Kumaran Pillai, chief executive of venture accelerator Apple Seed Pte Ltd says setting up a digital media business requires deep pockets, and believes that news consumption will soon be based on individual preferences, rather than being decided by an editor. “Editorial gatekeeping will be a thing of the past, with editors playing less of a role in the news platforms of the future. The power shifts from the producer to the consumer,” he explained in an interaction with DEALSTREETASIA.
Pillai also shared his insights on the pitfalls as well as the opportunities for Singapore’s Ayer Rajah, which fosters a flourishing startup ecosystem, and also his perspective about the evolution of startup eco-system in the city-state.
What is the difference between seed accelerators and business incubators?
A lot of literature refers to incubators as longer term. It encompasses business support from ideation, to prototyping and all the way up to market-entry. Venture acceleration, on the other hand, are specific programmes to equip founders with the necessary skills so that they can go out and raise substantial funds for their startup business.
Some accelerators specialise in go-to-market and commercialisation aspect of the startup business. This is an evolving space and each new venture accelerator seems to have his own differentiator to set himself apart from the competition out there.
What are the challenges that entrepreneurs starting up a digital content platform should be aware of?
The content business is highly competitive – content is freely available through user-generated content platforms such as WordPress and Blogspot, and social media sites like Facebook and Twitter. How people consume news is distinctly different compared to the past and most publishers are trying to come to grips with how they can monetise their content especially when content owners no longer have control over their channels.
Setting up a digital media business requires deep pockets. It often involves experimentation with a few different business models before reaching a revenue-generating stage, and reaching profitability is another ball game altogether. The cost structures in Singapore are phenomenally high and the market size isn’t that big either. These two factors makes it difficult for hyper-local companies to compete effectively against the incumbent media players.
In contrast, the Indian market is poised for a disruption. It costs just a fraction to produce a news article in India and the media outlet can potentially serve 400 million readers. The successful sites are able to get a slice of the global traffic, but local sites simply do not have that kind of a scale and end up running crowd funding campaigns to stay afloat.
For venture capitalists and investors interested in the digital media vertical, and particularly content platforms, what’s your advice in terms of investing and building a media-related venture?
In the future, news distribution and what appears on news feeds will be based on individual preferences rather than being decided by an editor. Publishers will need to be tech-savvy in order to understand individual reader’s usage patterns of when, what and how news is being consumed. Editorial gatekeeping will be a thing of the past, with editors playing less of a role in the news platforms of the future.
An editor’s role will be confined to cleaning up the copy (e.g. language & grammar), with less say on what the topline or headline news is. The power shifts from the producer to the consumer. Editors need to relinquish their authority for the monopoly on the means of production is forever gone.
Has your stint with ACE had any impact on your views of the local startup ecosystem and your activities as a startup professional?
ACE has opened up the opportunities for me in the incubation and acceleration space. Ayer Rajah has a vibrant startup eco-system with new entrants – , both investors and startups entering the eco-system each year. This creates new dynamics in the startup eco-system and it fundamentally changes how investments decisions are made.
There is a perception that local funds, especially government grants, are run by people who have modelled it against Silicon Valley. And some have questioned the wisdom of doing that because the business climate in Singapore and ASEAN is unique and it presents itself its own unique opportunities.
For instance, if you look at Silicon Valley, they started investing in e-commerce companies in the 1990’s, which was accompanied by a bubble burst and a quiet period, before moving on to social media ventures and now devices (i.e. Internet of Things and consumer hardware like wearables).
Looking at ASEAN, you see companies like Lazada, which has raised more than $700 million in funding worldwide and $40 million in Indonesia. In other ASEAN markets, you have e-commerce firms attracting large funds and that is primarily because of the opportunities in the electronic and mobile commerce space in South East Asia. It seems to me that the investment policies of some of the fund managers are not aligned with the opportunities in the “home” markets.
That beckons the next question of “What is local?” Should startups be focusing solely on Singapore or the larger Southeast Asian markets? Harnessing the potential of SEA markets has its advantages. Business can focus on localisation issues and create barriers for entry for western firms. I do strongly believe that this would be a better strategy than attacking markets that are half the half the world away.
How has the startup ecosystem evolved and in what ways has it become better, given you became an entrepreneur when ASTAR (Agency for Science, Technology and Research) was still the NTSB (National Science & Technology Board)?
Currently we’ve got experienced entrepreneurs and business leaders running incubators and innovation centres, while the first generation incubators were run by individuals who were less experienced in the startup space and tended to come from a corporate background. All 15 companies that NSTB incubated failed and the incubators earned the nickname of ‘incinerators.’ Some entrepreneurs felt that incubators were killing ideas and entrepreneurs rather than nurturing them.
What do you look for in the entrepreneurs and startup ventures you incubate in Appleseed?
At Apple Seed, we cluster startups with similar business models to have network effects. That way we are able to provide infrastructure support from hosting to application framework to market access from our acceleration programme. We have departed from the portfolio approach and are instead focusing our resources in key market segments and application areas to have the greatest impact with the limited resources that we have.
We have three focus areas – mobile computing, big data and e-commerce. We have mapped out the opportunity heat map in these areas and look out for ideas that are best placed to capitalise on the current market environment.
Given the extensive government involvement in building the startup ecosystem, via such things as ACE, ASTAR and SPRING Singapore, as well as the numerous public grants available, does the presence of public funding distort incentives?
We need to determine if the distortion is at the policy level or implementation level. We are ambitious at the policy level, but the same vision does not trickled down to the executive branch. Based on historical data, much is desired when it comes to performance of startup companies. It is either a case of poor investment decisions or we have an entrepreneurial deficit in Singapore.
I’ve seen companies that have been funded by NRF, where the technology is incremental, whereas the original charter called for it to be really earth-shattering and disruptive. What we need to do is look at immediate opportunities in the region and how we can exploit them and balance that with long term opportunities.
Startup ventures with hardware products versus those with a software product – which is a long-term investment and why? What are the challenges involved with incubating hardware startups?
Again, some investors are looking at the hardware space and they may be modelling their investment policies after San Francisco, which has seen an appetite for such investments in that space. Singapore has minimal manufacturing capability. What we do is high-value manufacturing, like Boeing engines and turbine blades in the aerospace vertical.
Investing into these hardware devices for VCs means that they have to look at manufacturing capability outside Singapore, which is tricky and doesn’t seed the growth of local industries or the local ecosystem. I know some NRF managers who are backing device companies, but then we need to understand the rationale behind it. That is, unless they have a strategy to capitalise on the ecosystem of Malaysia and Taiwan, which have strong manufacturing capabilities.
The opportunities in Southeast Asia, right now, seems to lie in e-commerce, especially in India. With hardware, I don’t foresee them getting high valuations. But then, each investor can choose their own portfolio, When you have companies like Lazada, the “maxim” is that you want to get in early, before it becomes too expensive to enter. By the time you identify a sector, it can be too late.