Over the past decade the Singapore government has been encouraging innovation by introducing new syllabus in schools and universities, offering startup grants, attracting venture capital firms, inviting innovative companies to set up operations in Singapore and much more. These efforts are now starting to pay off. There are multiple start-ups that have unicorn status (Valued over $1Billion) and there are record amounts being raised and invested by venture funds. There has never been a better time for small innovative companies in Singapore.
What about the companies at the other end of the scale – the big ones? Are they taking advantage of this boom in innovation?
Being a big company is not as easy as it used to be. According to Credit Suisse the average age of an S&P 500 company today is under 20 years. This is down from 60 years in the 1950s. What this tells us that change and innovation is happening at an accelerating rate and it is producing new winners and losers much faster than before.
So, how do big companies stay relevant in a time where industry after industry is re-invented at an increasingly faster pace? The answer is; innovation. This can either be in-house RnD or through engaging with external innovators – so called corporate venture.
In this article I will look at Corporate Venture Capital (CVC). I use the term broadly to describe a systematic effort by a large company to engage with start-ups. This could be through a CVC fund, accelerator, incubator or some other platform that allow a big company to meet innovative startups. Big companies can have both strategic and financial motives for launching a CVC program.
Successful CVC programs give large companies valuable information about new technology and it can give them the opportunity to invest in promising startups or even acquire them. A CVC fund could even provide great financial returns to the parent company.
So, you would think that most CEO’s have a fairly strong incentive to get their CVC programs going as soon as possible. This is true – in the US at least. Here there are well over 1000 active CVC funds and 75 of Fortune 100 companies have a CVC program. In Singapore on the other hand things are a bit different.
After going through the 100 most valuable companies listed on SGX I found that only nine had a Corporate Venture Fund and another three were running other types of Corporate Venture Programs. So the total number for the SGX was 12/100 compared with 75/100 for US Fortune 100 companies.
Now, if you argue that I am comparing apples to oranges here I would agree to some extent. Firstly there are several REIT’s listed on SGX. These by their very nature would not require a CVC program. Additionally some listed companies are subsidiaries in larger overseas organizations which may have a CVC program elsewhere. There are other good arguments as well BUT, no matter how you slice it one conclusion is clear:
Most large companies in US have CVC programs whereas most large Singapore companies does not.
In part 2 of this article I will discuss some of the possible reasons behind this difference. Have a great weekend! Cato