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No, Singapore seed stage is not dead

No, Singapore seed stage is not dead

Founders are being incentivised to build real foundations on which to scale with real proof of concepts and to take on funding from the right partners as opposed to the partner that will write the quickest cheque

“The rumours of my death have been greatly exaggerated” – Mark Twain

I believe it is fair to say that Mark Twain could not have imagined the technological ecosystem that his quote would apply to today. In a recent e27 article it was claimed that to some extent the Singapore startup scene was in fact “dead”. I beg to differ, and I would argue that we all should.

Also read: Is Singapore’s early stage startup scene dead? What happened?

The market has changed and is continuing to evolve but that should not be taken as an implication of negativity. Our efforts should be spent on understanding what led us here, what we should actually be referring to this process as and how we can ensure our continued growth.

How did we even get to this topic?

While it is impossible to make a generalisation of the entire market, if we rewind several years back to look at the domestic startup scene and specifically the angel ecosystem as well as to a certain extent up to pre-seed, what we will find is a combination of problematic ingredients.

  1. Overly eager non-VC investors who were agreeing to write cheques against inflated valuations

  2. Founders who were launching “me too” (or at worst, half baked) businesses inspired from abroad in an attempt to simply mimic them domestically / regionally

While the latter isn’t necessarily the ultimate objective of a startup ecosystem, the former is the root cause of where the problem started.

Founders have been and in certain cases continue to be incorrectly advised to raise too much money at too high of a valuation far too early in their journey. This a toxic practice as it removes too much equity from the founders both now and in future funding rounds while also making it difficult to justify growth in valuations as the business scales.

As opposed to founders having been given the proper guidance on this topic from non-VC investors, the valuations and frequency of those valuations that trickled into the market were bordering on a technological wild west.

In my opinion this led to a vicious cycle that disincentivise founders from building legitimate businesses. Why would the majority of founders build a sustainable business model when market conditions created by non-VC investors permitted them to raise large cheques at continuously comical valuation sizes with relative ease?

Things have certainly started to improve and that is always a welcome step in the right direction.

That said, before we talk about how things are changing we must first acknowledge that the environment the market created and enabled was unhealthy and led to numerous failed businesses, burned investors and immense amounts of lost capital. Although human nature is to not necessarily always welcome the repercussions of our actions, nonetheless we must sleep in the beds we make for ourselves. I’d like to think that while profits may not have been generated, lessons certainly were.

Lessons were learned but now what?

As is always the case within the startup journey, we try and we learn and try again and we pivot and we adapt and we keep going until we get it right. That applies on a micro level to the companies that make up the ecosystem as well as on a macro level to the ecosystem itself.

Also read: e27 Academy is your Founder’s Retreat with hundreds of other Founders

Why some may confuse the current state of the market as something akin to “dead” is because it is actually just “harder” or as I prefer to refer to it, more mature.

We now have early stage investors who are asking more critical questions and holding founders to higher standards. With all due respect to very early stage presentation decks, “forecasts” mean nothing if there is no traction to base it on. The substance is in the analytical thinking and foresight.

  1. What are you doing uniquely different with this business?

  2. Who are your competitors and how do you compare?

  3. How are those competitors going to stop you and what are you doing to prepare for it?

  4. What are the challenges your business faces today and as it scales?

  5. Are you making this concept relevant to your demographic whether through addressing pain points, localisation or both?

I am happy to say that I am seeing these questions and more of the sort being asked by early stage investors. Before we build a global juggernaut we must first built a strong foundation on which to scale and it is through these kinds of questions that we will be able to judge not only the viability of the business but the viability of the founders we are engaging with.

These are questions and perspectives that have been learned through a market that went through growing pains.

As a byproduct and through their own learning journey, founders are being incentivised to think along these lines and answer these questions. Founders are being incentivised to build real foundations on which to scale with real proof of concepts and to take on funding from the right partners as opposed to the partner that will write the quickest cheque.

Raising money is becoming harder and slower but that is not due to a lack of available liquidity. We are simply moving from a “dumb money” early stage market to a “smart money” early stage market.

These are not signs of imminent death. These are signs of the patient getting up and starting to jog.

If we’re jogging then we’re healthy, right?

Kind of.

Just as is the case with our physical bodies, we might be healthier than we were yesterday but that doesn’t mean the journey is over. There is always work to be done to ensure our continued growth.

The biggest problem I personally see in the early stage market today is the euphoria of the next big buzzword.

Whether it is “chatbot”, “artificial intelligence”, “crypto”, “robotics” or “blockchain” it seems that everyone wants to be involved and everyone is an expert. This is leading to two problems.

  1. The excitement is leading to spikes in valuation … again. If the Prime Minister of India can jokingly claim during his speech at the recent Singapore Fintech Festival 2018 that if founders want to “empty the pockets” of investors then all they have to do is throw in the word “blockchain”, you know we have a problem.

  2. Legitimate businesses that are scaling and are profitable but are not involved in the latest and hottest tech are finding it difficult to raise money.

I would argue that the ICO bubble that the digital asset space experienced was simply an iteration of half baked startup presentation decks from yesteryear. A “white paper” without a proof of concept or substance is just a more complicated version of a 10 slide deck without substance.

Investor liquidity is still here, and the number of founders eager to try their hand at the startup journey is on the rise. The latter in particular should be celebrated as it perhaps more so than anything else is an indication of the bright days that lay ahead.

The early stage investment scene was always one intended for angel investors and small firms. The issue isn’t that the larger VCs aren’t stepping in to solve the problem. The issue is that angels and small firms no longer want to act like what they were intended to be. We cannot however change what our role is in the ecosystem. We must continue to hold founders to higher standards and continue to implement the lessons from previous mistakes.

Also read: e27 Academy is your Founder’s Retreat with hundreds of other Founders

To point and call the market dead is not the way nor accurate. Sensationalist claims may be provocative but they are not indicative of facts.

Whether via more savvy investors or through continued government grants and initiatives, founders are raising funds and the market is very much alive. Through its maturation process the market has never been healthier and we should all be proudly celebrating our march forward.

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Photo by Clem Onojeghuo on Unsplash

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