Towards a Democratisation of Innovation

Abstract: Singapore is an innovation-intensive nation. In 2020 Prime Minister Lee Hsien Loong pledged to inject ‘up to S$150million’ in the country’s startup ecosystem (Channel News Asia). This paper discusses the distribution of public funds amongst startups in Singapore. It raises questions about the effectiveness of early-stage pre-seed funding and discusses medium and long-term impact of distributed funds on business performance. The paper defines startups as growth-oriented independent SMEs in pursuit Series A investments. It distinguishes between bootstrap initiatives and funding-intensive initiatives. The paper argues that there is currently a problematic emphasis on funding-intensive startups, and a potentially compromising neglect of bootstrap ventures who do typically not have equal access to smart funds, mentoring schemes and support frameworks. Equally importantly, bootstrap initiatives often escape the radar of government authorities, thus compromising the authorities’ capabilities of monitoring innovation performance across the entire spectrum.This paper uses a mixed-method approach. It draws on a series of exchanges with experts — entrepreneurs, incubator managers, investors, VC firms, as well as representatives of government funding bodies — and secondary research findings. The primary research data has been collected over a period of nine years. The preliminary hypothesis is that the support mechanisms in the context of contemporary startup ecosystems tend to be ill-directed and may compromise overall innovation performance. Various studies carried out in different parts of the world raise questions about the effectiveness of government funding for innovations that are pursued by startups and suggest that the distribution of public funds does often not benefit innovation performance generally: Following an investigation of public fund distribution in China, Hong et al. (2015) claim that ‘government grants negatively impact the overall innovation efficiency in the high-tech sector.’ Other studies (Liu and Rammer, 2016) point towards the possibility that government grants are often used as substitute for private innovation investment by established businesses who, in the absence of public funding, would be able to afford R&D financing internally, whilst early-stage startups that are in greater need of funding, often miss out on support due to requirements related to match funding or trading history. This means that early-stage startups are often disadvantaged, in particular bootstrap initiatives, whilst established SMEs and large businesses do not enhance their innovation performance through subsidies. It is also thought that there is a prioritisation of incremental innovations and a lack in funding for potentially disruptive innovations because the latter are at higher risk of economic failure. As a result, firms tend to prioritise incremental innovation, in conjunction with which it is easier to predict viability.This paper, which primarily focuses on the distribution processes used by Enterprise Singapore (ESG) and other public institutions in Singapore, raises questions about the effectiveness of public spending in relation to innovation. Bootstrap ventures that might benefit from smart-fund injections, are not captured by the Singapore authorities, and there is currently no reliable progress tracking to objectively monitor startup performance. Instead, various funding organisations including universities, VC firms, as well as the ESG, rely on each other’s recommendations in their decision-making. There is a likelihood that the selection process is subject to bias which may have compromising macro-economic implications in the long term.To summarise the above, the proposed paper raises questions about the tracking of government funded startups, and it explores the consequences of startup funding from an economic and a sociopolitical point of view. The paper discusses possibilities of reversing this trend by empowering independent startups through accessible support frameworks that operate autonomously and independent from profit-oriented incubators, VC firms and angel investment networks.Sample Sources:Hong, J. et al. (2015): Government Grants, Private R&D Funding and Innovation Efficiency in Transition Economy, Abingdon-on-Thames, UK: RoutledgeLiu, R., Rammer, C. (2016): The Contribution of Different Public Innovation Funding Programs to SMEs’ Export Performance, ZEW Discussion PapersSoetanto, D. P., van Geenhuizen, M. (2015): Getting the right balance: University networks’ influence on spin-offs’ attraction of funding for innovation, in: Technovation, Volumes 36–37, February–March 2015, Pages 26-38, Amsterdam, Netherlands: Elsevier Teece, D. (2009): Business Models, Business Strategy and Innovation, Amsterdam, Netherlands: Elsevier

Keywords: innovation, grants, investment, startup, government funding, performance, entrepreneur

DOI: 10.54941/ahfe1001518

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