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While ideas and talent are the principal requirements for rapid economic growth, the provision of adequate finance is necessary to catalyse the growth of knowledge intensive and technopreneurial start-ups into world-class companies. To enable companies to grow rapidly in order to gain the ‘first mover’ advantage, they need funds to attract talent and expand markets. High growth companies are characterised by having high ‘burn rates’ of capital and need injection of funds at regular intervals to sustain their growth in the early stages of their development.

The traditional source of funds to finance businesses is banks but in the technopreneurial economy, venture capital plays a dominant role. The reason is because of the fundamental difference between debt financing by a bank and equity financing by a venture capital company. When a bank lends money, its primary interest is to get its loans repaid with adequate interest. Banks generally do not share proportionately in the success of the companies they finance. However, banks suffer losses if the companies fold up or are unable to repay their loans. Hence banks put considerable stress on assessing the value of collateral to secure a loan or reliability of cash flow in an operating company to generate the funds to repay loans. Most start-ups, however, have neither collateral nor cash flow to enable them to obtain debt financing from banks. In order not to lose out in the rapidly growing market of ideas and innovation, some banks in the United States, like the Silicon Valley Bank, have combined debt financing with equity participation in order to compensate for the additional risks involved in lending to start-ups.

Venture capital companies, unlike banks, invest in companies in the early stages of their growth and become active partners with technopreneurs to grow their businesses. The venture capital companies take equity in the businesses they finance and have a vital interest in maximising the success of the companies. The provision of adequate venture capital is crucial to the development of technopreneurship. Other than professional venture capital firms, which are often partnerships or limited companies, venture capital in developed markets is also available from Business Angels, Corporate Ventures and Intrapreneurial Ventures.

Business Angels are private individuals who provide capital and financing directly to unquoted businesses, especially start-ups, in return for equity. The amount of risk capital Business Angels provide is relatively small compared to that available from banks or professional venture capital companies. But the financing from Business Angels is essential in enabling ideas to be transformed into commercially viable concepts, which are ready for venture capital financing. Business Angels are also value-added investors. They play an active role in the businesses in which they invest and help to shape and implement the business plans of the start-ups. In developed economies like the US and UK, Business Angels provide a crucial and significant source of risk capital for start-ups.

Large companies, which have on-going businesses, are today very concerned about being overtaken by their competitors due to the fast changing technological and business changes. To supplement their own internal R&D efforts, such companies set aside funds as Corporate venture capital to invest in start-up companies that may affect their future. Companies may also help their own employees through Intrapreneurial Venture capital to start up companies using the research they do in the company. Such companies also provide space for innovation incubators and take up equity in the companies started up by their own employees.

Although the venture capital industry has existed in Singapore for many years, the number of funds and players is still relatively small and insufficient to provide the depth of capital and expertise which are necessary to fund and nurture technological and knowledge-based start-ups. Singapore has also not taken full advantage of the flow of institutional sources of finance into the venture capital industry on the international market. US funds, for example, are increasingly investing in European funds and US venture capital funds actively seek out and invest in European start-up companies. With the increasing number of local start-ups, we need to encourage overseas funds to use Singapore as a base to seek out and finance promising technopreneurial ventures in Singapore and the region. We also need to encourage the growth of local lead investors which can finance budding technopreneurs or partner overseas venture capital firms in order to provide the local knowledge and monitoring that are necessary to nurture promising start-ups into successful companies.

The US$1 billion Technopreneurship Investment Fund or TIF, which I announced in April as part of the comprehensive suite of measures under the Technopreneurship 21 Concept Plan, is designed to catalyse the development of a vibrant venture capital industry in Singapore. The objective of TIF is to attract technopreneurial talent and venture capital money to Singapore so that we can increase our rate of ideas generation and the success of ideas taken to market. The purpose of establishing the TIF is not to have the Government duplicate or compete with private venture capital funds but to attract into the industry people who are able to assess the commercial viability of technology ideas and help start-up companies to grow. The government, therefore, intends to work with and through private sector venture capital firms to stimulate the venture capital industry in Singapore.

Of the US$1 billion, US$250 million will be managed by the NSTB in the form of an Early Stage Fund (ESF). The Early Stage Fund will co-invest with the private sector in specific programmes to seed and develop ideas at the embryonic stage in order to stimulate the creation of high-growth companies based in Singapore. The ESF could include the extension of existing Incubation Programmes and Business Angel Funds and invest in other funds specializing in early stage financing for Singapore-based or Singapore-linked companies.

The remaining US$750 million will be managed by GIC through two funds:

1. a US$250 million Strategic Fund to establish relationships and networks with and seek knowledge transfer from top-tier venture capital companies in the world.

Although the two funds will be managed by GIC, the strategic linkages established will be useful for NSTB to build up relationships with venture capital personalities and organisations both locally and overseas. As it is not only capital that Singapore is interested in, but also expertise, it is important that venture capital firms provide the start-ups with a broader perspective of the product-market fit, advice on management techniques, problem solving and industry contacts. The venture capital firms chosen as partners by NSTB or GIC under the TIF initiatives should therefore exhibit depth and breadth of experience in guiding technology businesses through different stages of growth.

Since I announced the TIF in April, NSTB and GIC have received numerous inquiries and proposals from venture capital companies, other financial institutions and even industrial corporations, both locally and overseas, to establish partnerships with the Government or to launch independent operations to increase the availability of venture capital in Singapore. The proposals are being evaluated and an announcement will be made later this month on the first partnerships or independent operations to be established.

Although provision of venture capital is necessary, we must also continue to build knowledge and technology through capability development in our universities, polytechnics and Research Institutes and Centres in order to throw up more ideas and innovations which have business potential. Our stock market must also have sufficient liquidity to enable new start ups and growing companies to tap it for the funds they need and for the employees to realise their gains through their stock options and for investors to get their returns. In the United States, which is the most sophisticated in terms of venture capital, evidence points to a close association between the fortunes of the venture capital industry and that of the stock market. An active Initial Public Offering (IPO) market is the key to enabling the venture capitalists to realise their gains and recycle funds into other start-up companies.

Tonight, we honour the people and companies who have made significant contributions to science and technology, and in particular their role in generating the ideas and having the innovative spirit. They have a significant role to play in Singapore’s efforts to develop R&D and technopreneurship. The technopreneurship effort requires us to look into the future to see what we want to become, review what we have done in the past, and make the changes that will bring us forward.

On this note, it gives me great pleasure to launch TechMonth '99. I congratulate the organisers on a well-planned programme and I wish all participants a stimulating and exciting month of science and technology discovery.

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