Like every industry, there are cycles. It is now time for early-stage startups to rise again

Ok it’s not dead per se, but there are some strong signs that it is pretty lifeless and no longer the fun-filled paradise it was a few years back.

What defines the “early stage startup scene”?

The proper definition for “early stage” constantly changes over time and what was “early stage” 10 years back would probably not qualify in today’s definition. In 2018, a startup in the early stage would generally be an incorporated company with a somewhat validated business model. It should have segmented and defined customers, some inkling of a revenue model, raised some funding, and a solid team of founders and first employees with the appropriate domain knowledge and experience to pull it off. The local heroes like Carousell, 99.co, Shopback and HonestBee are no longer in the early stage startup scene and truthfully, this space is getting a little colder and emptier, as more startups graduate or crumble.

Why is it dead?

One has to entertain the possibility that it is simply because many stakeholders in the ecosystem have moved up the chain. The VCs that are supposedly early-stage investors are moving up and investing only in more mature startups with traction. VCs ultimately need to answer to their stakeholders and have a good ROI (return of investment), however distant that might be or seem. That is why VCs find themselves increasingly focused on more mature startups that have money on the horizon rather than nascent startups that have the probability of succeeding as much as finding a whale in a pond.

Government grants that were responsible for the “algae bloom” of tech startups many years back have been cut or repackaged as new initiatives for startups that have shown traction, grounding or are focused on deep tech or other niches. Many corporate accelerators and big conglomerates are more focused on their own returns (rightly so, as their main motivation isn’t to build the startup ecosystem or encourage more entrepreneurs to get into the game). Their interest is mainly concentrated on startups that directly benefit their cause, or the naive thinking that they can somehow plug these startups into their vast corporate machine and magic will happen.

Also read: Venture builder model vs. venture capital, what are the differences and advantages?

With this lack of support within the ecosystem, it would mean that wide-eyed fledgling entrepreneurs that are passionate about starting up will, more often that not, go nowhere with their venture, give up on their entrepreneurial dreams in a few months, then return to the workforce. Attending all the tech conferences and events can only provide that much help when you are starting from square one. Unless someone you know is a VC, an angel investor, or an established entrepreneur willing to mentor and support you, you will have a fairly hard time getting the help you need.

The days when an entrepreneur can raise money with just an idea on paper is long gone. Even at the early stage, accelerators and venture capital firms look at the golden word “traction” before any talk involving money begins. Traction involves having customers or end-users; that means having a fairly completed product/service, and a semi-validated business model and market. That is after the company is incorporated, payroll is settled and team is formed after countless meetings and high-quality networking sessions. There is a ton of work behind starting up and getting “traction” that people do not see. So as a founder, how do you get the help you need to start?

What went wrong?

Well, nothing really. It is just the ecosystem being the way it is and going through its cycles. A few years back when grants were readily available and requirements were simpler, many wantrepreneurs jumped on the bandwagon and abused the system. Now, half a decade later, it has led to a self-correction; programmes were assessed and deemed to be uneconomic to continue, hence the criteria has tightened up and focus has shifted to niche and high barrier to entry industries like clean tech and deep tech. Singapore, like every startup ecosystem in the world, will correct itself in some ways and the only variable is how long it will take.

Even the VCs who made a name in the early stage startup scene have moved on to later stage startups. It is not a preference but an economic decision. Startups with some traction, customers, solid MVP and some revenue really signify much less risk than founders tinkering with a half-baked idea and trying to figure out their next steps. It is simply a practical decision based on minimising risk and maximising return.

How is it affecting the rest of the startup world?

How does the death of the early stage startup scene affect the rest of the startup industry? To use an analogy, it is like asking how your hands will be affected when your heart stops. The early stage startup scene is the heart, and the beginning of everything. It is where passion, spirit, ideas and creativity gestate into the beginnings of a startup (whichever form that might take). That gestation will then go on to the MVP stage, seed, validation, series A, series B stages which essentially describes the entire startup world as we know it. When the heart stops pumping blood to the hands, legs and other body parts, things will stop working.

Similarly, when the early stage startup scene dries up, the entire startup funnel will be affected. Though not immediately, in time, there will not be anymore glorious future unicorns, and VCs will be complaining about the dearth of investable startups. It is not rocket science. When there is no more support for the early stage startup scene, when no one thinks it is cool or viable to startup anymore, inextricably, there will be the ripples felt in the long run, with repercussions far greater than what we can possibly fathom or understand now. Every successful company started from somewhere. So if no one is starting up, soon there will be a lack of innovative and disruptive companies.

What is being done currently?

There are incubation programs still running and pumping new blood into the startup system, but they are mostly tertiary institutions and programs funded by government policies rather than private organisations deeply invested in the health and wellness of the startup ecosystem. These incubation programs are situated deep within the layers of the tertiary institutions, with their end-receivers primarily being students or alumni. and the end-receivers are primarily students or alumni. This severely limits the target audience and range of resources they can provide.

Also read: Fantastic tech co-founders and where to find them

One big observation is that when it comes to building the startup ecosystem, government programs and policy-driven agendas cannot compare to programs driven fundamentally by seasoned entrepreneurs and ex-founders. Most, if not all the successful accelerators and incubation programs we know and love are founded by ex-founders and experienced entrepreneurs who have been through the furnace of starting up.

Tech events, demo days and tech conferences like Echelon, Innovfest, TIA (TechinAsia), SWITCH and Slush are great ways to hype up the startup scene and introduce the startup community to people who were previously unaware of the ecosystem. It is an easy way for beginners to step into the startup scene as the barrier of entry is low. The energy at tech conferences are typically high, hence serving as motivation for beginners to dream big, pursue and trudge on with their aspirations or at least clarify their doubts.

There are still some VCs like Gree Ventures, SeedPlus and Cocoon Capital that are doing some good work. We need more of these to double-down on the early startup scene and ensure a vibrant ecosystem that will endure the hard times.

Then there are hackathons, where people from all walks of life come together to solve challenges and build prototypes over a short period of time, usually culminating in a demo on the final day. Startup Weekend Singapore is a great example of such a process. Whilst a hackathon has pre-determined challenges for participants to work on, Startup Weekend is an open platform for aspiring entrepreneurs to work on their ideas. Compared to traditional hackathons, SWSG is longer than most (54 hours), and doesn’t necessarily require a technical end product.

This means that SWSG is perfect for anyone who wishes to start their entrepreneurial career or is simply curious about the startup life. There are no requirements; no technical skills nor startup experience needed, and no rule that participants need to come with an idea.

What can we do about it?

The first step to solving a problem is recognising that there is one. We have to look around, observe with a new lens, talk to end-receivers (people who are just starting up or on the fence) and decide for ourselves if there is indeed a decline in interest, excitement and buzz, resulting in the decline of funding, help and resources from the early startup scene. Is there an early-stage winter brewing or has it already arrived?

The government should review their policies and sieve out the ones abusing the grants, and that includes the gatekeepers. Throwing money to already successful startups and “hot” industries will neither reap sensible ROI nor produce more entrepreneurs. Recognising how powerful and critical they are in the entire startup ecosystem is key, as they can literally control the market with their policies and rules. It is also important for them to focus their efforts on the early-stage space by learning from the past and strategically helping enablers and multipliers in that space to further grow the ecosystem in whatever new forms it may take.

The successful entrepreneurs and founders who have exited should give back, and not just pay lip-service or only attend/speak at events that reap direct benefits. They should encourage people to embrace innovation and try new ways of doing things even within their own companies. With their experience, they should be genuinely convinced that they can make a difference in inspiring young founders and pushing them to achieve more. We need more startup heroes to step up and embrace the uneasy discussion on what it really costs them to be so successful – the hard lessons, the pitfalls and the sacrifices that can really show the factual side of things.

Like every industry, there are cycles. It is now time for early-stage startups to rise again. There is a need to up-cycle once more; shake off the dust, learn from the mistakes, put the right structures in place and stimulate more fruitful conversations amongst anyone who is willing and able to contribute to the early-stage startup space. We need the early-stage to be thriving and pulsing, if we want to see life in any other parts of the startup funnel.

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Durwin Ho is the Director for Startup Weekend Singapore and StartupX.

He has been running Startup Weekend Singapore since half a decade ago and has raised it to become one of the largest around the world. Frustrated with the lack of opportunity for early-stage entrepreneurs, StartupX recently launched The Start Pre-Accelerator in partnership with Temasek.

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The Start Pre-Accelerator, powered by StartupX in partnership with Temasek, provides you with three months coworking space at JustCo! Other programme benefits include up to $15,000 to help you develop your MVP, access to dedicated mentors & partners from the Startup Weekend network and credits & resources to support your startup and help it grow. It is a results-driven startup programme designed for early-stage founders. Learn more at https://start.thestartupx.com/

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