An intense debate has raged over the weekend about i.JAM, a government grant scheme for seed stage startups, among Singapore’s entrepreneurs, developers, and investors.
While much has been written about the topic by Jeffrey Paine of Golden Gate Ventures and Willis Wee of TechinAsia, it seems that venture capitalist Murli Ravi’s blog post was the flashpoint that brought the debate to a boil.
Plenty of focus has been placed on the i.JAM grant’s supposed salary cap, which states that “a founder shall be paid up to SGD 1,000, regardless of whether he/she is concurrently hired as company employee for purpose of the Project.”
iJAM deal is 8% for $60k in installments and a $1k salary rule. SG founders: you are better off getting a job at McDonalds and bootstrapping
— yongfook (@yongfook) March 18, 2013
While many others echoed his sentiment, the reactions towards the salary rule was far more nuanced. Some believe that even if the SGD 1,000 limit is a hard cap, it shouldn’t deter entrepreneurs from applying for the grant. I spoke to a couple of iJAM incubatees on the condition of anonymity in exchange for their frank opinion. All names are changed to protect their identities.
“I have bootstrapped and I can maintain a relationship, pay bills and get by on $1,000. In fact I feel that is the one good thing about iJAM, it forces founders to go to market faster,” said Carl.
Another iJam incubatee, Kevin, went as far as saying that if the salary cap is stopping an entrepreneur from applying for the grant, then perhaps he or she shouldn’t really be starting a company.
Although Singapore is seen as an expensive place to do business — and perhaps that’s why the salary rule has hit a sore point — there are a couple of mitigating factors.
Derrick Ko, a Singaporean software engineer in Silicon Valley, said on Branch that Singaporeans generally live with their parents until marriage. As such, assuming that they have no family to support, their cost of living would only consist of food and material expenses, which aren’t much.
However, much of the misgiving about the salary limit could be caused by a misunderstanding of what the rule actually stipulates. The cap does not actually restrict the founder from getting a salary above SGD 1,000. According to an MDA spokesperson, the grant is simply a cap on the amount of grant money that can go towards the founder’s salary.
This fact was confirmed by Michiel Wind, CEO of Crystal Horse Investments, an iJAM incubator. In fact, CHI itself typically allows a salary of SGD 2,000 to SGD 3,000 for tier 2 iJAM companies, which means the firm’s money is used to top up the grant’s salary allowance.
The long, excruciating wait
The salary issue isn’t the only beef that entrepreneurs are having with i.JAM. While founders are acknowledging that the scheme has admirable goals and is doing its bit to prop up the Singapore ecosystem, its execution has been less than bright.
“I personally think the whole iJAM scheme is flawed, from the selection process, to their objectives, and the dilution it causes in the ecosystem,” said Derrick on Branch.
For Carl, his experience with applying for an iJAM grant was beset by bureaucratic logjam and bad timing. In his words, it took almost “12 fucking months” for him to seal the deal — 8 months were spent waiting for MDA to rework its terms for iJAM and Reload, and another four months to fill out the paperwork all over again.
“The bureaucratic process seems to be in place purely so MDA can take it’s time and slot in pitches as and when it is convenient,” he said.
Not all applications take that long, and in Kevin’s case, the process of talking to incubators to actually getting the grant took ‘only’ six to nine months. Which is why he is advising startups to treat the grant as a way to lower the cost of capital, rather than as a sole source of funding — kind of like the side dish in an entrée.
In response, MDA has clarified that approval by IDMPO, the administrator of the fund, actually takes only a week or two. The bulk of the time is spend by the startups to work with incubators to fine tune their proposals for commercial viability, and then getting the approval of IDM’s experts panel.
Entrepreneurs that I spoke to, however, agree that this process can be further streamlined.
Getting rid of the so-called experts panel seems to be on top of everyone’s wishlist. After all, if incubators are serving as the gatekeepers of potential deals, why introduce an additional layer to complicate matters?
Bernard Leong, SGE co-founder, says that while government officials are genuine in helping to foster the entrepreneurial ecosystem and have good intentions, they are setting up barriers that do not align with how the private sector operates.
Speaking about the panel, he adds: “Most of them are academics who have no real world experience to how businesses operate. Instead of arguing with the incubators on whether you can build a blue sky technology, the incubators should be making incremental innovation and creating viable prototypes that can build a sustainable business. ”
To simplify things, Kevin suggests standardizing the application process by making all startups apply through AngelList. This eliminates duplicate work as startups can simply create a profile on the website and use it with other investors. In fact, accelerators like 500 Startups and Techstars are now using AngelList for precisely this purpose.
He also recommends mandating simple terms across all incubators, with standard templates that are publicly accessible. For example, incubators could stipulate a flat conertible note with a 2M cap, no interest, and a 20 percent discount.
Quality of incubators coming under fire too
Entrepreneurs that I spoke to are also questioning the commitment of some of the incubators to the needs and ideas of the startup. Carl calls iJAM “a cashback scheme for incubators”, highlighting how certain incubators seem more concerned about getting their money back through the scheme.
Some of the incubators also appear to be dormant, leading to a frustrating waiting game as applicants are forced to wonder if these incubators are still active.
Another entrepreneur, who has experience approaching the incubators, questions if they have enough skin in the game, and suggests that some of them may be simply waiting for government money to move before taking action on a potential deal.
MDA has disputed the claim that incubators are not serious about investing in startups. According to them, incubators are spending time, effort, and money to identify and nurture startups, serving as administers of the fund on behalf of IDMPO.
Incubators also spend time advising startups on the uniqueness of their ideas, aggregate startups with similar ideas, offer networks, and provide guidance on securing additional funding and general business advice.
What does the future hold for iJAM?
With so much gripes about iJAM, perhaps the time may have come for iJAM to revamp itself again. While the last refresh was actually not too long ago — Reload was launched in 2011 — the investment environment may have shifted to a point that iJAM might actually be fading into irrelevance.
One big change is that Singapore’s seed and early stage funding ecosystem has dramatically improved. Investment firms under the government’s NRF TIS scheme have been actively funding startups to the tune of six-digits USD. Meanwhile, ACE Startups is continuing to serve as a broad grant to get upstart companies off the ground.
At the same time, more angel investors and accelerators have gotten into the game to fill the gap. JFDI.Asia, a startup bootcamp fronted by Hugh Mason and Weng Meng Wong, is a good example. The accelerator invests small sums in each startup it accepts into the program, in exchange for mentorship, office space, and its access to a network of pre Series A investors.
But the real eye-opener are the angel investors who have contributed to JFDI.Asia’s pot: They range from legal professionals and non-tech entrepreneurs to tech startup pioneers like Darius Cheung who exited from tenCube and is doing angel investments outside of JFDI as well.
The angel investment landscape in Singapore has become more vibrant and diverse than a couple of years ago. Koh Boon Hwee, the former DBS, SIA and SingTel chairman, has invested in a couple of healthtech startups: ConnectedHealth and DocDoc. Ben Chew, an entrepreneur in the human resources industry, has also been doing seed stage investing. He even created StartupJobs to fill the employment gap startups here are facing.
500 Startups has been eyeing Southeast Asia as well, with Singapore well within its sights. Even investment bankers are looking at startups as a means of diversifying their own holdings, with Nic Lim, a former VP at Morgan Stanley, having funded homegrown startups like Perx and Apps Foundry.
Where Singapore faces a gap now is in Series A funding. There just aren’t enough venture capitalists around to help startups reach their fullest growth potential. It’s a trend noted by James Chan, Jeffrey Paine, John Fearon, and other members of the ecosystem.
So, while iJAM has no doubt contributed to the ecosystem by funding over 250 projects under iJAM and iJAM Reload, the time may have come for another sequel. Or even a proper burial.
“My biggest worry is that the talent base (especially with the current Entrepeneur Pass situation) in Singapore simply cannot support so many startups — we already have too many and the talents are way too thinned out. So it makes sense to fund fewer startups in bigger ways,” said Kevin.
“Set up a Tier 3 funding perhaps. Also find a way to help zombie startups get out of their deadpool, subsidizing acqui-hires may work.”