and for an­gel syn­di­cates driven by ex­pe­ri­enced an­gel in­vest­ment net­works such as BANSEA to gain preva­lence. In ad­di­tion, he an­tic­i­pates a “re­ju­ve­na­tion” of seed stage deals which slowed down in 2017.

Tal­ent and deal ri­valry

With ven­ture cap­i­tal ac­tiv­ity poised to boom, com­pe­ti­tion for both tal­ent and deals is heat­ing up. Tan said that the most no­table ven­ture cap­i­tal ac­tiv­ity in 2018 so far would be the en­trance of cor­po­ra­tions into ven­ture in­vest­ments, par­tic­u­larly from Se­ries B on­wards. But Che­ung noted that cor­po­rate ven­ture funds across the city-state are find­ing it harder to at­tract and re­tain the right tal­ent, and risk los­ing the best deals to tra­di­tional ven­ture cap­i­tal firms, all whilst hav­ing to an­swer to more stake­hold­ers.

For Hall, the pri­mary chal­lenges faced by Sin­ga­pore’s ven­ture cap­i­tal scene lie not in the lack of growth fi­nance, but in the rel­a­tive lack of ex­its. “That’s re­ally the only thing the re­gion is lack­ing now, but I strongly be­lieve we’re go­ing to see a sig­nif­i­cant uptick within the next two years,” he said.

Tan, mean­while, iden­ti­fied the threat of ini­tial ini­tial coin of­fer­ings, or ICOS, which could have a “global neg­a­tive rep­u­ta­tion flowover and im­pact” on Sin­ga­pore’s brand. “There are ques­tions raised as to the fu­ture role of ven­ture cap­i­tal firms, es­pe­cially if ICOS be­come an ef­fec­tive and sus­tain­able av­enue for star­tups to raise funds as a cheaper and faster al­ter­na­tive to ven­ture cap­i­tal fund­ing,” said Lim.

He added that whilst ven­ture cap­i­tal firms are seen as a chan­nel for in­vestors to ob­tain stakes in pri­vate com­pa­nies, the re­cent ICO surge by startup com­pa­nies could put the es­sen­tial role of ven­ture cap­i­tal in doubt. In 2017, Sin­ga­porean Fin­tech start-up Tenx in 2017 raised ap­prox­i­mately US$80M through an ICO.

The Sin­ga­pore gov­ern­ment has been try­ing to ramp up sup­port for ven­ture cap­i­tal funds, Che­ung said, mainly through at­trac­tive in­cen­tives, in­clud­ing re­duced reg­u­la­tory red tape, in­creased in­tel­lec­tual prop­erty pro­tec­tion and al­lo­cated funds for early in­vest­ments.



Ken Che­ung

Chia Tek yew

Kenn Lim

jus­tine Hall

Source: Ven­ture Pulse, Q1’18, Global Anal­y­sis of Ven­ture Fund­ing, KPMG En­ter­prise

Q1’18 top deals dom­i­nated by tran­spor­ta­tion

james Tan

Mar­cus Chow

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