Don’t get caught in the missing middle

Piyush Chaplot is currently the Vice President of Finance & Investments at Innosight Ventures and a Director at Chope. This article is an edited version of the original on his blog. You can follow him on Twitter: @PiyushChaplot.

Can you find a place on this planet where it is easier to start a venture than Singapore? Thanks to various schemes by government bodies like National Research Foundation, SPRING Singapore and other agencies, you have at least 25 different sources of seed capital (read An overview of angel investing in Singapore). You can even get enough grants to keep your company alive for the first few years. In my personal view, if you can’t raise seed money here, you do need to seriously think about your chances elsewhere.

But the real drama starts AFTER you have raised the seed money. Most people believe that half a million dollars is enough to take the company to the next level. Hard to disagree if you are a couple of graduates working on a cloud-based application or a mobile app. But not all startups fit that bill. If we want to build serious technology-based startup companies in Singapore, then we are looking at much higher monthly burn rates and/or much longer incubation periods.

If we look at emerging markets around us, there is so much opportunity in solving real needs of the masses. But all we are busy doing is creating these lite web and mobile-based products which most of the times are clones of startups in America. Hard to see solutions around that can have real targeted impact.

One of the reasons why we don’t see innovative technologies around is because those few who tried in the past failed miserably. Some of them failed because they had poorer technology but some failed because all they could develop with seed money was a prototype or a not-so-commercially viable product. Most sensible people would now ask – “Why were they not able to raise more money to continue developing or marketing their product?” This is what gives me a pause. Try raising a follow-on funding with a prototype in hand. Most follow on investors in Singapore are “Growth” investors and their first question: “How much is your revenue?” Most rejection letters would be worded around these four words – “too early for us.”

We either have lot of seed stage investors or lot of growth stage investors. Who is going to invest in between? Can the government do something about either enabling seed stage investors to move beyond this half a million limit or encouraging growth stage investors to take more risks by de-risking their pre-growth investments?

Until something happens at the government level, what would you do if you are thinking about starting up a company that needs more capital and time. I don’t have the perfect answer for you. But you can try creating a syndicate between everyone who you can rally together. Find angels and/or strategic corporate investors who are willing to co-invest with incubators. There are some exceptional firms like Walden who do invest in pre-growth. Infocomm investments probably would be willing to co-invest if you have a lead investor. You could try some Global Investor Programme funds listed here because they are required to make some early stage investments in Singapore-based companies to get tax exemptions. You can also think about leveraging research assistance from agencies like A*Star (a Singapore government agency focused on research).

It is not easy but you can’t do ordinary things to build extra-ordinary stuff. The effort required would also be extra-ordinary. Just be mindful of the missing middle.

Image credit: tsakshaug

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