Singapore has emerged as a major startup destination due to its supportive business environment, infrastructure and rising concentration of wealth. The emergence of this ecosystem has been mostly facilitated by the government policies; which show a clear influence of the Israeli-Singapore relationship
Israel and Singapore have a long common history. Beside its role in shaping Singapore’s military infrastructure and defence policy, Israel has also played a role in shaping Singapore’s innovation policy.
With recent moves by the IDA and its venture capital arm, Infocomm Investments (IIPL), to establish Block 71 San Francisco as well as open up a fund for investing in Israeli startups, both are strategic moves designed to bridge and link these major global startup ecosystems. It also positions Singapore as a hub and launchpad into the wider region.
So what else can Southeast Asia glean from Israeli innovation policy, using it as a basis predicting future developments in Singapore and the wider ASEAN region?
Israeli Innovation Policy & Singaporean Modelling
Israel has the highest budget for R&D as a proportion of its GDP, investing 4.5 per cent of its GDP into R&D, above the 2.2 percent average of OECD states, and more than nations with comparable GDPs either as a whole or per capita, according to the Brookings Institution.
According to data from Singapore’s NRF, R&D investment in Singapore stood at 2.28 per cent of GDP in 2015.
The Israeli state has pursued policies designed to foster innovation for decades. The Office of the Chief Scientist (OCS) of the Ministry of Economy, an independent authority managed by professionals is in charge of formulating public policies to support the private sector, via fixing important market failures that could hinder innovation.
A vital lesson that Singapore has learned is the way OCS de-risks investments in early-stage ventures. Collaborating with the private sector to inject “risk capital” into the economy, the government underwrites risks the private sector may be unwilling to negotiate alone, as well as creating funding and co-investment programmes that complement private investment. The core question the OCS of Israel asks is: What is the market failure we are trying to solve?
Examples of Singaporean implementations of Israeli innovation policy are the Media Development Authoritys (MDAs) iJam scheme and the National Research Foundations (NRFs) Technology Incubation Scheme. This is reminiscent of the Israeli OCS incubator programme, which supports about 20 certified incubators in Israel that finance and house startups with innovative technologies.
By co-investing in $7 for each $1 invested by private investor, the OCS subsidises 85 per cent of investment in incubators, significantly de-risking investments for angel investors and venture capitalists in early-stage ventures. From there, startup ventures can hope for an IPO, get merged and acquired by a larger firm, or liquidate their assets in the worst case. Singapore’s ACE Startup Grants replicates this programme in many details.
The formation of institutions like NUS Enterprise and NTUitive also resemble efforts to replicate what the Israeli startup ecosystem possesses. Many Israeli universities and research institutes have technology transfer offices partnering with researchers to patent and commercialise new technologies derived from their work, sharing in the profits and/or dividends of a successful enterprise.
While cultural and social factors are a strong component as well, these policies have developed a foundation. As Dr Dany Bahar notes: “The challenge for developing countries is to internalise the benefits of long-term strategies that often are put aside due to short-term political considerations.”
Israel’s innovation ecosystem is flourishing, termed by Bahar as “…the engine of the economy”. 2014 saw startup exits worth nearly $15 billion. According to the PWC Israel 2014 Hi-Tech Exit Report, M&A deals accounted for $5 billion, while IPOs accounted for $9.8 billion. By comparison, 2013 reported M&A and IPO activity totalling $7.6 billion.
Going back even earlier, the Israeli’s learnt from the US governments policies. Government support was integral to Silicon Valley’s maturation, according to Steve Blank’s Secret History of Silicon Valley. Government projects and contractors were critical to jumpstarting the development of Silicon Valley, facilitated by clustering a critical mass of technical minds that could innovate – an point that many critics ignore.
Given recent developments, it seems that Singapore’s government has been correct in adopting the strategy and the best practices of Israel, to grow and sustain innovation. They have formulated a strategy, set up a structure and developed the processes required to sustain innovation and a startup ecosystem.If anything, the technocrats of the city-state have proven they’re superbly skilled in execution.
The launch of Malaysia’s own startup programmes, combined with the larger internal market of Malaysia and lower business costs, compared to neighbouring Singapore, grant Malaysia significant advantages over the smaller city-state. One of the most iconic startup ventures to have emerged out of Malaysia in recent years is Grabtaxi, which has out-competed Uber in the region and raised $330 million over four rounds.
Their latest Series D round in December 2014 netted them $250 million from SoftBank Capital and a valuation of $1 billion pre-money, according to Crunchbase data. Ironically, Grabtaxi is currently headquartered in Singapore, though maintains a strong market presence in Malaysia.
All of the surrounding countries boast much larger domestic markets relative to Singapore, as well as lower costs of doing business. Singapore’s advantages remain its governance, infrastructure, intellectual capital and international reputation.
While much has been said about what Singaporean entrepreneurs can learn from Israel, along with comparisons of the role of military conscription in fostering entrepreneurship, Singapore offers specific advantages despite being modestly overrated.
Terence Lee, the managing editor of Tech in Asia, summarised it best:The [Singapore] government demonstrates a lot of self-awareness with these programs. It’s the only government in Southeast Asia capable of enacting, implementing, and iterating upon policy at such a scale and speed, and it’s taking full advantage of that ability. It’s also aware that its research and educational institutions are the best in the region, hence its tweaking of TIS to cater to intellectual property-heavy startups.
Maintaining the Edge
Moving forward, Singapore will need to look at establishing a startup visa scheme, especially when faced with rising regional competition that will erode the city-states advantages, as well as global competition for entrepreneurial talent from countries like Canada, Ireland and New Zealand, which have startup visas that grant specific advantages to entrepreneurs.
In the competition for talent, Singapore’s current Entrepass scheme may be insufficient. Prakash Somosundram, the vice-chairman of Singapore’s Action Community for Entrepreneurship (ACE), stated in an earlier interview “…the fact of the matter is that the Entrepass is insufficient to meet the needs of the startup ecosystem. Malaysia has announced they’re going to do it [startup visa], and its easier to get it in places like South Korea and Japan. There’s a shortfall in human capital and we will lose opportunities, especially with the ASEAN business community integration coming up in the future.”
Canada’s Startup visa provides permanent residency, the only visa to do so, while Ireland’s Innovative Startup visa is the only one flexible in the time it grants to entrepreneurs to validate their business and achieve the renewal requirements, in terms of job created and revenue generated. The New Zealand Entrepreneur Work visa offers a two-step visa: more time for entrepreneurs to get settled and start their business in the country, with extensive support from the Government.
Singapore’s only sustainable competitive advantage, especially as an immigrant society and functioning as a hub for multiple industry clusters, is the human capital that it can attract, retain and grow. Its business environment, transparency, rule of law, intellectual capital and infrastructure are already strong attractors for businesspeople, investors and entrepreneurs.
In order to maintain these advantages, the Singapore government will need to return to this core principle of meritocracy, which has been the basis for much of its early and continued success. While adapting innovation policies and best practices from elsewhere have worked, Singapore’s continued prosperity, like Israel, depends on building a critical mass of intellectual capital and entrepreneurship within the city-state.
Israel provides key lessons for the city-state, but Singapore’s technocrats will have to look beyond the Israeli model when searching for best practices and systems to adapt to the ASEAN context.
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