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28 November 2002
Speech By Mr Teo Ming Kian, Chairman Economic Development Board, At The Singapore Venture Capital And Private Equity Association Gala Dinner 28 November 2002 At 8:00 PM at Ballroom 1, Suntec City
Distinguished Guests
Ladies and Gentlemen,
Good evening.
- I am delighted to be here with you tonight to celebrate the Singapore Venture Capital and Private Equity Association's 10th anniversary. These ten years have indeed been fruitful years. Not only has the SVCA increased in prominence but their efforts have contributed significantly to the growing vibrancy of the venture capital and private equity scene in Singapore.
Key achievements of SVCA
- The SVCA has stayed true to its mission over the past decade. Membership has doubled from 60 to 110 within a year and they have succeeded in promoting and profiling their members as well as the VC and private equity industry here with the publication of a VC directory. Such a directory is not only timely as the VC industry grows but extremely useful to those seeking funding. I am told that many foreign and local technology enterprises and startups have been requesting copies and making extensive use of it.
- SVCA's vision is also to promote venture capital as a profession and to raise the standards of the local VC industry. In this regard, I am pleased to learn that it is in the process of setting up an Asia Pacific Private Capital Institute to provide opportunities to established venture capital professionals to hone their skills and for new ones to learn their trade.
Importance of the VC industry
- As Singapore moves towards encouraging more innovation and entrepreneurship, there is an increasingly vital role that the venture capital industry plays and that is in enterprise formation. VC funding is responsible for increased entrepreneurial activity which in turn leads to greater economic growth. Through VC funding, entrepreneurs have been able to bring about what Schumpeter, the Austrian economist called "creative destruction". Essentially, this allows the economy to renew itself and make advances. Companies emerge and die at increasingly faster rates as a result. For example, since 1980, Fortune 500 companies have lost more than 5 million jobs but more than 34 million new jobs have been created by new enterprises.
- In creating new businesses and companies, funding is crucial. It has been said that there are four types of funding available - from founders, family, friends and fool-hardy investors. I am sure the latter category doesn't apply here! In earlier days, risk capital came almost entirely from families and friends. Through venture capital, businesses can now be started even if one does not have rich relatives. The US National Venture Capital Association in a recent study reported that venture capital invested over the last 30 years have created 7.6 million jobs and more than $1.3 trillion in revenue as of the end of 2000. They created companies that were responsible for 5.9% of the nation's jobs and 13.1% of the U.S. Gross Domestic Product in 2000. It has also been responsible for the emergence of well-known companies like Apple, Intel, Cisco, Starbuck and Microsoft.
- To a large extent, the VC and private equity industry has been responsible for the entrepreneurial economy of the US. It has always been able to seize new technology and business trends to create new industries and new values. The PC industry, the hard disk drive industry, the Internet, biotechnology - they all emerged from the US with the VC industry playing a key role here. Of course, the flip side is that the Internet bubble was also created in part by the VC industry.
- Given the current depressed technology market and the doldrums of the VC industry, some, I am sure not any of you, may think that now is not a good time to talk about the virtues of VC. But in every depression, there is a prospect of an upturn, just as in the height of an exuberance, there is a risk of a downturn. Each time the technology market goes through a decline, it emerges stronger due, in no small part to new opportunities funded by VCs in creating new industries. VCs should therefore be credited for their role in helping to make the United States one of the world's most entrepreneurial nations.
- The explosive growth in the US VC industry can also be attributed to a series of regulatory changes. The most significant and impactful being the change in the interpretation of the "prudent man" guide of the ERISA (Employee Retirement Income Security Act) in 1979. As a result of this change, pension funds are permitted to invest in securities issued by small or new companies or venture capital funds. What impact did it have? Between 1976 and 1978, VCs raised less than US$5million a year from ERISA pension plans. After the change in ruling, US$50 million was raised from such plans in the first 6 months of 1979.
Status of Singapore's VC industry
- We do not yet have a vibrant private sector investment in VC funds here. Insurance companies in Singapore and other investors may not be well aware of this asset class. Under current circumstances, they may also see this asset class as having excessive risk. SVCA can play a strategic role by educating this large pool of prospective investors. Take for example the S$33 billion in the insurance funds in year 2001. If only 5%, or about S$1.7 billion, of this amount is injected into the VC community, we would see a 10% increase in VC monies. Still, the Singapore government recognises the importance of the VC community and has highlighted VC as one of the four key areas necessary for Technopreneurship development, under the Technopreneurship 21 programme.
- Today, despite the economic uncertainty, Singapore's vibrant VC hub continues to grow. Some 133 VC firms operate in Singapore, employing more than 500 professionals and managing $14.2 billion of funds.
- More importantly, of these 133 firms, 25% are local, 40% are from North America and Europe, while the remaining 35% are from the Asia Pacific region. These companies from diverse backgrounds bring with them different ideas, values and capabilities, adding vibrancy to the entire VC community. Their presence also support Singapore's total environment conducive for an enterprise ecosystem of companies big and small, local and foreign to evolve. Not many countries can boast of such a rich pool of VCs of such diverse national origins. I would strongly encourage members in the VC community to start to leverage on each other, to synergise and build on each other's strengths while offsetting one another's weaknesses. Only then can we help to nurture a stronger VC industry and realize its full potential.
- Once this sustained interactivity is achieved, we can expect even greater opportunities. In this globalised economy, businesses are no longer confined to a certain region or market. Take for example how an American VC, while evaluating a venture, might be able to offer inputs on the US market, while the Indian VC could help in evaluating how confident this venture is in building a competence base distributed over India and Singapore. When members of the VC community examine and assess an investment opportunity together, they can draw on their diverse backgrounds to offer new perspectives to a proposal's due diligence and analysis.
- In Singapore's enterprise ecosystem, EDB plays the role of a catalyst to spur private sector initiatives in our key industry areas, to generate economic growth. For the VC community here, the SVCA is vital in playing this similar role to facilitate the VC industry's growth further. You help bring VC professionals, entrepreneurs and other players together to network, with a common aim of partnering in deal sharing, evaluation and coinvestment.
- Furthermore, like some of the national VC Associations of different countries, the SVCA must also collate data and develop benchmarks for their members and the Singapore VC industry. SVCA members can then use these benchmarks and reference indicators to improve their performance. This is much like the way a trainer in a gym uses the data collected during your weight training in order to devise better routines and strategies to become trimmer and fitter.
Tackling external challenges
- As our VC industry continues to grow, we have to be mindful of our external environment. Even big corporations are continuing with their venture investments to ensure they are kept up to date with disruptive innovations that could strengthen their offerings or could make them obsolete. They are increasingly looking this way as they no longer see the US or Europe as the sole sources of intellectual property. Within the Asia Pacific region, more and more technology enterprises and startups are now aware of the attractiveness of Singapore's enterprise ecosystem, and the presence of a thriving VC industry.
- And as we build our reputation as a compelling location for investments and businesses, it is important that we continuously innovate and bring new value to our clients. This will enable us to make Singapore one of the most compelling location to seed, fund and grow enterprises.
- I look forward to greater achievements of SVCA in the coming years, and wish you all the best in your endeavours. Thank you.
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