What the Viki acquisition means for Singapore

The Singapore blogosphere is all atwitter: Viki just got bought for $200MM!

That’s the biggest news in Singapore startups in two decades. Not since Creative’s Soundblaster in the 1990s has a Singapore tech company succeeded on such a spectacular scale.

Congratulations to Razmig, of course, but what does it mean for the rest of us in the Singapore startup scene?

It’s a watershed event.

The Viki acquisition marks Singapore’s debut as a legitimate player on the global startup stage, just as another acquisition fifteen years ago was the first step toward Israel becoming known as the “Startup Nation“.

In 1998, the leading story in every news show was that of AOL’s purchase of a small Israeli company, Mirabilis (the developer of ICQ), for a staggering 407 million dollars. Life in Israel changed overnight. Saying you had an idea that you’d been working on was no longer something you wanted to hide.

– What’s Next for the Startup Nation? Uri Goldberg (2012)

The team at Viki deserve to celebrate, and they deserve to be celebrated!

Analysis

But: “Entrepreneurs who start and build new businesses are more celebrated than studied,” observes Amar Bhide.

Bhide may be correct in America. In this country, however, one-third of all 10-year-olds wear spectacles. We’ll study anything!

So: how did Viki happen? Was it a one-off win, or is there more to come?

Let’s go behind the curtain and explore the makings of Viki’s success.

The Singapore Innovation System Works.

I believe Viki is a sign that the Singapore system is working.

What system?

Silicon Valley is a system: venture capital, universities, talent, markets. That system took 70 years and four wars to develop.

Singapore wants that system too. It has doggedly tried to copy, over the last decade and a half, what took the United States most of a century to create.

The Singapore government established investment funds, grant schemes, research institutes. It seizes every opportunity to promote entrepreneurship.

To little avail: less than a year ago, MIT’s Technology Review commented that despite billions spent on R&D, Singapore (Still) Seeks a Breakthrough to Call Its Own.

Viki has changed that: with 22 million users in 50 countries, Viki may be the next poster child for Singapore startups.

And I have reason to believe it is the first of many.

How do I know this?

Singapore’s funding landscape is an oasis, not a desert.

JFDI publishes a Map of the Money that lays out Singapore’s early-stage funding landscape. My staff and I track the players and record the connections between investors, startups, and founders through dense networks of co-investments, startup boards, and behind-the-scenes personal relationships.

The history of the Singapore system is a tapestry no less detailed than Silicon Valley’s. Viki’s thread in that tapestry weaves through several stories. Here’s one:

In the past few years the NRF created, essentially by fiat, a dozen seed-stage funds under the Technology Incubation Scheme. (Which is why everyone politely calls them “incubators”, not “funds”.)

One of these incubators, Neoteny Labs, belongs to Joi Ito. He’s one of the most respected angel investors in the world, and currently heads the MIT Media Lab.

Were it not for the TIS scheme, Joi Ito would not have set up Neoteny Labs in Singapore, and he would not have appointed a young man named James Chan to run it. (See James’s blog about the Viki acquisition.)

If Neoteny Labs did not exist, Joi Ito might not have invested in Viki and joined Viki’s board of directors.

If Joi Ito had not invested, Reid Hoffman, Andreessen Horowitz, and Greylock Partners might not have invested either.

Without those investments, Viki might never have gotten off the ground.

And there would have been no acquisition today.

Fortunately we live in a timeline where all of those events did happen.

And other events will follow. An acquisition on this scale sends shock waves through an ecosystem.

Viki’s founders make money. Viki’s investors make money. Neoteny Labs makes money. Joi Ito makes money.

And James Chan makes money. (Not much money – at three removes from the actual exit, the dropoff is steep.) If James is the man I think he is, he will take most of his upside and put it back into the ecosystem, one way or another. He’s already doing it: having proven his mettle with Neoteny Labs, James Chan has now expanded to software development in Saigon and co-working at Block 71, which houses a number of startups only a few years younger than Viki.

Now that top-tier Silicon Valley VCs have recorded one successful investment in Singapore, they’re more likely to make another. Singapore is now on the radar of people like Reid Hoffman, Andreessen Horowitz, Greylock Partners, and Charles River Ventures, in a way that it was not before.

Historians call this “path dependence”. It shows that a single event can change the course of history – the famous “Butterfly Effect”. In this case, the butterfly was the NRF. And it goes to show the hidden hand of government in innovation ecosystems.

Viki has blazed a trail for other startups to follow.

Viki exemplifies the Singapore startup story.

What is the Singapore startup story? In a nutshell: Foreign founders, local funding, national support, regional markets, global potential.

Yes, foreign founders. It sounds like a joke: two Koreans and an Egyptian-Armenian walk into a country. But it’s no joke. Immigration and entrepreneurship go hand in hand. Locals (in every country) just don’t have the risk appetite that immigrants do. Kauffman research shows that more than half of the startups in Silicon Valley were founded by foreigners.

The founders of Viki came to Singapore for all the usual reasons: business-friendliness, foreigner-friendliness, and a nascent but thriving startup scene. They stayed because they got funded here, because of other intangible factors which fall under the heading “national support”, and because Singapore was legitimately the right place for the business to be.

I remember when Razmig was using Hackerspace.SG as his base of operations back in 2010, pacing back and forth in our cramped little shophouse, on the phone with potential investors, trying to raise funds. Hackerspace has become more than a place for geeks to meet; it’s a place for founders to get their companies off the ground. Hackerspace midwifed Viki, and many others besides. It’s another part of the tapestry. It’s a secret part of the national innovation system; it’s fully privately funded and appears nowhere on the books of any government agency. Like Burning Man, it’s where CEOs go to swap suits for t-shirts and just geek out. Viki picked up a number of early engineers from Hackerspace, and some of those engineers have gone on to become entrepreneurs themselves.

Most important, Singapore was the right place for Viki, insofar as an Internet startup with global reach can even have a right place.

Viki started with Korean dramas. Korean dramas are incredibly popular in Singapore.

Viki has enabled translations in over 150 languages. Singapore is the crossroads of Asia.

These factors may seem slight, but they actually give Singapore an edge over Silicon Valley. And Viki is not the only case. There are many startups serving Southeast Asia, China, India, whose value propositions wouldn’t even begin to make sense in the United States. Those startups don’t go to Silicon Valley. They come to Singapore. (Many come to JFDI. We recruit teams from around the world to build scalable startups in Asia, for Asia. In our last two batches we’ve actually had founders leave Silicon Valley to come to Singapore.)

“Think global, act local.” Viki took advantage of the national infrastructure. It served a regional market. Now it’s going global. Top-tier US VCs wouldn’t have invested, and Rakuten wouldn’t have acquired Viki, if there hadn’t been global potential in the first place.

Viki proves that Singapore can produce a globally competitive company. The acquisition should open the eyes of a lot of local investors, and maybe open their wallets, too.

Viki offers an existence proof for exits.

Viki’s exit may be the biggest and the latest, but it’s far from the only one. There have been dozens of Singapore startup exits in the last few years, and more around the region. None of them have entered the popular consciousness the way Viki could (if the local media cover it).

Viki decisively quashes the objection, “I can’t invest because how will I get my money back?”

Fear 0, Greed 1.

Singapore famously has a risk-averse culture.

That’s a shame, because there’s lots of money here. But most of it is in traditional investments: land, brick-and-mortar, managed funds of stocks and bonds. None of the money that Viki raised came from Singapore angels. Technically Neoteny Labs is Singaporean, but aside from SingTel Innov8, the money that went into Viki was almost entirely American.

It seems there just aren’t that many angels in Singapore who will invest in high tech.

Viki could change that.

If the Straits Times prints a picture of Razmig in a brand new Porsche, a horde of imitators might be inspired to start companies. That might or might not be a good thing.

But if the Straits Times prints a picture of James Chan in a brand new Tesla, a horde of investors will be inspired to look at startups. And that’s definitely a good thing.

Never underestimate the ability of greed to overcome fear. Indeed, some might claim, that is the only thing that ever has…

We’ve Got Talent

“This really proves you don’t have to be in Silicon Valley to build a world-class team. I can, and did, hire a good team here,” said Razmig in an interview.

Don’t Try This At Home

I owe a note of caution to any fresh grads who see Razmig as a role model.

At JFDI, we screen thousands of applicants each year. The single most common reason for rejection: lack of domain expertise. The next great startup doesn’t come out of a beer-fueled brainstorming session. It has to emerge from the team authentically, the way a novel emerges from an author, the way an album emerges from a band.

A strong idea and a strong market are nothing without a strong team.

Did Viki have domain expertise? Did Viki’s founders have the right skills?

Dave McClure calls it the startup development trinity: hipster, hacker, and hustler. Those skills are needed to develop a startup on three fronts: customer dev, product dev, and business dev.

By that measure, Viki had a dream team. They met in MBA school at Stanford GSB and backburnered the product for two years before going full-time.

JiWon was the hipster: an undergraduate degree in fine arts and a Master’s in technology innovation, specializing in collaborative language acquisition. Viki was her idea, back in 2008.

Changseong, the CTO, was a EE major and a Stanford GSB MBA in entrepreneurship, with many years of startup experience and successful exits under his belt.

Razmig was clearly fated to be the business guy, with the sharpest domain expertise: he used to lead international production at NBC Universal, but also worked for NBC’s venture fund.

Was this the right team to build a venture-funded collaborative language translation platform for international TV shows?

Hell yes!

If you want to do a startup, ask yourself: What business would my team be the dream team for?

What’s Next? The Viki Mafia.

Have you heard of Elon Musk (Tesla, SpaceX) … Peter Thiel (Founders Fund) … Reid Hoffman (LinkedIn) … Steve Chen (YouTube) … Dave McClure (500 Startups)?

They all got their start at PayPal.

PayPal’s IPO gave them liquidity. They took that initial liquidity and turned it into a second success, then a third, then a fourth. Imagine a critical mass of capital and connections, powerful enough to create new successes and grow organically like some sort of startup superorganism. That’s the PayPal mafia.

Almost every major Silicon Valley startup of the last 20 years can trace a connection, one way or another, to PayPal.

Even Viki can. Reid Hoffman invested.

So, now that Viki has, in turn, minted a handful of millionaires, what will happen?

If the Vikis invest their wealth not just in real estate, but back into the startup ecosystem that spawned them, we might one day have a Viki Mafia of our own.

Creative Technology didn’t quite produce a mafia, but co-founder Chay Kwong Soon went on to start an investment firm, Enspire Capital. That’s a good example of the older generation paying it forward.

Every success brings Singapore one step closer to critical mass.

Failures of the System

Yes, the Singapore system worked. But it isn’t perfect. There’s room for improvement in three areas: social-capital development, ivory tower relations, and foreign-founder support by government.

Mafias aren’t guaranteed.

When two of Viki’s founders left to work on their next big thing, Vingle, they chose to do it in Silicon Valley and Seoul, not in Singapore.

The development of a vibrant startup ecosystem depends on more than the availability of cash. If cash were the only ingredient, the Middle East would have a Silicon Valley by now.

Financial capital isn’t enough. You need social capital and cultural capital as well.

(A single Eduardo, we’ve learned, is good but not enough: millionaires and billionaires still benefit from having teams of equals around them.)

Mafias help each component attain critical mass by connecting all three types of capital.

Financially: Without a sufficient pool of money and a diversified set of potential investors, the stochastic processes of investing will sputter out.

Socially: Without a community of entrepreneurs deliberately trying to groom their guild, anchored by keystone institutions, and populated with weak links connecting disparate industries and social groups, the liquid networks that fertilize innovation will dry up and synergy will never appear.

Culturally: Without an ethos of “pay it forward” and “give before you get”, united by shared aesthetics, passions, and values, the movement will lose direction and dissipate into zero-sum wealth accumulation.

The Ivory Tower

How much government-funded R&D contributed to Viki’s $200M exit?

How much A*STAR technology, developed at I2R, or at an IHL, went into Viki?

How much MDA, IDMPO, or IDA funding went into Viki?

I don’t know, but I’d like to find out.

For now, let me tell you what I do know.

Foreign Founders versus the Government

When it comes to startups, Singapore’s government is one of the most interventionist in the world. A plethora of grant schemes and agencies sit on the sidelines, cheering the game, encouraging fans to get off the bleachers and onto the field. Last week, the Minister responsible for Entrepreneurship evensuggested putting an incubator into every community centre! (We all know that notion won’t survive any feasibility or effectiveness test, but his heart is in the right place.)

What government support did Viki get?

Neoteny Labs is a TIS fund, but it didn’t use TIS money. It invested directly using wholly private money. The deal was so hot that the Series A guys just didn’t care for the TIS terms. Neoteny was lucky to have the cash to take that route.

Even if the NRF didn’t put any money into Viki, the TIS scheme has been, in my mind, a standout success story. That scheme singlehandedly created a seed-stage investment sector here. TIS got Neoteny Labs here in the first place. And Neoteny Labs got Viki.

Will the TIS scheme support future success stories like Viki?

It could. But it might not. Why? Because the terms of the TIS scheme have changed since Viki’s time. I hear from reliable sources that TIS funding requires local founders. Citizens and PRs.

I think that’s a mistake. An exercise for another day: count the foreign vs local founders on the list of Singapore exits.

If the government is serious about entrepreneurship, it must rethink its bumiputera policy. I doubt the government cares how many Singaporean own shares in an MNC when the EDB invites it to Singapore. They just care about job creation and taxable revenue. Why should the government treat startups any differently?

I’m helping another successful Singapore startup raise financing. Its founders, again, are foreign: they have raised millions in funding and created nearly a hundred jobs for locals. They are on their way to changing the landscape of their industry vertical. They have also applied for and been rejected for PR.

I have a hard time reconciling this with our professed support for entrepreneurship. Even Vivian Balakrishnan, past Minister responsible for Entrepreneurship,posted a few days ago on his blog:

Only human minds imagine the future. And we need to make sure we get more than our fair share of the dreamers and visionaries of the world. If not to live here permanently, then at least to spend a significant amount of time – exchanging ideas, and building up our idea pool.

Lee Kuan Yew said much the same.

Still, under the current administration, government policy doesn’t look like it’s going to get any more foreigner-friendly. This will hurt startups in the long run. As Bill Joy might have said, no matter where you are, most of the smartest people work somewhere else.

I admit citizenship/PR constraints are not the end of the world. As Viki shows, the national support system is robust. It can work – it did work – without government support. That’s good news for everybody. It just doesn’t work as well as it could.

I understand why our entrepreneurship schemes discriminate. Any alternative is politically impossible. I will say more about this another time. For now I merely point out that our government schemes would not have funded Viki, would not have funded Google, would not have funded probably half the success stories of the last five years. The schemes are too numerous and too narrow.

Who’s Next?

Where might the next big exit come from? I’m keeping my eye on:

• 2C2P
• AdzCentral
• Bubbly (previously BubbleMotion)
• Chope
• CrayonData
• DropMySite
• Luxola
• Mig33
• PropertyGuru
• Redmart
• Reebonz
• Spuul
• TradeGecko (a JFDI company)
• Wildfire (China)

(Disclosure: I am an investor in, or will soon be an investor in, some of these startups.)

My listing these startups here does not constitute investment advice. None of these are publicly traded companies, so you wouldn’t be able to invest in those startups anyway … unless you’re a well-connected, risk-taking fool inspired by dreams of driving a Tesla, lol.