Singapore corporate venture capital players stay upbeat

Singapore

SINGAPORE corporate venture capital (CVC) players are sticking to vigorous investment growth plans for the year ahead - and startups are welcoming the interest.

Venture investments into Singapore-based companies by corporations have grown at a compounded 29.7 per cent annually since 2014 to be worth US$1.02 billion in 2018, said a spokesman for the Singapore Venture Capital and Private Equity Association (SVCA).

"The strengths of CVCs are that they do not have to adhere to a strict 'returns-only' strategy or have a fund life, meaning that these CVCs can invest into start-ups for the longer term," he said. Preqin senior research analyst for Asia Charmaine Choy expects Singapore CVCs to participate more actively in deals. "Setting up CVCs is a win-win situation. It's a good way to gain access and invest directly... with no third parties involved... CVCs also get to train their in-house team on deal-making and valuation," she said.

Joongshik Wang, Asean digital strategy and mergers and acquisitions leader at EY, concurred, saying: "CVCs will continue to increase as a percentage of overall VC investment. In Singapore, this could climb past 20 per cent. The continuous search for unicorns from South-east Asia, and more quantitative diligence approaches to valuing unicorn growth potential could maintain valuation stickiness. Deal sizes could yet get larger," he said.

Amid the expected growth, incumbent CVCs here expect to ramp up operations. ST Engineering Ventures, the CVC unit of ST Engineering, is planning to open an office in Israel this year. It already has an overseas office in San Francisco in the US.

Low Ka Hoe, chief strategy officer at ST Engineering, said: "The end goal of our CVC unit is to build successful, collaborative relationships between ST Engineering and the companies that we invest in. Unlike traditional VCs, we bring end-customer problem statements and market access, which start-ups do not have access to."

Challenging global economic sentiment this year is unlikely to impact Singtel's CVC strategy, said Edgar Hardless, chief executive of the telco's venture arm Singtel Innov8. "In 2019, we're still actively investing... Nothing's changed."

Of Singtel Innov8's strategy for this year, he said: "Our key areas of investment focus are closely aligned with the strategic growth sectors identified by Singtel. These include cyber security, big-data analytics, healthtech, fintech and digital gaming."

Linda Yates, chief executive of Silicon Valley incubator Mach49, said the growth in CVCs is driven by corporations recognising the need for speed in seizing the best investment opportunities.

Mach49 helps corporations design and manage CVCs.

"Investments in the best startups go very fast. If you're doing one-off investing, you will never be able to compete with a traditional venture capitalist anywhere in the world," she said.

Wong Hwee Lim, head of CapitaLand's venture arm C31 Ventures, said having a CVC also creates mutual benefits. CapitaLand offers startups an asset base of over 700 properties to validate their innovations, and gains insights in return.

"For nascent trends, especially when there are multiple, competing concepts, corporate venture funds like C31 enable companies to gain intelligence and insights prior to larger resource commitment," he said.

Likewise, a spokesman for PSA's venture arm PSA unboXed, said: "A CVC allows PSA to experiment with new business models, explore new technology deployment and concepts such as data platforms, shared economy, crowd-sourcing, on-demand and omni-channel logistics services."

The startup ecosystem appears ready to receive more support from CVCs. In a landscape where valuations sometimes defy logic, CVCs bring rationality, said Anurag Avula, chief executive of e-commerce startup Shopmatic.

"I generally believe that CVC valuations are lower as they tend to understand the business dynamics and the relevance of the startup to their core business, and can negotiate value from that perspective," he said.

As a value-add to traditional VCs, CVCs can bring "compelling" opportunities post-investment, added Nikhilesh Goel, chief operating officer at Validus Capital.

"By the virtue of having a narrower focus than their traditional VC counterparts, (CVCs) can afford to take more concentrated bets," he said. "They have also traditionally been more immune to herd-investing or experiencing FOMO (fear of missing out) on the hottest startup of the moment, as they'd have to convince their board...on the strategic fit of the investment."

The Business Times is the official Singapore media partner for the RISE Corporate Innovation Summit 2019, which takes place from March 28 to 29 in Bangkok. To save US$200 on the standard ticket price, enter the discount code CISSPH at cis.riseaccel.com until March 20