The Covid-19 Inflection Point for SME’s | A Monumental Opportunity for Singaporean Entrepreneurs

The Singapore government can’t be blamed for this institutional inertia. It has been pushing companies to board the digital bus for years. The government has introduced various policies and grants, such as the Productivity and Innovation Credit Scheme (PIC), SME Go Digital, and the Productivity Solutions Grant (PSG). However, the bulk of SMEs have resisted modernising for various reasons, like costs and integration issues.

Launching off to the ISM event in Amsterdam

The current pandemic could be the watershed moment that sees small business owners finally make the jump online. The impact of Covid-19 on the Singaporean economy is already looking serious, with a 2.2% year-on-year contraction in the first quarter of the year ending December 2020 alone.

The Infocomm Media Development Authority of Singapore (IMDA) has worked with the Information Technology industry to provide remote working solutions for companies. The government has offered free trial periods of between 1-6 months for these digital solutions.

Now, with the need for digitisation greater than ever on account of the pandemic, the government is stepping up its efforts. Government agencies have stepped up their outreach efforts to SMEs, publishing pieces evangelising digitisation in leading dailies. In March, the Singaporean government increased its portion of funding for digital solutions under PSG from 70% to 80% of the costs until December 31, 2020. This means the companies only have to pay 20% of the cost to procure these solutions.

The scope of the grant has also expanded, covering tools for online collaboration as well as accounting, enterprise resource planning, and HR software.

For some companies, it might still be too little too late. But others that were already in the midst of digital transformation could emerge better positioned for opportunities both during and after the pandemic.

Policy push

Policy push

The most popular Singapore government policy in its digital push was the Productivity and Innovation Credit Scheme (PIC). Introduced by the Inland Revenue Authority of Singapore in 2010, it allowed companies to claim 400% tax deductions or a 60% cash payout for a variety of things, ranging from procuring IT or automation equipment to training employees and acquiring and licensing intellectual property rights.

While some companies were able to improve their productivity by procuring automated machinery and equipment under the scheme, loopholes in the programme led to widespread fraud. Companies misused the scheme by marking up prices of equipment to take advantage of grants, a food and beverage company owner told us, on condition of anonymity.

In 2016, more than S$5.8 billion (US$4.1 billion) was given out in tax savings, cash payouts and bonuses to over 143,000 companies under PIC. In 2017, more than S$332 million (US$234.1 million) was recovered in taxes and penalties from non-compliant taxpayers, including fraudulent PIC claims.

The scheme was finally phased out in 2018. In its place came an initiative specifically targeting SMEs—SME Go Digital. This sought to pre-approve solutions eligible for the Productivity Solutions Grant (PSG), which was also implemented in 2018. This sought to plug the holes in PIC, where companies were given more say in which solutions they procured.


Vickers Venture’s Deep Expertise in Emerging Trends: Our Goal is To Give Back & Own the World of 20 and 30-Somethings

Tan, though, remains unfazed. He says the firm’s first three funds are seed-stage funds, which take a longer period of time—about 15 years—to mature. The underperforming Fund III, says Tan, still has another four years before it will be closed. Vickers has already signed to partially exit two companies which will return 20% to the fund, bringing the DPI up to 37%, he adds.

“We have also received interest, including one term sheet that could see another 60% returned to investors, which we are still considering. We still have some time so we will weigh the DPIs versus overall return from an IRR perspective,” explains Tan.

Investments Recently Made by Vickers Venture Capital Partners

Investments Recently Made by Vickers Venture Capital Partners

Vickers does have some exit prospects on the horizon. Several companies in its portfolio are looking to go public in the next few years. One of them is US-headquartered analytics company KPISOFT, which Vickers first invested in via its Fund V in September 2016. “They originally wanted to go public last year using the JOBS Act in the US, but we looked at the companies that went public—they didn’t perform very well and the liquidity was low,” says Tan.

These are the three companies that I’ve bet on using 15% of a fund. So far, two (Samumed and Baidu) have paid off handsomely, and RWDC is on track to do the same as well. I think it will be a unicorn by the end of 2020 or early 2021.


Instead, the company has now decided to go public via the conventional route. This means it will take a few more years to build up its revenue and size. “We’re targeting to go public in 2022, and hopefully it will be a unicorn by then,” says Tan.

Big bets
As it looks to raise a further US$300 million for Fund VI, though, Vickers is banking heavily on Samumed’s prospects to attract LPs.

Vickers has a rule when it comes to betting heavily on a single company—it is only allowed to invest up to 20% of the fund on one company. Vickers invested 15% of its US$81.1 million Fund IV into Samumed.

Tan was introduced to Samumed by his San Diego-based co-founder Khalil Binebine, who was a practicing medical doctor in New York. “The first call [Binebine] gave me [after meeting Samumed] was, ‘Finian, I’ve found god’s bill’,” he recalls. “That was the beginning. The rest, as they say, is history. We’re very, very excited about Samumed and it’s the largest company in our portfolio at the moment.”

In documents accessed by us, Samumed is Vickers’ “best-performing” deal so far. The firm expects it to deliver between 10-83X returns, although there is yet no exit on the horizon so far.

Samumed is attempting to develop drugs that could repair or regenerate human tissues by targeting the Wnt signaling pathway, a regulator for cellular processes. The company’s lead project, lorecivivint, is a drug meant to treat knee osteoarthritis.

The Advantages to Shipping Multiple Products From One Company

Emergex, though, is still a risky bet for Vickers. The vaccine space is crowded; some of the biggest pharmaceutical companies, like Johnson & Johnson and Sanofi, and big donors like the Bill & Melinda Gates Foundation and BARDA, are racing to produce a Covid-19 vaccine.

The crown jewel in Vickers’ portfolio, though, is Samumed, a San Diego-based regenerative medicine technology company. In 2012, Vickers invested 15% of its US$81.1 million fourth fund into Samumed. The company’s most recent fundraise—a US$438 million round—in 2018 valued it at US$12 billion. Almost single-handedly, Samumed has turned Fund IV into one of the top-performing funds in the world—Vickers has projected returns of 42X for it.

Turning to deep tech

Turning to deep tech

“We like deep-tech startups because they typically aim to solve a real problem in a breakthrough way. Because of this, the value is much more defensible compared to, say, a consumer-discretionary tech business,” says Paul Santos, managing partner at Singapore-based Wavemaker Partners.

“Many deep-tech startups will tend to have valuable intellectual property (IP) or trade secrets that allow them to earn high margins and basically ‘print money’ if they get things right,” adds Santos. Wavemaker focusses on seed funding in enterprise and deep-tech startups across Southeast Asia. Biotech companies like Emergex are particularly likely to grow in status and value given the prevailing Covid-19 crisis.

Samumed and deep tech notwithstanding, Vickers’ funds haven’t all been runaway hits. In fact, its fund performance has been rather mediocre, according to experts. With only five full exits (and six partial exits) to date, its limited partners are yet to see great returns.

Take its Fund II, for example. As of the quarter ended September 2019—some 13 years into the fund’s existence—Vickers estimates a multiple of just 2.58X. This sort of return is paltry, given how much time has passed. The fund’s internal rate of return (IRR) stands at just 11%. Finian Tan, Vickers’ co-founder and chairman, however, is a study in confidence.

Before Baidu

Prior to DFJ, Tan had a brief stint as the deputy secretary of trade and industry in the Singaporean government. He claimed to oversee the creation of the billion-dollar Technopreneurial Innovation Fund to boost tech investments in the city-state.

With the spoils from the Baidu deal, where Tan took up his carried interest in the form of shares, he began life as chairman and co-founder of Vickers in 2005. To date, the firm has raised just over half a billion dollars. One of its earliest investments was the Asian Food Channel (AFC), a Southeast Asian pay television channel. AFC was sold to American media company Scripps Networks Interactive in 2013 for US$66 million, giving Vickers a solid exit. According to a pitch deck obtained by us, Vickers exited AFC with a 5X return.

Prior to starting Vickers, Tan’s biggest claim to fame was a shrewd US$7.5 million investment in what was then a newly created and little-known Chinese search engine called Baidu. At the time, Tan was helming the Asian operations of Silicon Valley VC Draper Fisher Jurvetson ePlanet. By the time Baidu went public on the NASDAQ in 2005, the VC’s 28.1% stake was worth around US$1 billion.

A flaw in its business model meant the company expanded too boldly

One key strategy investors saw opportunity in was its expansion to markets like North America and Australia in 2019. Zilingo aimed to capture the imagination of Hollywood, international celebrities and influencers. To work with them on developing their fashion labels. It barely scratched the surface.

Beyond the ideas, brands and influencers wanted to see success stories. But Zilingo’s few celebrity brands were from Southeast Asia—including Indonesian actress Pevita Pearce—and not recognised in the US. The firm also apparently struggled to get its promised supply chain together. Zilingo could really call on fewer than 100 factories for manufacturing, one former employee said, despite projecting far bigger numbers in public.

A bumpy month for start-up Zilingo

Instead, the ‘soonicorn’ finds itself pulling out of these markets. Zilingo is now pushed to refocus its efforts on Southeast Asia—its homegrown but less lucrative fashion buying market. But the pandemic is no time to rebuild a business in an already less lucrative market either.

With its shiniest growth engines removed, Zilingo faces a crucial period if it is to live up to its billing.

“You’re always valued on future growth potential, the bigger the promise the higher the value but have to deliver. It’s a gift and a curse—you get a lot of money but a lot of pressure.”


Hollywood (not) calling

On paper, Zilingo had the credentials to break the US. It boasted a supply chain of 5,000 manufacturers across Asia, it knew e-commerce—through its consumer and business-facing online stores—and it pledged US$100 million to building out its North America operations. To top it all off, it had Jay-Z’s branding to propel it forward.

Zilingo opened offices in New York and Los Angeles to fashion business and crack Hollywood. It hired local design teams to adapt to market flavours, and it even recruited a six-person sales team dedicated to the US.

Hollywood (not) calling

The idea was simple. Any celebrity or influencer with a large online following could develop their own fashion label using Zilingo and its supply chain network. The strategy was modeled on the success of celebrities like Kylie Jenner—who sold her Instagram-first cosmetics brand to beauty giant Coty for US$600 million in November 2019.

Those already in fashion, like fast fashion labels, could tap that network to quickly iterate on new ideas. With Zilingo, designs would become finished products in months—rather than a year—meaning faster reaction to trends and more sales.

The pitch won Zilingo audiences with big names like Creative Artists Agency (CAA)—Hollywood’s top talent agency—and Revolve, a pioneering online fashion brand that raised over US$200 million in a 2019 NYSE IPO.

But while Zilingo’s ‘move fast’ approach worked in the startup world, it didn’t port to fashion. The US push culminated in a handful of products, one highlight of which was a set of towels for a brand, former employees said. The issue was much the same in Australia, where promising meetings did not translate to sales.

Creating an Amicable Attitude to Difficult Customers

“A delivery person could do four food orders in the time taken for delivering one Genie item,” Sunder says, adding that compensation has been designed to nudge delivery executives to put the customer first.

Dunzo’s mission now is not to win over every neighbourhood, but win in neighbourhoods that make the most economic sense on its path to finding 25 million transacting customers. These 25 million represent the lowest hanging fruit—digitally-savvy users with significant disposable income. The number isn’t plucked out of thin air either—India is estimated to have around 25 million credit cards.

Different strokes

In foodtech, even competitors revere Swiggy’s preparation. “They go step by step—first pilot something for a long time, and only then roll it out. Measure the data in one or two locations. Swiggy is very systematic,” says an angel investor in a competing cloud kitchen company. Swiggy is hoping this strategy will let it pip rivals who’ve spent years mastering the areas it is only now entering.

But while Swiggy can tap into the large customer base from its food business, it needs to convince people to think Swiggy when they think of essentials. That means competing for mindshare with the likes of Bigbasket and Dunzo.

This will not prove easy. Because in much the same way Swiggy has become a verb for ordering food, Dunzo has done the same with concierge services. In that sense, Genie marks a clash of two verbs: Swiggy and Dunzo.

Building a Positive Company that Gives

Building a Positive Company that Gives

And even as Swiggy has moved to realise the hyperlocal opportunity during the lockdown, Dunzo has seen a surge in both users and usage. Its organic app downloads have shot up 4X since the lockdown, claims Kabeer Biswas, CEO of Dunzo. Order volumes up until 20 April, he says, have organically surpassed the volumes for all of March.

Swiggy, though, would do well to look at Dunzo not just as its competition but, more importantly, as a cautionary tale. Over the past year, rather than trying to maximise its early-mover advantage, Dunzo has been scaling back. While it previously hoped to be in as many as 16-18 cities by 2020, it is currently only in nine. And even in those nine, it has withdrawn from many neighbourhoods as it looks to reduce its cash burn and sort out its unit economics.

Dunzo’s loss per order fluctuates between Rs 18-22 ($0.25-0.31), Biswas had told us in January. To improve this, Dunzo is withdrawing from neighbourhoods where it doesn’t see high order volumes. In Bengaluru and Pune, for example, this helped the company lower its loss per order significantly—to around Rs 10-12 ($0.13-0.16).

“If we don’t get enough orders, that geography is not going to turn profitable unless we charge customers a high delivery fee,” says Biswas. “So, the only way to make money in this business is by driving density. That’s why we don’t want to be in non-dense geographies that are not going to turn profitable.”

The Market Environment where Swiggy Strategy is Applicable

Classroom training was not possible. So, Swiggy began to virtually train up to 45,000 delivery partners to cultivate new habits. For instance, the food-ordering business requires a delivery person to just pick up a brown bag from the restaurant and ferry it to the user’s location. The restaurant takes responsibility for the contents of the brown bag.

But with Swiggy Genie and groceries, its delivery personnel are responsible for the contents and quality of items they pick up. Swiggy’s operations team prepared videos of step-by-step explainers of these new processes. In early April, Swiggy began an app-based video training programme for its delivery partners.

More than 25,000 experienced delivery personnel accessed these training modules on the delivery partner app, followed by a test conducted in various regional languages. According to a Swiggy delivery executive, the tests help to stay updated with small changes in processing orders. It typically takes him an hour to check these videos.

Modular learning

Modular learning

The learning modules focus on specific points like what is a grocery pickup, how is it different from a food pickup? What is the difference between a paid order and a non-paid order? (A paid order is for pick-up and drop errands. A non-paid order is one where the customer pays after confirming the order.)

To widen the scope of its store listings, Swiggy began to crowdsource information—asking its customers to share details of their favourite shops. “In a locked-down world where I can’t send people out to do a survey, and I can only rely on Google and other such public information to some extent, we had to ensure no popular stores are missed out. Just ask the consumer,” says Sunder of Swiggy.

Sunder says Swiggy previously did this while expanding its food services to new cities. “We asked consumers to tell us the most famous restaurants in their neighbourhood. Local intelligence is always good,” he says. Swiggy even launched food services in Manipal (an education hub) before Karnataka’s second-largest city, Hubballi-Dharwad, because a crowdsourcing initiative showed far more demand from Manipal.

Swiggy’s Wish Granted by the Genie

Swiggy worked out compensation packages for delivery personnel during the ongoing Covid-19 phase, as well as for when normalcy eventually sets in. “We are changing the way compensation structures work,” says Sunder.

Before the lockdown, the incentives were for maximising food deliveries. “But now, it is hard to generate many orders for delivery partners to be able to make what they are used to. With low order volumes, they won’t even come to work,” he adds. Instead, Swiggy extended a minimum guarantee to more delivery personnel to keep them logged in to Swiggy even during the lockdown.

The company also had to adapt its compensation system for its three line items—food, groceries, Genie. This is because the average distance of a food order for a delivery-partner is 3.5-4 kilometres. But for a Swiggy Genie order, distance is defined by the consumer. So, the compensation system has to factor in varied scenarios for distances that a Genie delivery demands.