Malaysia's digital economy is similar to Singapore and Brunei.

Recently, I was invited to speak on entrepreneurship and consumer Internet trends in a private event hosted by Penn Olson during Startups in Asia, which happened from 2nd to 4th February.

In this article, I will highlight additional perspectives to shed greater light on the ideas presented during my talk, which gave the audience a better grasp on the consumer internet space in Southeast Asia.

Two clusters of economies in Southeast Asia, based on mobile and Internet penetration rates

Glancing at the mobile and internet penetration rates in ASEAN countries, we see two prevailing trends (see slide 4 of the presentation provided below).

But before that, it’s important to note that the internet penetration rate is constructed based on the number of broadband internet subscribers divided by the total population, while the mobile penetration rate is calculated using the number of mobile subscribers (mobile phones are not distinguished as either featured/WAP phones or smartphones). As a result, mobile penetration rates are usually more than 100 percent, which just means that most users own more than one phone.

Taking into consideration the ratio of mobile and internet penetration rates, we see two clusters forming: The digital economies of Singapore, Brunei and Malaysia share very similar behaviour where smartphone ownership is becoming significant in the cities, while the Philippines, Indonesia, Thailand and Vietnam represent emerging digital economies where smartphone penetration are relatively low but the consumers uses social media with low mobile rates without knowing that they are accessing the Internet.

Looking at Cambodia, which may represent a potential digital economy of 53 million people, one can conjecture that it is heading in a similar direction as Vietnam or Thailand. As for Myanmar, the infrastructure must be built first before a digital economy can arise.

Missing elements in the Southeast Asia Ecosystem

I have indicated in my talk that there are at least three missing elements (and they may be more). Let’s start from the first issue: the lack of series A funding in the region of US$0.5M to US$2M. The reason why most investors avoid this funding range is because it’s a risky stage where a company can grow into a proper and sustainable entity or go south if they cannot find sustainable revenue streams.

As a result, most companies which can potentially grow will not be considered by investors. However, seed funding is readily available because the quantum of investment is low. To get a better chance of obtaining funding in this range I talked about, the company has to leapfrog and generate significant revenues quickly, otherwise it is very tough to move forward.

The second issue is the dearth of talent to scale the company. If we match founders from Southeast Asia to Silicon Valley, the difference is not that wide apart. The real difference is in the management team with people who are formerly from big companies that can help to scale the company. We read often from tech blogs about the movement of people from one big tech company to another, but this phenomenon is very rare in Southeast Asia. The reason is that most start-ups cannot afford the lifestyle of these executives and the opportunity of exits are very minimal.

The last issue relates to most VCs in Southeast Asia: A lot of them are former financiers and not really business operators by experience. We cannot fault them for their backgrounds, but it does have an impact on how they assess companies.

To be blunt, a former banker constructs a company’s valuation by profit and loss. If Facebook was started in Southeast Asia, they can never survive. The reason is that they did not generate any revenue or profit until their pre-IPO investment round. Of course, Facebook was a bit bet and the odds of finding companies like it are really small.

But I am seeing good signs in Singapore where we have people like Meng Weng Wong (co-founder of JFDI Asia) and Batara Eto from East Ventures who are former entrepreneurs running venture incubators and are investors as well.

Photo: WhizKris

It was not a happy year for big bookstores.

In August and September 2011, Borders closed both its outlets in Wheelock Place and Parkway Parade. In October, Computer Book Centre, at Funan IT Mall, followed suit, becoming an exclusively online business.

More bad news followed in December: Home-grown book retailer Page One announced that it will close its store in VivoCity on 19th February this year in VivoCity due to high rentals. The company has been incurring major losses since its opening in 2006.

The trend continued this year, when Harris Bookstore, which is owned by Popular Holdings, told the press that its Great World City outlet will cease operating, coincidentally, on 19th February. High rentals, again, was to blame.

Harris is now left with one outlet in 313@Somerset, after the company’s Jurong Point bookstore shuttered for good in 2011.

The rate of closure of bookstores recently has been startling. That’s six stores in seven months.

But while the stated reason has been the unforgiving rentals, I suspect it’s masking the true cause — their revenue just isn’t enough to cushion any spike in rentals. The profit margins, it seems, just isn’t what it used to be.

While it’s difficult to determine whether the Internet and the increasing popularity of e-books have directly resulted in the declining sales of physical books, I can safely say that the golden age for mass book retailers has long passed.

Why waste two hours making a trip down to a bookstore when I can easily find what I want on Amazon and get it shipped to my house? Why carry ten books around when I can store a hundred on my iPad?

Physical books will never go extinct, that’s for sure. Just like how radio stations are continuing to exist today in spite of the television and the Internet. Some people will always prefer the experience of flipping through a physical book. But this group is a diminishing breed.

Meanwhile, small, independent bookstores seem to be hanging on. What a turnaround from more than decade ago, when movies like You’ve Got Mail portrayed independent bookstores as being threatened by retail giants.

In Singapore, small book retailers like BooksActually, Woods in the Books, and The Pigeonhole continue to draw a cult following. BooksActually has even experienced a 30 percent sales increase since last year, the owner told The New Paper.

But as consumers continually warm to the idea of e-books, online retailers, and their obvious benefits, will independent bookstores eventually come under threat too?

How these small businesses innovate is key.

The Pigeonhole’s business model may possess some answers. It does much more than sell books — it bills itself as a multi-use space for holding events and dining in. It’s a place that provides a cosy environment for people to eat and network, thereby addressing a fundamental need. These activities can never be totally replaced by the Internet, not for the foreseeable future.

BooksActually is adopting a different strategy to stay afloat. Instead of just stocking books, it has positioned itself as an important facilitator for the growth of the Singapore literary scene. It provides a venue for events like writing workshops and also acts as a publisher of local works.

The company also stocks eclectic items and memorabilia which brings to consumers a sense of nolstagia. I remember visiting an outlet once and coming across vintage Pez dispensers and “country erasers”, which has doubled as a childhood game that is popular among boys.

The pleasant experience of browsing the store and discovering these little delights is an intangible element that online retailers can’t quite duplicate. In a country where important landmarks are frequently bulldozed over, BooksActually provides customers a sense of rootedness to an increasingly murky past.

What is clear is that physical bookstores that only serve the utilitarian function of selling books will not do well in the digital age. If browsing is all customers want to do, they’d might as well do it online with a web browser and the search button.

Therefore, modern book retailers must think harder about how to entice customers to their stores. Just “selling stuff” doesn’t quite cut it anymore.

Kinokuniya, Times, and MPH should consider themselves warned.

Photo: Chicago Geek

Facebook is the ultimate acqhire company.

Acqhire is the new buzzword referring to an exit strategy when big tech companies purchase small companies, primarily as a talent recruitment strategy, sometimes with a significant signing bonus.

So far, to the best of my knowledge, it only happens in the US.

Facebook is probably the most well-known company involved in such takeover types. It started with several companies: Friendfeed, Beluga and most recently, Gowalla. Several investors (or tech pundits) for example, Mike Arrington & Jason Calacanis have provided their perspectives on the acqhire issue specifically on the Gowalla case. Hence I thought it might be interesting topic to examine in Asia.

In my own humble opinion, I don’t think that it will ever happen for tech companies in Asia and here are several reasons why:

Your investors do not know how to sell.

Most venture capitalists in Asia are not sophisticated enough to sell their portfolio of companies to potential acquirers. So, do you think that they are smart enough to structure a acqhire deal with the companies? Another argument is that in the web-tech space, the big four companies (Google, Facebook, Apple & Amazon) together with Microsoft are all located in the US, and hence it’s difficult for Asian investors to get them to acquire.

While we see more Chinese & Japanese companies extending their reach to Southeast Asia, the investors are rarely involved in structuring these acquisitions. Usually in Asia, the entrepreneurs do the work most of the time. Time and time again, it’s easier to remind most readers that most venture capitalists in Asia are a bunch of bankers who have no operations experience and that’s why they cannot structure deals in the way how the US guys does it.

Less frequency of acquisitions for tech companies in Asia due to technology arbitrage and pricing.

First of all, most owners of Asian companies or conglomerates are thrifty and less expansive in their acquisitions. Our environment is less sophisticated as compared to Silicon Valley. Most conglomerates purchase for functionality and not the complete package that comes with the acquisition, which include talent and other assets of the company which are not exactly functional, like a sales and marketing division.

Facebook’s rationale for acquisitions like Gowalla and Friendfeed, on the other hand, is to hire talent for Facebook.

They will put a price on the founders and then pay the rest with the stocks of the parent company. That’s also the reason why Twitter rejected the bid from Facebook four years ago, because the amount for payout was too low, based on rumors at that point of time.

As far as obtaining expertise goes, Asian companies prefer to build the same technology by outsourcing to a Chinese or Indian firm, as it’s cheaper. Hence the tech arbitrage is the costs in cloning the same company overseas as opposed to locally.

Asian companies only buy one talent and not an entire team of players.

To an Asian owner, it’s too expensive to buy a team. Just buy the top guy and that’s enough. In Silicon Valley, if we examine the acqhire cases, they usually involve the acquisition of teams of engineers. One case stood out in Asia was the acquisition of Ngmoco by DeNA, and the sole reason was that the founder was a former employee of Electronic Arts.

In conclusion, it is not difficult to fathom why acqhires are ridiculously difficult to execute for Asian companies in simple words: sophistication, arbitrage, price.

Image: Andrew Feinberg

There has been strong resistance against both bills not just from many technology entrepreneurs from the start-up space but also from multi-national companies such as Amazon, Google, Microsoft, Twitter and Facebook.

The aim of this post is to explain what SOPA and PIPA really means for us and why we are not supportive of such legislation for economic reasons if our Minister of Law decides to propose it as a bill in the very near future. It’s not just a Singapore problem but a Southeast Asia problem if it gets passed thru in Singapore.

To put it simply, here’s what SOPA and PIPA seek to do: the laws will be enacted “to minimize the dissemination of copyrighted material online by targeting sites that promote and enable the sharing of copyright-protected material, like The Pirate Bay.” If the act is enacted, a few steps will be taken to limit access to rogue sites:

(a) bypassing the “notice and takedown” method of copyright infringement on internet services (for example, the Pirate Bay) and require the Internet service providers, or ISPs in short (in Singapore: M1, Starhub and SingTel) to police content uploaded by users or prevent users from uploading copyrighted content,

(b) require ISPs to change their DNS servers and block resolution of domain names of websites that host these illegal content (i.e. movies or TV shows),

(c) require search engines to modify search results to exclude websites of such nature,

(d) order online (including mobile) advertising services (Google AdSense, InMobi) and digital payment services (Paypal, Square) to cease business with websites of such nature.

The reason why most major internet companies oppose to the act is simple. SOPA and PIPA changes the liability rules around copyright infringement. The Digital Millenium Copyright Act of 1998 in which Singapore has signed on a stronger version (during their free trade negotiations with the US) states that companies are protected from charges of “contributory infringement” on content uploaded by users as long as the company follows up with the process of removing the content which infringes copyright when an alert process is signalled.

Here’s how it works in real life: suppose a user of the ISP uploads a video that infringes copyright, the ISP will be alerted by the relevant authorities to remove the content. SOPA changes the former arrangement, and now user-generated content sites like YouTube or Twitter have to worry about copyright due to contributory infringement when a rogue user deliberately uploads content to these user generated content sites.

The burden of reviewing every blog post, tweet and video submission is impossible to manage for any company. This is similar to the situation in China, where video sites such as Tudou have to hire people to monitor content uploads 24-7 to ensure that no sensitive political content is uploaded.

SGE‘s opposition against SOPA/PIPA legislation is not focused on freedom of speech arguments which have been brought forward by many digital advocates. You can read about these elsewhere. Our concern is that such legislation has profound implications to our economy.

First, the legislation breaks the internet architecture and subjects our ISPs to undue stress of monitoring all forms of user-generated content. The current procedure that the ISPs use to remove illegal content is sufficient to protect copyright. However, if SOPA or PIPA legislation is enacted through the Singapore parliament, the ISPs would have to waste resources to monitor internet traffic.

Second, the Singapore government has devoted a lot of resources to nurture in our country the next Facebook and Google or sites that might create great impact like Wikipedia or any user-generated sites similar to YouTube and Twitter. By allowing such a legislation, innovation within the local tech and creative content industry will be reduced. Think of a young, talented pianist applying for a top music school and producing a YouTube performance of a song which is well known. The pianist can get sued for copyright infringement even if the content is being re-mixed.

Last but not least, Singapore is currently the digital hub for most of the large MNCs (Google, Facebook and Microsoft) for the whole Southeast Asia region. All these companies are mostly anti-SOPA, and by enacting such legislation, it may force these companies to relocate their companies’ SEA headquarters somewhere else. That will mean that our economy will slow down and lose the jobs created by these companies.

For all of you who want to help out, please go to the Facebook page of our Law Minister and register your objections in a respectful manner so that we will have not such a legislation knocking our doors. It may be good to check out this post by Xu Si Han who initiated the call to me and the rest of the tech community to step in and declare a resounding no to SOPA/PIPA like legislation.

Lastly, this is not just a Singapore problem but a Southeast Asia problem at large. If Singapore passes such a legislation, it’s very likely that everyone around the region (Indonesia, Malaysia, Thailand, Philippines and Brunei) might follow suit. Hence it might make the whole region less viable for the investment that will transform the region to be like China and India.

All in all, SGE does not support SOPA/PIPA.

References:

[1] ChannelNewsAsia, Healthy IP environment contributes to creative economy.
[2] K Shanmugam Sc Facebook Post
[3] Tim O’Reilly: Why I’m fighting SOPA
[4] Joi Ito: Why we need to stop SOPA and PIPA and Ethan Zuckerman, MIT Media Lab opposes SOPA, PIPA.
[5] Cato @ Liberty: SOPA: An Architecture for Censorship.

Image: Andréia

Writing to US tech blog TheNextWeb, he talked about the reasons why he left the Latin American country after six months, and highlighted the many drawbacks of the startup environment over there. This was after he proclaimed that “the next Skype, Facebook or MercadoLibre will have to come out of Chile.”

The interview sparked off an intense debate.

A Start-Up Chile participant wrote in to TheNextWeb to express disappointment at Arnon, questioning his commitment to Latin America. Sarah Lacy, formerly a columnist at TechCrunch, went even further, suggesting that Arnon is a fraud.

“Arnon Kohavi. Remember that name, don’t give him money and don’t let him invest in your startup,” she warned in her acerbic article.

But Arnon has many supporters too, which included many Chileans who agreed with his observations and even supported his decision not to put any money in the country.

Since that controversy, Arnon has been quietly spending the past three and a half weeks in Singapore, meeting people in the startup ecosystem, including entrepreneurs, investors, incubators, and public servants. He was even a judge at a Founder Institute event and was also involved in the recent DEMO Asia auditions.

His goals, he says, includes getting “a good sense of the ecosystem and how each group in each country relate to one another,” and also raising money from individuals and institutions both in Singapore and the region, to the tune of US$40M.

SGE: So how’s progress on the fundraising?

Arnon Kohavi: Well I’ve only spent a few weeks here so it’s more to learn, meet the people and understand the ecosystem. I’m starting to make trips outside of Singapore to the countries in the area. In the coming weeks, I’ll be going to be in India, Vietnam, Indonesia, and several other countries.

SGE: When you do raise the funds, how many startups are you planning to invest in?

AK: A VC fund in this region needs to do “seed plus” investments — invest in 20, 30 fairly early stage companies, and then keep funding them as they grow and show promise.

I would say the funds here needs to invest in more companies than the traditional VC in Silicon Valley. The reason is because you have to hold the hand of the company, you have to work with the company from a fairly early stage, because there’s not as many co-investors and syndication as compared to other countries and you don’t have bigger funds take over the investments because these funds don’t exist as much.

In Silicon Valley, the magnitude is bigger, so you have a lot of meetups and events, much more than anywhere else in the world, so you can easily talk to people, find people to join your startups. It’s very easy to get mentors and serial entrepreneurs to help. There’s a very developed angel network and a very developed early stage VC network. The critical mass and the ecosystem is there.

Also, Singapore needs to look at Israel as a model and not Silicon Valley because Israel is also far away from the markets like Singapore is and it’s a fairly small country. What you need is this network of people in the funding side, the mentorship side, the advisory side, the legal side, and so on.

SGE: So having spent three-and-a-half weeks here, what’s your sense of the tech startup ecosystem in Singapore, and how do you think it can be improved?

AK: It’s a small but growing ecosystem. There’s a lot of programs that government is providing. There’s a sense that people are expecting things to grow in the future.

What Singapore needs is a relatively large, successful exit, what I call “The ICQ Moment”, which happened in Israel. Because when ICQ was sold in Israel, every young person wanted to start a company because the guys who were very young each made a hundred million dollars. They became role models. So I think what you need to have here is a big success, so that young people don’t go to work for banks or big companies but they say: “I want to start a company”.

SGE: How would you define an  ICQ moment, how big a success is needed?

AK: I think even a 50 million to 100 million dollar exit as long as the founders still have a big equity in the company. If a fairly young guy made five to ten million dollars, that’s probably going to make an impact on other people. You don’t need a Facebook-sized exit. Or the exit could be in an area that’s very impactful and you get a lot of press, and become sort of like a celebrity because you created something special. Maybe like Creative, 20 years ago when Singapore had a few companies that were very well known outside of the country.

SGE: What’s your take on the entrepreneurs in Singapore?

AK: It’s irresponsible for me after three-and-a-half weeks to have an firm judgement. But what is encouraging in Singapore is that it’s like a melting pot. It’s not just about Singapore-born people, it’s also about foreigners coming here and working from here. It doesn’t really matter who is successful, whether it’s an American living in Singapore, an Indian living in Singapore, or Singaporean. What matters is that the company will be based here, or the headquarters will be here, and it’s encouraging that you are seeing entrepreneurs from different countries who are now based here.

What I noticed that’s important about Singapore is that startups need to focus more outside the country. The Singapore market is too small, and also different, because it’s a developed country, you cannot learn what you did in Singapore and use it in Jarkata and other markets, even Kuala Lumpur is no good.

If you want to do startups that’s focused in Indonesia, you should immediately go to Indonesia and not try the product in Singapore. That is what we do is Israel, very few Israelis try their products in the local market, because it will not give you any indication. It’s very easy to reach success in Singapore, but that does not give you any indication of success in the world.

SGE: What are the gaps in terms of funding and mentorship?

AK: There are some programs by incubators and institutes that are good but there aren’t enough serial entrepreneurs in Singapore. Some of the best mentorships are not necessary by foreigners coming here but by local entrepreneurs who are successful and they invest and they’re involved. It still hasn’t happened here because there hasn’t been many exits.

My observation so far is that there’s a lot of incubators and money in the early stage and money for more established companies. But what’s missing is — and this is what I’m trying to target — is the A, B round, or late seed A, B round. This gap in the middle is where a company is beyond the idea stage  and has already raised 50,000 to 100,000 dollars. But between 100,000 dollars to 2-3 million is the part where it’s hard to raise money.

SGE: How far do you think the government can go in spurring tech entrepreneurship here?

AK: In general, it’s good to have government programs like Israel had. However, in the end the governmenet cannot create an industry, the private sector needs to be involved. So, for example, to create a vibrant VC industry you need institutional money — pension funds, and other institutions who invest in this asset class.

When you look at a market like Israel — the government helped but they did not create the industry. The industry was created because there was a lot of MNCs in the country and the people left the companies to start their own. There were enough people in the private sector who gave money and took a chance. It’s more an issue of business poeple and instutions in singapore taking a risk with technology. Historically the focus here has been in real estate and other things. People need to realize that technology can be a very profitable investment.

SGE: There’s been a lot of controversy about your short stint in Chile, and some have said that you gave up too easily on the country and were never serious about investing there in the first place. Is that true?

AK: I made a lot of friends in Chile, I like Chilean people, and the most successful entrepreneurs in Chile are friends of mine. My point is, things are going to take time, government initiatives like Start Up Chile are good programs, and they address some of the issues that Chile faces. But not others. Some of them are cultural aspects that would take some time, ten years or even a generation for the young people who are now 20 to turn 35. That’s why I said it would take ten years.

Now, no one paid me to move to Chile. I moved to Chile on my own money, and I had to fund myself. As a businessman, I said after six moneths I will determine if I can do business there or not. And I think it’s legitimate that after six months, if I feel that I cannot do business, then I cannot stay there for ten years hoping things will change. I think it’s up to Chileans to do that. I hope to invest in Chile, to come back when Chile is ready.

I think it is clear that I was not successful in what I was trying to do, and part of being entrepreneur is to admit when sometimes you’re not successful. I was not successful and there was a variety of reasons. But I think it was important for me to point out especially for my Chilean friends some of the observations that I had after living there for a long time to give them this feedback via the blog. Most Chileans were very appreciative, I got very, very positive responses from Chileans who said that I did point out the correct things.

SGE: Obviously the environment factored in, but were there other reasons why you failed?

AK: I was counting on the wealth that was created in Chile, especially wealthy individuals that I knew and were connected to through some friends. I was hoping that these people would find that the time is ripe for them to take a chance and invest, but it seems that they were not ready.

When the Israeli venture capital industry started, the initial investments and funds came from individuals — wealthy families and wealthy people. But the wealthy families in Chile are not ready to make a serious investment. I think it’s an evolution, they have not seen an ICQ moment. They are too comfortable, they make a lot of money from copper and natural resources and in many areas the society is very monopolistic, very few families control many industries.

So they’re making enough money and to a certain degree they don’t care. But it may change; my hope is that there will be a generational shift and that the people aged 20 to 25 who are starting companies will become successful. And in ten years they’ll make good money. Then, the situation will be different.

SGE: Was six months enough time?

AK: Six months is enough to understand the culture and society and the responses from my Chilean friends is that I touched on the right points. I think I have a very good understanding of Chilean society now. In the tech world, six months is a long time, you can get a feeling of whether you want to stay longer or not. I still hope to invest in Chile and work with Chilean entrepreneurs but I realize that to raise funds there would be difficult.

SGE: Funding wise, what’s missing in Chile?

AK: There are some serial entrepremeurs in Chile that are providing mentorship. But the part that’s missing in Chile is exactly the part that’s missing in Singapore, which is the late seed, A/B rounds. Once you are very successful you can raise money from a foreign investor. People in government, people in the tech, local ecosystem all believe that’s the missing spot. And that’s why I originally went there.

SGE: But it’s difficult to attract foreign investors to Chile, isn’t it?

AK: Yeah, Chile is a small country that only has 17 million people. So, most foreign money in Latin America goes to Brazil. The challenge Chile has is that in terms of foreign investment, Chile is not the top priority. It’s the same for Singapore, most foreign funds have offices in China and India rather than in Singapore.

SGE: Now that you’re here, how committed are you to Asia?

AK: I’m committed to companies that I invest in and the entrepreneurs that I work with, regardless of where they are in the world, in Chile, in Singapore, whatever. It doesn’t matter where I physically live, I think it is important to spend time in the country to understand the culture and the ecosystem. But you don’t have to be there all the time. I’m a businessman, I’m committed to making good investments and in the end to make good money. I’m very open about that. I’m exploring this region and where I find good and interesting opportunities, that’s where I’m going to put my money.

SGE: Any companies in Singapore that you might potentially invest in?

AK: Yeah, I’ve seen a few interesting companies, even here in Singapore. I’m looking at some already.

End.

Recently, a lunch treat with a couple of friends brought up an interesting discussion on how much we should pay interns in a start-up. Given the dearth of talent in Singapore as many claimed, one solution is to look for inexperienced and passionate people, and they usually come from the tertiary institutions (universities and polytechnics). The aim of this article is to establish some principles in setting up a reasonable pay scheme for interns in a start-up.

Here’s the story. A few start-ups took part in an internship program and offer positions to various candidates. Each one arbitrarily decided the salary which they would pay an intern. Let’s put a few numbers up first before we continue on. The pay ranged from S$700 to S$1.2K per month and no company actually spoke with each other on how much they were paying.

The average worked out to be about S$900-S$950, based on the range offered by the start-ups. The minimum market rate pay for a polytechnic internship is advised to be about S$400 a month and university undergraduate at about S$550. Just to compare, an investment bank internship (which is possibly the highest-paying one) would cost about S$1.6K per month.

All these benchmarks do help us get a sense of what the right pay is. Of course, in a year’s time, thanks to inflation coupled with demand and supply, the numbers will change. But you can use a discount rate using the time value of money to work out the numbers then.

The best and the brightest who are going for a career in banking, consultancy or a job in any major corporation will never work for a start-up. That’s a very competitive area. So you’ll probably have to rule out that group of people. Because an internship in a bank is so lucrative, a lot of students will apply.

So, if a student comes to you and tells you that he or she plans to work for an investment bank or consultancy firm, you should probably rule this student out from your start-up. It’s nothing personal, but the student will never fit the mold in a start-up. If you drop into the second tier, you are probably going for those who could not get into the banks and just take anything that comes along. The same principle applies and you should not hire them.

So, where do you go from here?

In the end, you are only left with three types of students which will come to the start-up. The first group is self-selected: They are going to start a business later when they graduate and are totally motivated in what they do. I don’t have the whole dataset but when I first surveyed students who I have taught in different universities, most of them either have one parent or relative who are business owners themselves (not necessarily successful). This group has a lower resistance towards risk taking.

The second group consists of people who want to learn but they are not the type who will end up working for a bank because they either don’t have the grades, or sometimes, connections to get their internships.

The third group are just people who figured out that they want to join a bank later in their lives, but want to experience what it’s like to be in a start-up. All three groups have their own risks and benefits.

With the above in mind, here are two methods to determine a pay structure for an intern in a start-up.

1. Apply the principle of consistency on how you pay employees and interns in a start-up.

That’s the principle I have used. When an employee joins a start-up, they don’t get a lot of benefits such as healthcare or perks. Any employee will think in an one year horizon, but their actual period of survival for employment is 9 months. The reason why Silicon Valley can attract a lot of people to start-ups is because of the equity or stock options vested.

So, the employee suck it up in the US and bet that the company will succeed. This does not work in Singapore, because I have not met a single employee who actually believes in that. To deal with the volatility, structure the intern’s pay to be about 15-20 percent above the market value.

However, for the employer, this is very painful because it increases your burn rate drastically. So, why 15-20 percent? The reason is that as an employer, you need to have a consistent set of rules in treating your employees and your interns. There may be situations where the intern is so exceptional that you raise the payment to 50% above the market rate. Before you do that, you must ask yourself, “What would my other employees think if I do that?”

You may think it’s a trivial matter but it has implications on your team. Using a consistent principle to determine the pay of an intern and an employee will not cause any form of morale loss within the the company.

2. Take 70% of the top rate to match the big companies and offer the student more opportunities to experience what a company is like.

I have seen this done in UK start-ups, except that the top limit can be very high. If you are a company in the Series A stage, you may be able to do that. A company in seed stage or in bootstrapping mode might not. You do need to be clear what you are offering to the student. It’s not about pay but the experience and enjoyment of doing what you like.

In the end, how you determine the intern’s salary really depends on how you think about the quality of graduates here. One more interesting scenario for all start-up founders out there: What if you bring an intern from a top university such as Stanford, Cambridge or Waterloo? The rate is usually S$2K including housing per month.

This amount is used as a benchmark by one of the founders I know to price interns from NUS, NTU and SMU: He cuts the price in half (excluding housing), because in his opinion, the interns are not as good as what he has seen out there in Silicon Valley. However, he has made exceptions and increase the pay to the same rate when the intern demonstrates the same kind of competence as compared with the top talent out there.

Author’s Note: The author thanks Laurence Putra Franslay and Sharon Lourdes Paul for the discussion on the topic. :)

Image: Sean MacEntee

With China and India hogging the limelight when it comes to entrepreneurship, it’s easy to forget that something is brewing in Southeast Asia.

Quietly but steadily, geek culture within the region is maturing, creating a suitable environment to nurture the next generation of technology entrepreneurs. A key indicator of this trend is the rise of permanent spaces which provide a comfortable environment for entrepreneurs and geeks to experiment and develop their ideas.

The first of these spaces to emerge is Hackerspace.sg, which was set up as an entirely community funded and supported initiative in 2009.

Photo: Guests interacting with Sheel (center-left) and Abhijeet (center-right) from Bessemer Venture Partners.

It is located within the Arab Street area, which contains an eclectic mix of shisha smoking joints, Indian restaurants, carpet merchants, and hip bars. A Hackerspace sign leads visitors through a door and up a staircase, into a cosy place many geeks call home.

Since then, Hackerspaces have been started all over Southeast Asia, in Indonesia, Malaysia, Vietnam, and Philippines. These venues, and the events and people that center around and emanate from them, is creating a new buzz that has caused investors to sit up and take notice.

On a Tuesday night towards the end of November, about 50 eager entrepreneuers packed Singapore’s Hackerspace, hoping to make an impression on a couple of special guests from Bessemer Venture Partners (BVP), probably the oldest venture capital firm in the world.

The event, called Chillin’ With, is a regular, intimate mixer organized by SGE for entrepreneurs, investors, and the tech community in Singapore. Chillin’ With has played host to Dr Tony Tan, now the president of Singapore.

Mingling with the entrepreneurs were Sheel Tyle, a BVP analyst based in the New York office, and Abhijeet Muzumdar, a senior associate with BVP India. They were on a trip to Singapore as part of their tour around Southeast Asia seeking investment opportunities, having also visited Malaysia and Indonesia.

Bessemer is over a century old, and has invested in major companies like Skype, LinkedIn, Yelp, VeriSign, Staples, Hunch (acquired by eBay) and many others. Embracing failure is a part of their culture, and this can be seen in their “anti-portfolio”, which lists their missed opportunities over the years (does Google sound familiar?).

According to Sheel and Abhijeet, Asia is a goldmine for angel and venture capital investment, especially in the emerging markets. While Western countries have a mature, high-income market, it is also highly competitive. On the other hand, many gaps still exist in Asia in the e-commerce and mobile space.

As such, developing countries have a tremendous upside, despite infrastructural problems and lack of talent which are major hurdles hindering entrepreneurial growth.

“Many parts of Asia are experiencing high growth in Internet penetration, which presents huge opportunities for Internet companies,” noted Abhijeet, speaking in his personal capacity. For example, Indonesians are well-known for being prolific Internet users, which is made possible by the availability of low-cost smartphones. E-commerce and social networking are some of the popular activities they engage in.

“While infrastructural challenges are present, your role as the entrepreneur is to figure out a way to solve these problems,” he told the crowd — a mixture of locals and expats.

Sheel added that while Southeast Asia is often perceived as a collection of disparate markets, we should start seeing them as one.

This “many countries, one market” approach is more applicable to Internet companies than traditional brick-and-mortar businesses. While tremendous cultural differences exist between countries within Southeast Asia, a product may not need to be tweaked too much (except language) to cater to different nationalities.

An example would be Facebook, which is essentially the same across all countries, just that it’s translated into different languages.

In addition, Internet businesses generally contend less with the varied regulatory and legal environments found in different countries as compared to brick-and-mortar business.

But cultural differences must not be entirely dismissed, since there are cases where tweaks have to be made to the business model to cater to different markets. Abhijeet brought up the example of a regional group buying site, which could adopt the strategy of having more Muslim-friend deals in Indonesia and Malaysia but less in Singapore.

Singapore’s emergence as a budding center of technological innovation has been rapid. Just five years ago, such a gathering would not have been possible. A startup ecosystem, and also angel and venture capital funding, were virtually non-existent then. The government had to build everything from scratch with the belief that entrepreneurship is necessary to keep Singapore a vibrant and progressive economy.

Through a multi-pronged approach of public sector investment in startups, a relaxed immigration policy, and a friendly regulatory environment, Singapore now has a young and vibrant entrepreneurial scene that is among the best in Southeast Asia.

While Abhijeet and Sheel praised the Singapore government for what it has done, they said that the country needs to see more exits so that startups can better attract the best and the brightest.

“Right now, the best people are still drawn to attractive jobs in big companies like Google and Facebook,” said Abhijeet.

While giving employees large stock options is a good way of retaining talent, Singapore lacks the backdrop in the tech space to make this measure effective.

“People need to see one good example of a large exit or IPO to be convinced that joining a startup is the right career move, and that stock options are worth something,” he added.

Nonetheless, Singapore is the perfect place to set up a company to reach the Southeast Asian and regional market due to its talented workforce, top-notch infrastructure, and efficient regulatory system.

A full house listening to Sheel and Abhijeet share about their insights on Asia.

Entrepreneurs in Singapore seem to be cognizant of the potential that exists in the region. Abhijeet has seen many bright entrepreneurs move to the country to set up their companies.

Examples that SGE have featured in the past include Steven Goh of mig33, who was born in Australia, then moved to Silicon Valley before finally shifting his company headquarters to Singapore.

ViKi is a startup founded by an international team in Singapore. Razmig Hovaghimian hails from Egypt while Changseong Ho and Ji-Won Moon are Koreans. They received US$4.3M in series A funding from VC firms and individuals, followed by a series B funding of about US$20M.

Singapore-born entrepreneurs are also spreading their wings far and wide. Tan Min-Liang, formerly a technology lawyer, moved to California to set up Razer in 1998, a gaming hardware company. It recently received US$50M in funding to expand into the China market.

Teo Jia-En started short-term rental site Roomorama in New York after a working stint at Bloomberg. She recently moved back to Singapore to set up an office here with the goal of expanding their presence in the region.

Chalkboard‘s co-founders Saumil Nanvati and Bernard Leong have also done well. The location-based web and mobile platform, which enables businesses to communicate with nearby customers, have expanded beyond Singapore to Malaysia and the US. They now serve close to 5,000 businesses.

These trailblazers have the ambition that goes beyond the small confines of an island — a good sign for Singapore’s young startup ecosystem, and an indication to investors that talented and ambitious entrepreneurs can arise from this country.

“It’ll be interesting to see what happens in the next few years,” Sheel said.

QR codes are beginning to enter the mainstream in Singapore, driven by the mass adoption and usage of smartphones, and I expect this trend to continue in 2012.

But while critics might argue that NFC technology will supplant QR codes, I wholeheartedly disagree. Although NFC trials are slated to start in Singapore this year, I’d wager that mainstream adoption is at least one year away (depending on whether the iPhone 5 adopts NFC). It’s likely that QR codes will remain the de facto bridge between outdoor and digital marketing for some time.

Furthermore, even if NFC does reach mass adoption, it only has a range of 4cm. This limitation will mean that both technologies could co-exist as marketing tools.

Entrepreneurs with limited marketing budgets should seriously consider implementing QR codes as they are cheap to create, easy to implement, and measurable in their impact. It imbues marketers with the ability to track performance metrics in outdoor advertising, something that wasn’t possible before.

In this article, I provide ten QR code sins that marketers and entrepreneurs should avoid at all costs. Some of these tips are taken from a whitepaper published by the Mobile Marketing Association (MMA), a global trade association for mobile marketing.

1) Treating QR codes as a one-dimensional tool

Don’t insult QR codes by limiting its potential. While I’ve seen them being used for directing consumers to a website or YouTube video, there’s so much more that can be done with them.

These include: Offering special deals and promotions, making voice calls, sending SMSes, making purchases, participating in a poll, receiving contact information, and posting messages on Facebook or Twitter.

2) Having an unclear or weak call-to-action that draws little attention

A Citibank ad spotted at City Hall MRT. QR code should be made bigger to emphasis its link with the copy. The small text should be eliminated altogether.

Good marketing copy matters when implementing QR codes. A good rule of thumb would be to use active voice as opposed to passive voice. For example, use “Scan this to receive 10% off your next purchase” instead of, “There is a 10% discount off your next purchase after you scan this.”

Also, make sure that your QR code copy is large enough so that passerbys will be able to see it immediately. If the words are as small as ants, only people standing right in front of it will be able to see the copy.

Here’s a question: What’s worse than having bad QR code copy? Having none at all, which was the case for Tony Tan’ campaign team. He was then a Presidential candidate for Singapore’s Presidential Election in 2011.

3) Providing little or no incentive for consumers to scan QR codes

While the previous point speaks to the style of QR code copy, content matters too. Another rule of thumb to follow is that the copy should answer the “why” and “how” of QR codes. Why should consumers stop in their tracks and whip out their smartphones, an inconvenience in a fast-paced society like Singapore? For consumers who don’t know about QR codes, how would you educate them?

Beyond offering consumers the pedestrian URL to your website, think about how QR codes can contribute to online conversions, your bottom line, or brand education (like Starbucks did). Your copy should reflect these aims.

In developing markets where consumers aren’t quite as educated on QR code usage, consider directing them to a QR code reader like RedLaser, which also scans barcodes, or Google Goggles, which can even scan books, landmarks, and so on.  ShopSaavy has a ‘Scan the ShopSaavy’ art that you can put on your product packaging.

4) Not drawing enough attention to your QR codes

A QR code often has to compete with many numerous other elements in an outdoor advertisement. Whether or not you decide to make QR codes the primary focus of your ad, some design basics can be implemented to make it stand out.

First, ensure adequate spacing aroundyour QR code to give it emphasis, as having too many visuals around it will distract potential customers. Second, ensure your QR code is large enough. The Mobile Marketing Association recommends using the Five Times Rule — “the distance that the user will be scanning should beabout Five Times the size of the code.” Test it out to find gauge the distance the consumer is likely to be away from the marketing material, as well as the size the QR code should be.

Finally, you can implement unique QR code designs. This Mashable article gives tips on how to design beautiful QR codes.

5) Making QR codes the only option in markets with low mobile penetration

QR codes are useless if your target market has low mobile phone penetration. In such cases, make sure you offer elements like hotlines, website URLs, or email addresses on your outdoor marketing material. Also, don’t immediately dismiss QR code usage in countries with low smartphone penetration because many feature phone these days have QR code scanners. Do your research to find out about the feature phones in these countries and whether they have native or third-party QR code scanners installed.

6) Putting the QR code in places that deter consumers from scanning

QR codes at the urinals? Hmm, not too sure about that one. Photo: Robert Nyman

Some common sense and understanding of the psychology and cultural nuances of consumers are needed here. Putting QR codes above the seats in a subway train might sound like a good idea, but think about how embarrassing it may be for them to stretch their hands out to scan a QR code — under the gaze of fellow commuters.

Putting a QR code above a toilet urinal may sound like a good idea, but some consumers might be put off with the idea of using a smartphone in the toilet, especially since it can be unhygienic.

On the other hand, putting these materials in table tops at a cafe or restaurant might be effective, since patrons are not in a hurry and are more likely to spot and scan the QR code.

It’s clear that QR code implementation must be done with sensitivity to the surroundings. Printing marketing materials wholesale without any thought to where it’s being put signals laziness from the marketer.

7) Pointing consumers to a website through an extremely long URL

According to the MMA, QR codes that contain a lot of data are harder to scan and complex in appearance. Hence using URL shorteners like bit.ly or goo.gl can help in making the data more manageable. These two shorteners even allow you to create a QR code along with the URL.

8) Using QR codes without analytics

The key advantage of digital marketing is the ability for companies to track a campaign’s effectiveness. QR codes extend this characteristic to outdoor advertisements, making it an invaluable addition to your arsenal.

Singapore-based startup QropIt (see our product feature) has a free web app that is a QR code reader, QR code generator, and analytics tool all rolled into one. A similar alternative is BeeTagg, although it’s a pay-as-you-go service.  Tagloop, a Singapore-founded freemium service, ties in both NFC and QR code solutions with analytics. Finally, if you’re a heavy Google Analytics user, this article tells you how to track QR codes with it.

9) Ignore the post-scan experience of consumers

Pat yourself on the back for creating a killer marketing collateral. But don’t forget the post-scan experience. Consumers will find it extremely frustrating to scan a QR code for a coupon only to find out that it hits a dead link or a deal that has long expired. Therefore, it’s crucial to think of QR codes not just as a standalone tool but part of a larger integrated marketing effort.

Think about it: If first-time users are turned off by your badly implemented QR code, they might never again scan another QR code. That’s bad news if you are planning on using QR codes again in the future.

One way to improve user experience would be to mobile-optimize your site. Don’t ignore the basic design elements of your website. For example, if you want consumers to buy that product, ensure that the ‘buy’ button on your mobile site stands out.

Test and optimize your web content for popular smartphones like the iPhone and Samsung Galaxy S II, tablets like the iPad, and even feature phones with QR code scanners. A new buzzword in web design is ‘responsive design’, which is a website that adjusts itself according to screen size and resolution. If your aging company website is in need of a complete overhaul, revamping it to be responsive could be a good investment.

Finally, make sure you cater to users who scan your QR code after the campaign expires. Include a message indicating that the discount coupon is void, and direct them towards the promotions section of your site.

10) Putting your QR code campaign out in the market without first testing it

This may sound like an obvious transgression, which is why some may overlook it. While a QR code is easy to implement, there are so many elements and steps to it that something may easily go wrong and go unnoticed. Make sure you test it repeatedly, taking into account the location of the QR code (what if the 3G network is spotty in the area? What if it’s monsoon season and your poster is placed in a location with no shelter?).

Ultimately, it’s a very bad idea to use QR codes just because they’re the latest marketing fad. Think carefully about your campaign objectives and whether QR codes are a good fit. Your marketing campaign, after all, shouldn’t just revolve around some newfangled tool. Leave that to the QR code startups.

Some examples of great QR code implementation here and here. Came across examples of good or bad QR code usage? Snap a picture and share it with us on Facebook, Twitter, or Google+!

Special thanks to them for their contributions to this article: Nityanand Rai, Kuek Jinhua, Rebecca Laurien, Nasrul Mukasim, Jeffrey Paine, Sudhir Gupta, and Jeff McNeill (Apologies to the rest whose suggestions didn’t make it. Maybe next time!)

Professor Dr. Wong Poh Kam here provides an overview of role of Venture Capital and Angel Investors in teh-startups scene in Singapore. It has been republished here with permission. A more detailed version of this will be published in the Annual SVCA Directory 2011/12

High-technology entrepreneurship has been identified as an important driver of Singapore’s knowledge-based economy, and increased policy attention has been given to encouraging the formation and nurturing of high-tech start-ups, especially those with significant intellectual property (IP). To this end, in 2010 the National Research Foundation (NRF) engaged me, as director of the NUS Entrepreneurship Centre, to conduct a study of high-tech start-ups in Singapore. While the survey covers many aspects of the high tech start-up dynamics, including characteristics of the founders, their sources of technology and funding, growth strategies, performance and challenges, this blog highlights some salient findings on only one aspect of the survey: the performance of start-ups that have received funding from venture capitalists or angel investors versus those that did not.

The survey focused on young ventures that started-up or began operations no earlier than 2004 (i.e. companies that were at most five years old in 2009), and that fall within sectors classified as high-technology using a definition adopted by the United States Bureau of Labour Statistics (BLS), which includes all sectors with proportion of employment in R&D exceeding the average for all sectors. Based on this definition, nine manufacturing sectors and three service sectors categorized at the 2-digit Singapore Standard Industry Classification (SSIC) level are included as high-tech sectors in Singapore.

Based on over 300 responding firms covered by the survey, we estimated that less than 10% of high-tech start-ups in Singapore have received investment from VCs or business angel investors (VCA). The majority of high tech start-ups that did not receive VCA funding reported that they faced two hurdles when attempting to raise funding from VCA. Firstly, they reported that VCA investors tend to impose harsh terms or offer valuations that are too low. Secondly, they reported difficulties in attracting the interest of such investors.

While firms receiving VC/Angel (VCA) investment represent only a small share of tech start-ups in Singapore, the survey results show that VCA-funded firms outperform other start-ups on a number of key indicators.

a) High-tech start-ups that have received VCA investment tend to be more innovative and IP-intensive

Start-ups that have received VCA investment are more likely to conduct in-house R&D (83.3% vs 51.7% for other firms). Correspondingly, they have a higher propensity to develop their own core technologies (88.9% vs 70.5%). They are also more likely to have introduced significant product or process innovations over the preceding three years[1] (76.5% vs 62.5%) and have a greater tendency to possess Intellectual Property (IP) assets (52.9% own/have applied for IP assets vs 11.5% for other firms).

b) High-tech start-ups that have received VCA investment have higher employment growth…

Start-ups that have received VCA investment experienced much higher employment growth rates since their first year of founding (329.8% p.a.) as compared to other start-ups (175.0% p.a.).

c) High-tech start-ups that have received VCA investment had greater growth ambitions

High-tech start-ups receiving VCA investment have a higher propensity to expand their operations to overseas locations (52.9% have overseas-based operations, as compared to 27% of other firms). They also have more ambitious growth targets for the future. Almost three-quarters of VCA-funded firms project growth rates in excess of 20% per annum over the next three years (versus 61.3% of other start-ups).

In summary, our survey of young high tech firms in Singapore show that while less than one in ten of them received VCA investment, those that did get funded by VCA showed higher average employment growth, greater growth ambitions, and tend to be more innovative and IP-intensive. This difference is likely to be due to a combination of the selectivity of VCA investors who chose to invest in more scalable ventures, as well as possibly the value add provided by the VCA investors to the start-ups, enabling them to invest more in technological innovation and to accelerate their path to growth.

About the Author
Dr. Wong Poh Kam [LinkedIn] is a professor, angel investor and consultant. He holds positions at the NUS Business School, (by courtesy) at the NUS Engineering School and LKY School of Public Policy. He is also the Director of the NUS Entrepreneurship Centre. As an angel investor, Dr. Wong has invested in many high-tech firms and sits on the boards of many. His portfolio companies include Invantest, iWow and GlobalRoam. He has consulted widely for international agencies such as the World Bank and ADB, various government agencies in Singapore such as EDB, IDA and A*STAR, as well as many high tech firms in Asia.

Dr. Wong Poh Kam blogs at Connect The Dots@Singapore.

Image credit: visualpanic

Here are several key points summarized from the full report.

1) Social networking has emerged globally as the activity which Internet users spend the most time on.

Social networking sites are reaching 82 percent of the global Internet population, or 1.2 billion users. The activity now accounts for 19 percent of time spent online, making it the most popular activity on the Internet. That’s a huge jump from a mere six percent in 2007. Social networking is followed closely behind by search/navigation, retail, and communication.

2) East Asian countries spend the least amount of time on social networks.

While social networking is almost universally a popular activity, cultural differences do matter. While Asia Pacific are seeing high penetration rates for social media, its Internet users are spending only 11 percent of time online on social networks, or slightly under three hours a month.

In contrast, Latin Americans are the marathon runners of social networking, clocking in at 28 percent and over 7.6 hours of monthly usage. Israelis have emerged as the most prolific social media users, at 11.1 hours. In Asia, Philippines is the only outlier occupying the global top ten.

While usage patterns differ across continents, what is similar is that women consistently use social media more than men, or 1.5 hours more per month to be exact.

3) Older people no longer form the minority of social media users (with the exception of Asia).

It used to be true that social networking is a young person’s game. But older people have caught on in the past 18 to 24 months. In fact, the aged 55+ segment is the fastest growing among all age groups.

However, this trend is far more noticeable in North America, Latin America and Europe than in Asia Pacific, where old people still lag behind. Penetration rate among those above 55 in the Asia Pacific is only 59.8 percent against a global average of 79.9 percent.

Internet users aged 15 to 24 are the most prolific at utilizing social media, while those above 55 are the least regular.

4) Facebook continues to be the most dominant social network.

Facebook reaches 55 percent of Internet users worldwide, accounts for three-quarters of the time spent on social networks and one in seven minutes of total time spent online. Facebook is the leader in 30 out of 43 individual countries tracked by comScore in the beginning of 2010, and has since gone on to capture pole position in six more countries.

Today, there only seven markets where Facebook is not the largest player ?– China, South Korea, Vietnam, Japan, Brazil, Poland, and Russia.

5) Microblogging tools like Twitter, Tumblr, and Sina Weibo are gaining traction.

Today, Twitter reaches one in ten Internet users globally, hitting a growth rate of 59 percent over the past year. It has emerged as an important tool for ordinary citizens to report on important events like the Japanese Tsunami and the death of Steve Jobs as well as organize political movements like the Occupy Wall Street protests.

Sina Weibo, the tenth largest social network worldwide, is the leading microblogging tool in China with an impressive 181 percent growth rate in the past year. Tumblr, in 12th position, grew by 172 percent over the same period of time. These two tools have registered the strongest growth among the top 20.

With microblogging tools registering the strongest growth, it’s likely they’ll become an even more dominant force in the social media world for years to come.

6) Among the top 20, US-based social networks are attracting vast non-US audiences.

The top four social networks — Facebook, Twitter, Windows Live Profile, and LinkedIn — all have the majority of their users coming from outside the US.

7) Google+ surged to 25 million users faster than any social network in history, but future success remains uncertain.

Google+, which is Google’s own social network, was off to a fast start. It reached 25 million global unique visitors in under a month, and now currently has 65 million users, or five percent of the total social networking audience. To put things in perspective, Facebook took 36 months while Twitter needed 33 months to reach the milestone. However, while sign-ups have certainly increased, Google+ weekly visits have actually dropped to 1.16 million in August from a peak of 1.8 million in July.

8) In the US, social networks lead in online display ad delivered, but lag in terms of spending.

More online display ads are now being displayed on social networking sites than anywhere else, capturing one quarter of US ad impressions. This mirrors the rise in social networking as the predominant activity for Internet users. However, advertisers are still not paying a lot for display ads in social networks, accounting for only 14.8 percent of total US online display ad spend.