Asia's Entrepreneurs

Dilemmas, Risks and Opportunities

Virginia Cha, Jennifer Lien

• Publisher: Routledge
• Year: 2013
• eBook ISBN: 9781136769559
• Topic: Business
• Subtopic: Business generale
• Index: Business

This book is a collection of technology startup cases in Asia, told in a narrative form, to give readers an insider view to how innovators and technopreneurs view entrepreneurial opportunities from use of technology, how the technopreneurs raise funding to support their vision, and the subsequent relationship of the technopreneurs and their investors. The book illustrates some of the cases using the theory of effectuation.

The book is divided into four sections: Part One chronicles case studies of technopreneurs who raised capital but had difficulty with managing the investor expectations and relationship, to the detriment of the venture. Part Two chronicles case studies of technopreneurs who started their ventures without venture capital, with some who later raised capital at a much later stage, and were able to exit successfully. All case studies are of technology ventures in Asia from the mid-1990's where venture capital and entrepreneur ecosystem were under-developed. Lessons learned from the various case studies are told from a practitioner's perspective. Part Three describes the development of the venture ecosystem, specifically in Singapore, a city-state aspiring to follow the Silicon Valley model. The technopreneurs in Parts I and II play the roles of mentors/investors in the newly developing system. Part Four includes two new young technology ventures' fund raising dilemmas, written in a teaching case format.

The book can be used by practitioners and by educators for developing a deep understanding on the issues of raising capital for the purpose of growing the venture, and the trade-offs of capital from the different groups of investors and their financial terms. It is useful to young and mid-career professionals looking at starting a technology venture in Asia.

Part I

Raising money for your technology dream

Importance of getting the first partner right

Technology venturing is hard. It takes a long time for technologies to mature, and it takes a lot of money. A typical process sees entrepreneurs pitching their ideas to win investments but too often they understate the difficulty of their business, especially when it comes to customer adoption. Their investors then become disillusioned with how long it takes the company to reach scalable growth. More attention needs to be paid to educate investors post-investment as this misunderstanding can be detrimental to a start-up’s growth.

Virginia Cha (author), Danny Wilson, and Danny Chng are three technopreneurs who struggled to maintain clear lines of communication with their investors during the internet revolution of the mid-1990s. For every new technology wave, a new crop of innovators will emerge to disrupt the status quo in business, operations, consumption patterns, etc. As peas in a pod, every wave will also spawn the investors and financiers who are keen to capitalize on industry growth without truly understanding the technology field. How the technopreneurs choose to work with their investors makes all the difference.

1 Star + Globe Technologies and Virginia Cha

I came from a business family. Both my parents were entrepreneurs and owned a succession of mostly textile-related businesses. My mother, in particular, was always the one who had the energy and drive to start new businesses, and was not particularly constrained by lack of prior knowledge. She started a textile knitting factory in Bangkok in the early 1970s, followed by a medium-scale supermarket business in Hong Kong late 1970s, and then a cotton-processing and spinning factory in late 1980s in Bangkok. As typical Chinese entrepreneurs of traditional businesses, my parents’ businesses were started with their own bootstrap capital and grown organically. Although I was exposed to business at a young age, the concept of external investors did not enter the family’s vocabulary.

My earliest (failed) entrepreneurial experience was toting around a bag of leftover knitwear samples from my mother’s factory to try to peddle to shops, businesses, and neighbors along Soi 1, Sukhumvit road where we lived. I was probably around ten years old at the time and was already practising effectuation (see boxed text for an explanation on effectuation). My parents did not ask me to do this. I took it on because I felt I could probably make extra cash from items that were lying around the factory. I tried to sell them to make a quick buck, but since knitwear was for cold climate places (my mother had an export business), needless to say I was not very successful. That was probably my very first experience in trying to sell a product that did not fit market needs. The funny thing was that I did not even need to do this to raise money. My parents had a fairly lackadaisical attitude for giving out cash allowance. I pretty much drew whatever I needed from a cashbox without any accounting. I suppose I did it just for the challenge. Or perhaps I was a bored ten-year-old.

Ours were typical pre-occupied Chinese business parents who paid scant attention to me and my two older brothers. We were pretty much expected to study hard and achieve a secure future through education. Interestingly, like most parents of this era, my parents did not see entrepreneurship as a meaningful path for us children, even if that was their chosen profession. The oldest brother was always expected to take over the family business, as was the tradition, but since I was the youngest and a girl, I was not expected to enter any particular profession or even have a career. All three of us completed our early education all the way through high school at the International School of Bangkok, a school attended by expatriate, primarily American, children whose parents were mostly in diplomatic or military service. I graduated from high school at the tender young age of 16, not because I was a gifted student, but because my parents skipped me through two grades (grade 2 and grade 5) to save money at the very expensive expatriate school. Consequently, I learned to think very fast and absorbed information very quickly to keep up with my classmates who were fully two years older. I was not a particularly social kid – actually I enjoyed being left alone and would spend hours engrossed in the Chinese wuxia (martial arts) novels,¹ in imaginary worlds where youxia² (loosely translated as ‘wandering heroes’) would fight evil for the heck of it, but never staying put in any one place.

Effectuation

The theory of effectuation offers a model to explain decisions logic taken by some entrepreneurs in the new venture creation process. The basic premise of this model is means-based (questions of ‘who I am’, ‘what I know’, and ‘whom I know’) thinking in turn derives possible effects from the means (Sarasvathy, 2008). Other theories to explain how entrepreneurs behave in environments where they make do with resources on hand include ‘bricolage’ (Baker & Nelson, 2005). Effectuation has a strong practitioner appeal because the effectuation framework provides an understanding of why and how entrepreneurs deviate from plans or often act without a clear plan. The highly cited theory has been enthusiastically embraced by scholars and educators in the entrepreneurship field. Textbooks on effectual entrepreneurship (Read et al., 2009) are available to educators to guide them on lessons on how large companies can learn from effectual entrepreneurship.

As can be seen in the extreme example of a 10-year old effectuating entrepreneur who took the opportunity to collect the left-over sample (means), armed with limited knowledge of trading (what I knew), and accosting the neighbors (‘whom I knew’), means-based actions may not always lead to successful outcome, especially for novice and inexperienced entrepreneurs.

In 1976, I set off for university studies in the USA, after winning the argument with my mother on why a Chinese girl from a business family should attend college. After all, in those days, daughters of business families were to be married off to sons of business associates and become tai-tais.³ I always found it contradictory that my mother, who was the business go-getter in the family, would want a life of leisure for her daughter. My father was ever the more forgiving parent and was neutral on this issue. Nevertheless, I attended my first year at North Carolina State University at Raleigh and ultimately graduated from the University of Hawaii at Manoa with a computer science degree. Choosing computer science in 1976 was definitely entering the unknown, considering that there were no computers available in Thailand then. My high school aptitude test came back with excellent scores in logic and math, and the test recommended computer science/engineering as a field. I still remembered the geeky Jewish boy, Stuart, who sat next to me in the classroom: I asked him if he knew what a computer was also confessed that he too had never seen one. So, shrugging my shoulders, I ticked it as my chosen field. I guess that was how lifelong decisions were made back in the days before information proliferation, enabled ironically by computers. This turned out to be an excellent choice. Computer programmers were in great demand then. I remembered getting part-time gigs during college running COBOL⁴ payroll programs for the College of Arts and Sciences at the University of Hawaii. Not only did I get to spy on my professors’ salaries, I was paid a princely sum for doing so!

Always in a hurry to get on with life, I graduated, got married, and started my first job in the same month in 1980. In those early heydays of the computer revolution, you could secure great offers even if you were bored and nodded off during job interviews (which I did). I joined Burroughs⁵ as an operating systems programmer for mainframes, and rejected (other higher paid and attractive) job offers from Fairchild Semiconductor, HP, NCR, and one other firm whose name escapes me. I chose the job at Burroughs because in those days, the best-known geeks were in systems programming (today, the geeks gain fame as hackers), not applications programming, and Burroughs then had the best architecture in systems design for mainframe computers. I had prided myself as a geek. I had a solid technical career at Burroughs, who later merged with Sperry Univac to become Unisys.⁶ In 1984, I was promoted to run the operating systems group, and was the youngest, first female, and the first person of Asian descent in that position. By 1994, I had risen to the position of director of advanced technology for Unisys, and reported to the chief technology officer, in the prime of my fast climb up the corporate ladder. Around this time, this little-known phenomenon called the internet and html⁷ was rearing its head in the commercial world. I became very intrigued with the possibilities of this technology and explored how we could port our mainframe-based development environments to one where the multiple R&D centers (and from two different mainframe cultures) could collaborate using open systems tools. I was able to convince top executives on the potential productivity gains from the adoption of the internet and we formed a small team under my advanced technology group to develop this idea. Meanwhile, within the company, debates were raging between the different development centers on whether to continue the mainframe business model or to adopt a service-centric model as the threat of open systems loomed and the bread-and-butter mainframe revenues were on a continuous and undeniable decline. In such a politically charged environment, it was nearly impossible to convince anybody to pay attention to new technologies emerging on the horizon, especially if they did not immediately intersect with our core business space. I found myself spending more time dealing with corporate politics and justifying decisions instead of doing what I enjoyed most – problem-solving with the use of technology. It was at this juncture that I decided to leave my first and only corporate job.

In 1995, the Institute of Systems Science, a research center focused on leading-edge information technologies housed on the National University of Singapore (NUS) campus but funded under Singapore’s National Science and Technology Board (NSTB) recruited me to help commercialize technologies from its laboratory. Dr Juzar Mottiwalla was then the head of the institute and gave me the freedom to craft a commercialization strategy for the lab. Given a blank sheet of paper, I helped create the Commercialization Grant Scheme, which provided promising researchers S$500,000 seed funding to build a business plan while helping them search for external sources of venture capital financing. I thought effective commercialization of technology had to be done outside a research organization, and I was heavily influenced by the then-head of NSTB, the late Vijay Mehta, who did not think the government should be both the ‘judge and jury’ when it came to evaluating market opportunities for the technologies funded by it. Hence the entire scheme was to encourage spin-outs of the technologies with teams comprised of researchers and business-minded new recruits.

One of the ventures spun off under this scheme was co-founded by me while I was working on the various technology-transfer activities. The spin-off company built a set of applications and toolkit, named MASS, for encoding and decoding multilingual information based on technology research at the lab (see boxed text for detailed description on the technology). The young research team (all non-PhD research engineers) from the lab – Ho Yean Fee, Wilson Lee, Li Jian Zhong, Chong Chiah Jen – after some coaxing agreed to leave the safety and relatively stress-free environment of the lab to join the first venture-funded spin-out.⁸ The PhD researcher and software architect Dr Ngair Teow Hin declined to spin out with us because he had wanted a different commercialization path for MASS. He had eschewed venture funding and wanted to grow the business via a combination of bootstrap capital and customer-driven revenue via solution integration consulting services to large corporate customers. At that time, in the mid-1990s, venture capital funding for seed-stage software development companies were virtually non-existent, so this organic growth path was the most common choice for funding a technology business in Singapore. In hindsight, as events would evolve, Teow Hin probably had the answer right for MASS. But, I was convinced that we needed large capital investments to develop MASS properly to win in the global market. Perhaps because I had spent my entire career up to then in a Fortune 500 company and was used to reviewing multi-million dollar development budgets, I did not think the bootstrap capital path was worth considering if the technology needed to be developed to be the leader in the fiercely competitive global market.

Concurrent to my commercialization effort, NSTB had formed Singapore’s first seed-stage technology venture fund, aptly named the Technology Development Fund (TDF) and modeled the investment fund on Silicon Valley’s venture capital fund management. In parallel, Singapore’s first commercial internet provider, Pacific Internet under Sembawang Media, was formed to look at new opportunities from the internet space. I pitched the multilingual technology business plan to TDF and Pacific Internet and secured the first S$2 million cash funding in 1997. Together with the technology holding arm of ISS, which held shares in exchange for the technology licence, Star + Globe Technologies was formed with an initial paid-in capital of S$3 million ($1 million was in-kind contribution for the technology IP) with three equal shareholders. The cash investors agreed to fund the company only if I accepted the job as CEO and leave the institute to run the company full-time. There was a carve-out of a stock option pool of 15 per cent for the co-founders and employees. In those days, we were not very sophisticated as co-founders and did not fight for a larger pool for founders. As a consequence, the founding team left the institute and, collectively, we actually did not own any shares in company. This skewed shareholding, where the investors held the majority shares while the founding team only had minority options, would become relevant later in the company’s development. Nonetheless, I did not hesitate and left the institute, even with a pay cut, to be the first CEO of Star + Globe Technologies, thus ending my relatively short career as Singapore’s de facto first technology transfer officer. It seemed like the right thing to do at the time. After all, I had convinced everyone about the viability of the company – from the investors to the founding team who also left the institute.

MASS (Multilingual Application Support Services)

MASS was the internal project name for this development effort while in the research lab. Amazingly, the team and the development efforts for MASS originally did not envision it to be a ‘big idea’, ground-breaking research agenda. MASS evolved since 1989 because the research staff needed to create a set of supporting toolkits to ease their own development efforts in the multi-language processing research program. The toolkit basically enabled processing of the Unicode (universal code) character set, and contained input and display modules and a collection of information-processing tools in the form of APIs (application processing interfaces) to enable searches, queries, and manipulation of Unicode strings on both the Unix and PC Windows platforms. Competing technologies offered bilingual products – this meant they could support one additional script other than the Roman script, which meant that developers/users had to purchase multiple toolkits if they needed to support multiple, non-Roman script languages. Because MASS was designed to be a multilingual system, the architectural design was necessarily extendible and customizable. Hence, addition of new language support was relatively simple in MASS. This enabled a small team of software engineers and a PhD software architect to develop and evolve the toolkit based on a combination of internal requirements and perceived external market potential. Singapore Airlines became the first commercial customer with the sale of one licence in 1992 for the development of the multilingual menu-planning application system. In 1993–4, two more licences were sold. By 1995, MASS caught the attention of many application developers in various sectors and this resulted in over 30 licences worldwide, while the technology was still in the research lab. The major application was the library sector, with National Library of Australia, McDonnell Information Systems as reference accounts. A typical software development kit (SDK) licence for the Unix platform was priced at S$20,000. At that time, the operating systems in the market (Unix, Windows) did not support Unicode as it was an emerging standard. MASS was the world’s first multilingual information-processing toolkit and was fully two years ahead of all competition, including the platform vendors.

Our technology was world-renowned. We were approached by developers from all over the world to inquire about the technology. We had garnered many technology awards, including the prestigious National Infocomm Innovative Product Award in 1998; the co-winner for that award was coincidently Leslie Loh from System Access, now the managing partner for Red Dot Ventures, the new technology incubator supported by the National Research Foundation (NRF) of Singapore. The relevance of Leslie Loh and Red Dot will appear several chapters later in book when we talk about successful technology ventures and the new generation of incubators run by technopreneurs. Even with the accolades, we still had to fight for every customer to gain momentum and growth because Singapore companies were not keen to adopt leading-edge technology from a small startup. Within two years, we were moderately successful in growing revenue from zero to S$3 million as a multilingual technology tools supplier to primarily international customers like Sybase, Fujitsu, GEMplus, etc. We even made inroads into banks like Citibank, JP Morgan, and Banc Paribas. Our only Singaporean corporate customers were Singapore Airlines and the National Library Board. We had successfully raised a second venture round at double the initial valuation, and attracted venture capital from leading firms like Vertex Management, Walden International, NIF Fund (a Japanese fund), in addition to top-up of investment funds from TDF. Running a technology product company was a difficult business and even though we had healthy revenue and customer references, there was always this sense of insecurity about our future. Star + Globe was chasing the technology frontier in offering multilingual information-processing tools by plugging the gap on popular operating systems platform such as Windows and Unix. As soon the market need became obvious, the operating system providers would develop similar toolkits and embed them into the system. Hence, we always had to develop the next generation of tools, which meant that we were always developing for the early adopter market, a niche and hard-to-reach market segment. We knew we needed to transition from offering only tools for early adopters to more mass market oriented applications and had plans to develop such applications like multilingual search and database query tools. But this transition took time as we had to start with the technology building blocks that we created. During this transition, we earned cash flow with a healthy solutions and consulting business, which also gave us insights into future market needs. The difficult dilemma here was the balance in resource needs between the product development team and the solutions...

Table of contents

• Cover
• Title Information
• Title Page
• Copyright Page
• Note from the Authors
• Table of Contents
• Foreword by Arcot Desai Narasimhalu
• Preface
• Acknowledgements
• List of Acronyms
• Part I Raising Money for Your Technology Dream: The Importance of Getting the First Partner Right
• Part II Plunging into the Market: Managing Dilemmas and Keeping Afloat
• Part III Coaching the Young: Modern Singapore’s New Crop of Funding Schemes and Incubation Programs
• Part IV Paying it Forward: Preparing the New Generation of Start-ups for Success
• Notes
• References
• Index