Startups struggle to crack the sustainability code

Of the 460,000 firms formed in 1998-2017, only 984 were able to successfully exit.

Despite holding the title as one of the most enterprise-friendly countries in the world alongside tech meccas like Silicon Valley, homegrown startups in Singapore still face considerable difficulty in ensuring their long-term growth and successfully graduate from the startup scene, according to a report by Ministry of Trade and Industry (MTI) economists Chia Keat Loong and Reuben Foong. 

Out of the 460,000 new firms formed during 1998 to 2017, only 984 were cited as “success cases” or those that were able to publicly list on the stock exchange a few years after formation or exit through acquisitions.

Also read: 1 in 5 fintech firms think Singapore doesn't lure enough venture capital

The ability of a startup to successfully exit has also remained flat in the past years although the growing number of startups being formed every year is likely to raise the chances of more exits.

“We find that the ECPI has shown an upward trend over the years [1998 to 2017], driven largely by an increase in the number of new firms formed every year. This suggests a steady increase in the growth potential of each cohort of new firms entering the market,” the report added.

The Entrepreneurial Cohort Potential Index (ECPI) is a measure of the growth potential of each new startup cohort.

Also read: Singapore needs to push its startups beyond seed funding

A separate report from the National University of Singapore notes that startups in the Lion City have a five-year survival rate of 53% which is slightly higher than 49% in the US and 42% in the UK due to the higher number of funding vehicles like angels, corporate and government accelerators, venture debt and private equity financing operating in the local startup ecosystem.

Startups are more likely to succeed based on a number of factors including the cumulative years of experience that the founders accumulated in managing firms they previously founded, the exporting activity of the new firm, and the Intellectual Property (IP) ownership of the startup, according to the MTI report.  

The Lion City's strong economic position also lends support to the growth trajectory of its homegrown firms, the MTI added. “This could be due to the positive signal that higher GDP growth conveys to entrepreneurs about the business environment, thereby encouraging more new firms to enter the market; and/or the increase in economic activity arising from the entry of new firms with growth potential.”