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Singapore Rising: The Plot to Be the Next Big Tech Hub

Disneyland with the death penalty or the next tech-topia?

Erwin Soo / Flickr - Composite by Re/code

San Francisco transplant Won Hee Chang, a motorcycle-jacket-wearing venture-capitalist-turned-entrepreneur, was spitting out a rapid-fire list of contacts I needed to meet in her hometown of Singapore, when she suddenly stopped.

“Sorry, I never learned to chew gum, I grew up in Singapore,” Chang said. “I didn’t know you could split it into two pieces in your mouth!”

Singapore, I would later learn, is a study in contradictions. The sweltering hot, 276-square-mile city-state is totally savvy until it’s unexpectedly not. There’s a law against importing chewing gum. There are curbs on free speech and a ban on gay sex. William Gibson, the science fiction author, called it “Disneyland with the Death Penalty.” Yet Singapore is a totally connected, globally aware nation ready for more.

Modern-day Singapore itself is an unusual experiment in governance that has lasted for half a century. As one of Asia’s wealthiest countries, its citizens enjoy extensive government services, but it has also been criticized for suppressing individual freedoms, to the point some see as far too paternalistic. Its own government officials and top educators complain that its people lack the spark so prevalent in entrepreneurs. Yet through the same top-down mechanism that turned the fledgling state into an icon of prosperity in the region, Singapore has plotted to do something about it.

My visit to the city and country of Singapore in April convinced me the place will play a bigger role in the global tech scene. First, the local climate is exceedingly conducive to entrepreneurship via government subsidies, tax breaks and overwhelming enthusiasm. And second, Singapore offers easy access to some of the world’s most exciting up-and-coming tech markets in Southeast Asia. In Indonesia, Malaysia and Vietnam, even though Internet access is spotty, mobile phone users have bypassed the desktop altogether and are avid adopters of new services.

Entrepreneurs based in Singapore enjoy a lot of help from the government. For every $15,000 in venture capital an entrepreneur attracts from investors, official Singapore agencies offer $85,000. And that venture capital sliver? The government is also behind half of the funds. It matches early-stage VC funds on a one-to-one basis.

Over the past five years, Singapore’s National Research Foundation has pumped $167 million into early-stage startups such as TreeBox (mobile security) and iCarsClub (car sharing) in the form of such subsidies. And that’s only the most direct, traceable way the government has tried to prop up the emerging tech scene. Other agencies are also helping to underwrite a startup cluster where office space is available for about $1.50 per square foot per month.

That startup cluster — known as Blk71, an abbreviation of its address — was a boring old office low-rise four years ago, set to be demolished. Now it has expanded to three buildings, which house 250 companies and 30 incubators and investors, with new construction coming in. In a neat and tidy city, the Blk71 cluster stands out; its outdoor walls are decorated with graffiti, its indoor walls are pinned with a mishmash of fliers for meetups and old posters from startup competitions lean against interior offices.

NRF CEO Teck Seng Low
NRF CEO Teck Seng Low
NRF

Injecting money into the private sector is a crucial part of Singapore’s strategy to foster the entrepreneurial spirit, explained Teck Seng Low, CEO of the National Research Foundation, the government arm that disburses cash to startups. A professor, serial entrepreneur and venture capitalist who has spent significant time abroad, Low is exactly the kind of person Singapore is trying to nurture. But he’s an anomaly here, the 60-year-old Low admitted over box lunches at his on-campus office: “Entrepreneurship is not natural to us. My generation is professionally minded and risk averse, and young people are naive. The ecosystem here doesn’t teach them how to move, how to adapt, because Singapore is a small market.”

For inspiration in how to spark entrepreneurship, Low said, Singapore looked to Israel and its success in subsidizing venture capital as well as translating research and development — especially military R&D — into companies. It wasn’t the first time Singapore borrowed ideas from Israel; the country’s military conscription for young men is modeled on Israel’s mandatory service.

Judging by the pile-up of tech conferences in the region, Low’s efforts appear to be taking hold. The conference I attended in Singapore, InnovFest UnBound, was sandwiched by two other major regional tech events the week prior and after.

Real-World SimCity

I arrived freshly jet-lagged on a Monday morning in late April to moderate a panel on “discovering Asia’s user goldmine” and to spend the week getting to know the up-and-coming local tech industry. The conference organizers, bankrolled by Singapore’s tourism organization, hoped to acquaint international technology journalists with the region’s work. I was joined by reporters from Wired UK, TechCrunch and Fast Company.

The sheer abundance of new buildings and construction cranes was striking. Everywhere there are enormous modern gleaming skyscrapers with a touch of Seuss — jaunty angles, squiggly decks, swooping roofs. My hotel looked like a tiered rice paddy dipped in chrome. The Marina Bay Sands hotel resembles an enormous surfboard balanced horizontally atop the heads of three skyscrapers like they are carrying it down to the beach. The big tourist attraction is a set of enormous 16-story-tall fake trees made of metal and covered with solar panels and vertical gardens made of actual plants. None of this was here the last time I was in Singapore in 1999 as a teenager. The city is alive and growing; 25 percent more land mass was added in the half-century since it was founded.

Bunnie Huang
Bunnie Huang
bunniestudios.com

The independent hardware developer Bunnie Huang, who moved to Singapore from the U.S. in 2010 to be closer to Chinese hardware production partners, described it as a real-world version of SimCity. As he put it, government officials use the constrained physical space as their game board. Buildings go up, rules go in, the government collects taxes and picks priorities and then watches how it all plays out. When they devise a new priority, they twist the knobs and dials again, or dream up new ones.

Singapore’s intricate system of incentives and penalties takes government control to another level. The government paved the way for two casinos, including the Marina Bay Sands, to open in 2010. The revenue from the sector already outstrips Las Vegas. To prevent gambling addiction among its own citizens, the government imposed a $100 entrance fee, while foreigners get in for free. Or another one: To boost birth rates, which have long been in decline, having a kid in Singapore is worth tens of thousands of dollars in tax rebates, childcare subsidies and “baby bonuses” from the government; and only married couples are allowed to move into the low-cost public housing apartments that house the majority of the population.

The endless regulations affect how everyone does business. For instance, there’s a peer-to-peer car-sharing company called iCarsclub in a country that adds a $60,000 surcharge to discourage car ownership. That would clearly be a limitation to people buying cars and sharing them on the service. But the heavy taxes that come with car ownership also make Singapore a perfect market for car sharing, because owning a vehicle is so often prohibitively expensive. The company has already raised $70 million from investors including IDG Ventures.

And those same regulations affect global tech companies trying to get into the Singapore market. Uber launched in Singapore in 2013, and currently trails local leader GrabTaxi, which is more tightly integrated into the existing taxi system. One roadblock for Uber is the price of basic cars like the Toyota Camry, which costs about $120,000 in Singapore. A person who pays that much is unlikely to drive for a ride-hailing service.

“Singapore is run like a company,” said Vinnie Lauria, a venture capitalist with Golden Gate Ventures. Lauria set up shop in Singapore after selling a startup in Silicon Valley, leaving to travel the world with his wife and settling in Southeast Asia.

As in any major corporation, dissension, especially public displays of it, are not tolerated in Singapore. While I was in town, people buzzed about teenage YouTube star Amos Yee, who was awaiting trial for maligning the beloved and recently deceased Lee Kuan Yew, the founder of the country. Lauria’s take on the situation is simple. “I worked at IBM early in my career,” he said. “If I’d been blogging ‘Oh IBM sucks,’ I would have been booted from the company.”

 Teen vlogger Amos Yee was arrested for his YouTube rant about the recently deceased prime minister of Singapore.
Teen vlogger Amos Yee was arrested for his YouTube rant about the recently deceased prime minister of Singapore.
Amos Yee / YouTube

Singapore, Inc.

Like other corporations in the private sector, Singapore rewards its top officials well — ministers make more than $1 million per year.

At the conference I attended, the morning keynote came from a former eye surgeon named Vivian Balakrishnan who is now Singapore’s remarkably tech-savvy minister of the environment. An audience of a couple hundred founders, investors and students streamed into neat rows of red chairs fanned around a low-ceilinged ballroom for the first session of the day.

Golden Gate Ventures managing partner Vinnie Lauria
Golden Gate Ventures managing partner Vinnie Lauria
Vinnie Lauria

“We are not supposed to be here,” said Balakrishnan, whose salt-and-pepper hair, silver cufflinks and smooth skin gave him the air of a movie star cast as a public servant. It was a rallying cry about why Singapore belongs in the world of high tech. “What you see in Singapore is an exercise of desperate imagination. It’s not about innovation because it’s sexy, but because it’s survival.”

When Singapore gained its sovereignty after being expelled from Malaysia in 1965, the country was cut off from the hinterland, Balakrishnan explained. As an independent state, Singapore was unsustainable. It lacked basic resources like enough fresh water. But sheer force of will and many years of government-funded development have helped the country devise new ways to solve this issue. Today the country is capable of serving 55 percent of its water needs through reverse osmosis technology developed in Singapore.

Water access is a global issue, Balakrishnan said, setting up his speech to drive his point: What Singapore has accomplished is a precedent for how it can apply local solutions to global issues.

After his keynote, Balakrishnan took the small group of international journalists aside to lay out how the combination of government incentives and control is an opportunity for tech innovation.

“I could put an iBeacon on every lamp post,” Balakrishnan said, ticking off a list of possibilities that would be much more difficult to accomplish in other democratic states. “We have the ability to do medical records from birth. If you have trust, there are great things you can do.”

It was remarkable to listen to a politician who spoke with such familiarity and optimism about technology. But I asked Balakrishnan how Singapore’s clamp down on free speech and other social restrictions jibed with his enthusiasm for the opportunity that underpins this techopolis in the making.

His curt response: “We’re trying to avoid the culture wars of the United States. We don’t want these views to divide or paralyze us. We don’t let disagreement get in the way.”

Then he lectured us about the role of big money in the American political system.

Singapore minister of environment and water resources Vivian Balakrishnan
Singapore minister of environment and water resources Vivian Balakrishnan
Facebook / Vivian Balakrishnan

Money Flood

This singular focus on marching forward has helped Singapore engineer a community of startups out of nothing. The largest startups are the gaming hardware company Razer (expected to go public soon), the game network Garena and the taxi-hailing app GrabTaxi. All are valued at more than $1 billion. Singapore’s biggest success story to date is Viki, the video site sold to Rakuten for $200 million in 2013. The global tech factory Rocket Internet also has two Southeast Asia commerce mega-startups that operate out of Singapore, Lazada and Zalora, which both had revenue of more than $100 million in 2014.

In addition to supporting home-grown startups, Singaporean government money is looking outward for big tech investments. One of the country’s sovereign wealth funds, GIC, led Square’s $150 million round in 2014, and also backed Indian e-commerce giant Flipkart’s recent round that valued it at $7 billion. The other sovereign wealth fund, Temasek, placed a bet on competitor Snapdeal.

And outside funding is now flush in Singapore. Four years ago, top Silicon Valley investor Sequoia Capital started using Southeast Asia as a testbed for expansion for its India-based startups, with the hypothesis that the developing country markets would have a lot in common. That turned out to be so successful, the firm told me, that Sequoia recently started making direct investments in Southeast Asia out of Singapore, such as the mobile marketplace Carousell and the real estate search site 99.co. It’s now up to a half-dozen local portfolio companies.

Unlike other international regions where tech startups have flourished, there is no such thing as a by-Singapore for-Singapore startup. There couldn’t be, it’s not a large enough market. The entire country holds five million people in half the square area of Los Angeles. By necessity, Singaporean tech companies must look outward.

Companies based in Singapore often locate their legal and business teams locally (and benefit from friendly tax policies) and spread out the rest with operations in the Philippines, engineering groups in Indonesia or Vietnam, and community teams in every country where they are launched.

But in Southeast Asia, where most cities are located just a quick flight from Singapore, the market opportunities are massive. Fundamentally, that is the most important reason why Singapore is thriving. Indonesia alone has the fourth largest population in the world and the sixteenth largest economy. And these people are massively mobile, with new Internet users leapfrogging developed countries like the U.S. We’re at a time in the tech industry when growth in users is outpacing growth in new ideas, and Southeast Asia is a prime example of that phenomenon.

That’s why the local startup landscape tends to be dominated by so-called “clone” businesses — the Zappos of Southeast Asia, the Uber of Southeast Asia, the Zillow of Southeast Asia.

 Sequoia Capital managing director Shailendra Singh
Sequoia Capital managing director Shailendra Singh
Sequoia Capital

“How many new ideas are there, really?” said Shailendra Singh of Sequoia Capital, who leads the firm’s Singapore investments though he is officially based in India. It’s a global question that’s particularly relevant in Southeast Asia.

Investors are now questioning whether a company like Uber will be the Uber for the rest of the world as it hopes to be, or will rivals like GrabTaxi with local knowledge and relationships control the local scene?

International financiers are betting on the latter. GrabTaxi was valued at $1.25 billion when SoftBank put in $250 million last year as part of a push to create a global coalition of challengers to Uber.

GrabTaxi CEO Anthony Tan
GrabTaxi CEO Anthony Tan
GrabTaxi

When I visited his Singapore office, GrabTaxi CEO Anthony Tan, clad in a bright-green Lululemon body-hugging shirt, with a cross on a chain around his neck, bounced around and introduced me to all his new hires, bragging that they come from places like Facebook and Palantir.

Bouncing around is Tan’s natural state. GrabTaxi operates in six countries across Southeast Asia, and Tan is constantly on a plane traveling among them. I ask, is this office the GrabTaxi headquarters? “Normally headquarters go where the CEO is based, right?” Tan replied, “But this week alone, I’ll be in three countries … You can’t sit in this office and figure out what to do.”

In Tan’s view, running a business with a big offline component requires intimate knowledge of local markets. Uber would say you can solve these problems with data analysis. But logistically, Uber CEO Travis Kalanick can’t visit the 300-plus cities where the company operates on any regular basis. He will never understand the Southeast Asian market like Tan.

High-Minded Aspirations Over Chili Crab

Sitting for dinner at a table under an awning in the pouring rain in a little alleyway off the Red Light District, away from the government-tended startup farms and the tech conferences keynoted by government ministers, the greater Singapore startup spark finally came alive for me in a way that was totally organic and unforced.

Singapore native Adrianna Tan has a brand new Jakarta-based startup called Wobe, where she enlists Indonesian women to sell prepaid phone credits in their communities. After we were introduced on Twitter, Tan kindly threw together a dinner with me and an array of people with eclectic backgrounds and passions. Many of them are entrepreneurs from larger Southeast Asia in town for the conference or other business. We had the most amazing chili crab meal.

 Wobe CEO Adrianna Tan
Wobe CEO Adrianna Tan
Wobe

There was a guy who runs a startup lab in Myanmar, and another who hosts an Asian tech podcast, and another who works on a language learning app that’s staffed by remote English teachers in the Philippines.

Some of the group live in Singapore, work on government-backed businesses and take advantage of all those subsidies — like Bernard Leong of Singtel-backed SingPost, the local postal agency that has recently gone big into e-commerce around the region (actually, Leong is the same guy who hosts the podcast).

Even the ones whose companies are not based in Singapore use the city-state as a hub. They come every few weeks for conferences and to visit friends, while they run their companies elsewhere in Southeast Asia. They have pockets full of SIM cards at the ready for their frequent border crossings, and heads full of dramatic market opportunity stats: Indonesia, for instance, has 20 percent bank penetration and 130 percent mobile penetration, said Tan.

Across the table from me was Ron Hose of Coins.ph, formerly a venture capitalist in Palo Alto with Google chairman Eric Schmidt’s fund, and before that he was a founder of a San Francisco online video startup called Tokbox. Now he runs a startup that acts as a virtual bank branch for people to send money from their phones using Bitcoin-like blockchain technology.

Hose, who is tall and clean-cut, settled in Manila after traveling through Southeast Asia a few years ago and was struck by people on a remote Indonesian island checking Facebook. “Ninety percent of the dollars are going to 5 percent of the world’s problems, for 1 percent of the population,” Hose told me over bites of chili crab. “That’s why I moved here.”

Coins.ph CEO Ron Hose
Coins.ph CEO Ron Hose
Coins.ph

Coins.ph is a sort of virtual bank branch, where people can send remittances and transfer money between accounts from an app on their phones. Hose said the startup is already doing brisk business on less than $1 million in funding.

Tan, who has a young face and a touch of grey in her hair, grew up in Singapore and seems to always be at the center of the party. With Wobe, Tan recruits Indonesian women to be agents who serve the mobile access role that convenience stores normally would. They buy prepaid minutes, sell them to customers for cash and pocket 15 cents for every transaction (Wobe keeps five cents). This is all possible because the women already have cheap Android phones where they can run their Wobe businesses, Tan said.

Eventually, she would like the women to serve as market researchers, credit scorers and insurance sellers. “Things seem to magically solve themselves when you give people the ability to sustainably make money,” she said.

But today, Wobe is just getting started; the service became public a month before I visited and its app has yet to launch. But as everyone knows, Indonesia is a massive market. Tan’s growth goal is not modest in the least: To get a million women signed on as agents this year.

Our fingers licked clean of chili crab, Tan hailed an Uber van to bring the startup posse to a basement speakeasy in the bottom of a mall. We had whiskey cocktails until last call. But pretty soon the jetsetters outlasted my jet lag, and I ventured out into the night for a safe and sweaty trek back through streets of glittering, modernist skyscrapers to my hotel.

The next day back at the conference, Tan delivered a passionate pitch for Wobe in the finals of a startup competition against a cadre of better-funded and more developed startups. She snatched the $5,000 first place prize and won a trip to London to compete in the international finals, where Wobe finished as runner-up.

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