For those of you who have been following the tech startup scene closely, you would have heard of Arnon Kohavi, an Israeli investor who tried but failed to set up a venture capital firm in Chile. As a result, he shifted his new fund, Yarden VC, to Singapore.
Writing to US tech blog TheNextWeb, he talked about the reasons why he left the Latin American country after six months, and highlighted the many drawbacks of the startup environment over there. This was after he proclaimed that “the next Skype, Facebook or MercadoLibre will have to come out of Chile.”
The interview sparked off an intense debate.
A Start-Up Chile participant wrote in to TheNextWeb to express disappointment at Arnon, questioning his commitment to Latin America. Sarah Lacy, formerly a columnist at TechCrunch, went even further, suggesting that Arnon is a fraud.
“Arnon Kohavi. Remember that name, don’t give him money and don’t let him invest in your startup,” she warned in her acerbic article.
But Arnon has many supporters too, which included many Chileans who agreed with his observations and even supported his decision not to put any money in the country.
Since that controversy, Arnon has been quietly spending the past three and a half weeks in Singapore, meeting people in the startup ecosystem, including entrepreneurs, investors, incubators, and public servants. He was even a judge at a Founder Institute event and was also involved in the recent DEMO Asia auditions.
His goals, he says, includes getting “a good sense of the ecosystem and how each group in each country relate to one another,” and also raising money from individuals and institutions both in Singapore and the region, to the tune of US$40M.
SGE: So how’s progress on the fundraising?
Arnon Kohavi: Well I’ve only spent a few weeks here so it’s more to learn, meet the people and understand the ecosystem. I’m starting to make trips outside of Singapore to the countries in the area. In the coming weeks, I’ll be going to be in India, Vietnam, Indonesia, and several other countries.
SGE: When you do raise the funds, how many startups are you planning to invest in?
AK: A VC fund in this region needs to do “seed plus” investments — invest in 20, 30 fairly early stage companies, and then keep funding them as they grow and show promise.
I would say the funds here needs to invest in more companies than the traditional VC in Silicon Valley. The reason is because you have to hold the hand of the company, you have to work with the company from a fairly early stage, because there’s not as many co-investors and syndication as compared to other countries and you don’t have bigger funds take over the investments because these funds don’t exist as much.
In Silicon Valley, the magnitude is bigger, so you have a lot of meetups and events, much more than anywhere else in the world, so you can easily talk to people, find people to join your startups. It’s very easy to get mentors and serial entrepreneurs to help. There’s a very developed angel network and a very developed early stage VC network. The critical mass and the ecosystem is there.
Also, Singapore needs to look at Israel as a model and not Silicon Valley because Israel is also far away from the markets like Singapore is and it’s a fairly small country. What you need is this network of people in the funding side, the mentorship side, the advisory side, the legal side, and so on.
SGE: So having spent three-and-a-half weeks here, what’s your sense of the tech startup ecosystem in Singapore, and how do you think it can be improved?
AK: It’s a small but growing ecosystem. There’s a lot of programs that government is providing. There’s a sense that people are expecting things to grow in the future.
What Singapore needs is a relatively large, successful exit, what I call “The ICQ Moment”, which happened in Israel. Because when ICQ was sold in Israel, every young person wanted to start a company because the guys who were very young each made a hundred million dollars. They became role models. So I think what you need to have here is a big success, so that young people don’t go to work for banks or big companies but they say: “I want to start a company”.
SGE: How would you define icq moment, how big a success?
AK: I think even a 50 million to 100 million dollar exit as long as the founders still have a big equity in the company. If a fairly young guy made five to ten million dollars, that’s probably going to make an impact on other people. You don’t need a Facebook-sized exit. Or the exit could be in an area that’s very impactful and you get a lot of press, and become sort of like a celebrity because you created something special. Maybe like Creative, 20 years ago when Singapore had a few companies that were very well known outside of the country.
SGE: What’s your take on the entrepreneurs in Singapore?
AK: It’s irresponsible for me after three-and-a-half weeks to have an firm judgement. But what is encouraging in Singapore is that it’s like a melting pot. It’s not just about Singapore-born people, it’s also about foreigners coming here and working from here. It doesn’t really matter who is successful, whether it’s an American living in Singapore, an Indian living in Singapore, or Singaporean. What matters is that the company will be based here, or the headquarters will be here, and it’s encouraging that you are seeing entrepreneurs from different countries who are now based here.
What I noticed that’s important about Singapore is that startups need to focus more outside the country. The Singapore market is too small, and also different, because it’s a developed country, you cannot learn what you did in Singapore and use it in Jarkata and other markets, even Kuala Lumpur is no good.
If you want to do startups that’s focused in Indonesia, you should immediately go to Indonesia and not try the product in Singapore. That is what we do is Israel, very few Israelis try their products in the local market, because it will not give you any indication. It’s very easy to reach success in Singapore, but that does not give you any indication of success in the world.
SGE: What are the gaps in terms of funding and mentorship?
AK: There are some programs by incubators and institutes that are good but there aren’t enough serial entrepreneurs in Singapore. Some of the best mentorships are not necessary by foreigners coming here but by local entrepreneurs who are successful and they invest and they’re involved. It still hasn’t happened here because there hasn’t been many exits.
My observation so far is that there’s a lot of incubators and money in the early stage and money for more established companies. But what’s missing is — and this is what I’m trying to target — is the A, B round, or late seed A, B round. This gap in the middle is where a company is beyond the idea stage and has already raised 50,000 to 100,000 dollars. But between 100,000 dollars to 2-3 million is the part where it’s hard to raise money.
SGE: How far do you think the government can go in spurring tech entrepreneurship here?
AK: In general, it’s good to have government programs like Israel had. However, in the end the governmenet cannot create an industry, the private sector needs to be involved. So, for example, to create a vibrant VC industry you need institutional money — pension funds, and other institutions who invest in this asset class.
When you look at a market like Israel — the government helped but they did not create the industry. The industry was created because there was a lot of MNCs in the country and the people left the companies to start their own. There were enough people in the private sector who gave money and took a chance. It’s more an issue of business poeple and instutions in singapore taking a risk with technology. Historically the focus here has been in real estate and other things. People need to realize that technology can be a very profitable investment.
SGE: There’s been a lot of controversy about your short stint in Chile, and some have said that you gave up too easily on the country and were never serious about investing there in the first place. Is that true?
AK: I made a lot of friends in Chile, I like Chilean people, and the most successful entrepreneurs in Chile are friends of mine. My point is, things are going to take time, government initiatives like Start Up Chile are good programs, and they address some of the issues that Chile faces. But not others. Some of them are cultural aspects that would take some time, ten years or even a generation for the young people who are now 20 to turn 35. That’s why I said it would take ten years.
Now, no one paid me to move to Chile. I moved to Chile on my own money, and I had to fund myself. As a businessman, I said after six moneths I will determine if I can do business there or not. And I think it’s legitimate that after six months, if I feel that I cannot do business, then I cannot stay there for ten years hoping things will change. I think it’s up to Chileans to do that. I hope to invest in Chile, to come back when Chile is ready.
I think it is clear that I was not successful in what I was trying to do, and part of being entrepreneur is to admit when sometimes you’re not successful. I was not successful and there was a variety of reasons. But I think it was important for me to point out especially for my Chilean friends some of the observations that I had after living there for a long time to give them this feedback via the blog. Most Chileans were very appreciative, I got very, very positive responses from Chileans who said that I did point out the correct things.
SGE: Obviously the environment factored in, but were the other reasons why you failed?
AK: I was counting on the wealth that was created in Chile, especially wealthy individuals that I knew and were connected to through some friends. I was hoping that these people would find that the time is ripe for them to take a chance and invest, but it seems that they were not ready.
When the Israeli venture capital industry started, the initial investments and funds came from individuals — wealthy families and wealthy people. But the wealthy families in Chile are not ready to make a serious investment. I think it’s an evolution, they have not seen an ICQ moment. They are too comfortable, they make a lot of money from copper and natural resources and in many areas the society is very monopolistic, very few families control many industries.
So they’re making enough money and to a certain degree they don’t care. But it may change; my hope is that there will be a generational shift and that the people aged 20 to 25 who are starting companies will become successful. And in ten years they’ll make good money. Then, the situation be different.
SGE: Was six months enough time?
AK: Six months is enough to understand the culture and society and the responses from my Chilean friends is that I touched on the right points. I think I have a very good understanding of Chilean society now. In the tech world, six months is a long time, you can get a feeling of whether you want to stay longer or not. I still hope to invest in Chile and work with Chilean entrepreneurs but I realize that to raise funds there would be difficult.
SGE: Funding wise, what’s missing in Chile?
AK: There are some serial entrepremeurs in Chile that are providing mentorship. But the part that’s missing in Chile is exactly the part that’s missing in Singapore, which is the late seed, A/B rounds. Once you are very successful you can raise money from a foreign investor. People in government, people in the tech, local ecosystem all believe that’s the missing spot. And that’s why I originally went there.
SGE: But it’s difficult to attract foreign investors to Chile, isn’t it?
AK: Yeah, Chile is a small country that only has 17 million people. So, most foreign money in Latin America goes to Brazil. The challenge Chile has is that in terms of foreign investment, Chile is not the top priority. It’s the same for Singapore, most foreign funds have offices in China and India rather than in Singapore.
SGE: Now that you’re here, how committed are you to Asia?
AK: I’m committed to companies that I invest in and the entrepreneurs that I work with, regardless of where they are in the world, in Chile, in Singapore, whatever. It doesn’t matter where I physically live, I think it is important to spend time in the country to understand the culture and the ecosystem. But you don’t have to be there all the time. I’m a businessman, I’m committed to making good investments and in the end to make good money. I’m very open about that. I’m exploring this region and where I find good and interesting opportunities, that’s where I’m going to put my money.
SGE: Any companies in Singapore that you might potentially invest in?
AK: Yeah, I’ve seen a few interesting companies, even here in Singapore. I’m looking at some already.
End.
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