Why big corporates like SingTel can be White Knights to Asia’s startups

This article was republished with permission from the author’s blog.

“What are you doing here in (insert country), you should be in Silicon Valley.”

Do these words sound familiar to you?

In Asia, it’s very common for Founders with great ideas to either run their companies in boot strap mode or relocate to Silicon Valley. Even great talent is expected to take huge pay cuts when they join a startup.

We don’t need a scientist to figure out the primary cause of this issue. This is primarily because of the scarcity of risk capital in Asia. Entrepreneurs with good ideas have to slog for cash. One key factor that gives wings to the dreams of most Silicon Valley startups is the free flow of capital that lets them dream big…really big.

Silicon Valley is blessed with excess capital. And, that is probably why failure is embraced.

But how do they get that kind of money? What is the source? Who are these Limited Partners (LP)?

As per Wikipedia, the sources of funds are Public pension funds, Corporate pension funds, Insurance companies, High Networth Individuals (HNI) / family offices, endowments, foundations, fund-of-funds and sovereign wealth funds. In addition, there are many cash-rich corporates that have their strategic investment arms hunting for opportunities.

Compare that with the sources of funds in Asia:

1. Do you think any government in Asia would allow pension funds to become Limited Partners in Venture Capital funds?

Certainly not. At the most, governments would allow use of pension funds to be invested in real estate and approved listed equities. CPF Board of Singapore allows a portion of provident funds into property, gold, selected equities and top 25 percentile managed funds. All the usual suspects of low risk investing. Nothing wrong with that. I also view that as prudent considering the fact that venture capital industry as a whole is a loss-making industry.

Of course, we hear everyday about the success stories of Facebook, Google, Twitter, and so on. But we choose to ignore the stories of failures. I read a report recently that says how the average VC fund in US fails to return investor capital after fees.

2. Do we have foundations and endowments who can risk a portion of their money?