#Asia Is Singapore tech ecosystem sustainable? Report shows half of startups operating at loss


High growth without sustainable revenue streams can be problematic down the line

Singapore tech ecosystem

For many early-stage startups and even matured ones, such as Carousell — a US$42 million-backed venture with no known monetisation model — main metrics for success is user engagement rates and acquisitions, not revenue.

But is this a sustainable way to build a vibrant tech ecosystem?

A new study published by NUS Enterprise entitled “Growth Dynamics of High-Tech Start-ups in Singapore” revealed that slightly more than half of Singapore startups are operating at loss.

To break it down into percentages, 24 per cent of the 530 Singapore startups surveyed in 2016 recorded no revenue, while 29 per cent were generating revenues but were burning more cash.

Only 23 per cent of the startups were recording positive cashflows. The other 27 per cent were at least generating enough cash to sustain future growth, said the report.

And more than half (56.1 per cent) of Singapore startups brought back less than S$500,000 (US$356,000) in revenue in the most recent fiscal year.

The survey also revealed that only one in four young startups (defined as companies launched after 2010) achieved 100 per cent growth in annual sales, and only one in 10 mature startups (defined as companies launched before 2010) achieved the same figure.

These figures, by no means, portend downturn or crash in startup activity in the city state. But as the government continues to ease regulatory measures for VCs and launch 9-figure investment schemes to support startups, these statistics do little to invigorate confidence in local entrepreneurs — if most of them are not turning a profit (at the end of the day, the bottom line is still critical).

The good news is that Singapore startups are placing emphasis in drawing money from overseas markets. Over 50 per cent of startups have built operations overseas, while 72.2 per cent are reaping in revenue from their regional neighbours and other Asian markets such as China and India. With the government’s renewed push to help businesses expand overseas, we can expect this figure to grow substantially.

One interesting finding was that those who operated in emerging markets recorded significantly higher sales growth (63.8 per cent) compared than those selling in developed markets (29.1 per cent).

Singapore startups are becoming more innovative

Another piece of positive news — one that is aligned with the government’s push to grow local IP — is that startups are more willing to build innovative products from the ground up, as opposed to licensing existing ones for their products.

As much as 46.1 per cent of young startups are focussing on developing completely new technology as opposed to 35.4 per cent of mature startups.

If this trends continues on an upward and sustainable trajectory, it could solve the conundrum of poor revenue growth. According to the study, innovative startups attain significantly higher sales growth (average 70.4 per cent per annum) than less innovative firms (average 41 per cent).

Innovative startups also provide more employment opportunities than less-innovative ones. About 56.9 per cent of job creators have built completely new products and services, compared to 35.2 per cent of non-creators.

Gender gap

Despite being one of the world’s most developed nations where education is mandatory for all sexes, the study said that 90 per cent of key founders were male. So there’s definitely a need to encourage females to take up entrepreneurship — and dispel the stereotype that tech is only for geeky guys (it’s 2017, man!)

Still, there are signs this inequality will fade: In 2016, 10.6 per cent of founders were female, compared to 5.9 per cent in 2010.

Image Credit: iakov / 123RF Stock Photo

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