One of the proposals bandied about is for funds managed by the state or government-linked entities to play a more active role. One company that would never say it has not benefitted from such support is chip-tester AEM Holdings AWX .
Local private equity (PE) firm Novo Tellus, led by co-founder and managing partner Loke Wai San, invested in the then-floundering company back in 2011 and famously lifted its share price from 7 cents to as high as more than $5 at the end of 2021, giving it a market cap of more than $1 billion before the recent downturn halved it to its current levels of less than $2.
While Novo Tellus has largely cashed out, Loke remains the chairman of AEM and has helped build up a strong institutional following. These include securing Temasek as its single-largest investor with a stake of 12.5% while attracting other institutional managers such as Malaysia’s EPF and UK fund manager abrdn to become substantial shareholders as well.
Loke is also known for launching one of the three spacs — also known as blank-cheque listings — on the Singapore Exchange S68 (SGX) when the city-state tried to tap intense interest in spacs to help revive interest with the listing of what would presumably be tech-oriented growth companies that the spacs would acquire.
However, if investors were betting that Loke would repeat some of that AEM stardust on his spac, known as the Novo Tellus Alpha Acquisition, and help it find the next big winner, they would have ended up disappointed.
By the time the necessary processes were done and SGX welcomed the three spacs, global market interest in such instruments had started to wane. When the two-year de-spac deadline was up, Novo Tellus and Tikehau Capital, which backed Pegasus Asia Spac , chose to wind up and refund the money to investors. Only Vertex Technology Acquisition Corp (VTAC), launched by Temasek-backed Vertex Ventres, went ahead and acquired a live-streaming business active in Taiwan and Japan. From VTAC’s IPO price of $5, 17Live closed at 87 cents on June 12, a drop of 82.6%.
“It was definitely worth a try,” says Loke. Rather than blame poor market conditions per se, he attributes the failure to de-spac to the lack of a seller willing to merge with his spac. “I think we just needed a bit more track record to show folks to take that risk because, at the end of the day, entrepreneurs can only sell one shot and they just want to go to the best market they can,” he says.
see also: How to jump-start the stock market?
In a sense, launching the spac was risk-taking on his part, which sophisticated investors all understand and learn how to manage. If a capital market is characterised as being relatively risk-free, participants will end up focusing on fixed-income investments, yield stocks or REITs. “But if you want to have high equity that matches innovation, you have to have a capital market that has some risks. It can’t be risk-free,” asserts Loke.
See also: Labubu dethrones Taylor Swift for fifth place among top searches on Carousell
The way Loke sees it, Singapore is already doing well growing “patient” capital through R&D, investor education programmes and tax policies for venture capitalists (VCs), among others. “The missing link is capital markets, which is defined as risk-taking at the end,” he says.
To make it worthwhile for such “risks” to be taken, there has to be a “positive flywheel” of an entire interlinked chain of entrepreneurs and investors coming together to repeatedly create value via new companies, realising that value, and starting new ones.
In a typical scenario, when a tech company reaches a certain stage, thanks to R&D funding, it can be spun off to seek funding from VCs who have just one aim — to find the best returns for themselves and their investors. “No VC does national service, their allegiance is to their LPs [limited partners]. Typically, good VCs have global LPs and not just the same local LPs,” says Loke.
When it is time for an exit and if the local equity market is not viable, the portfolio companies are just going to be sold to the next highest bidder who may not be from Singapore. “This means you’ve just subsidised the entire company to go to Japan, Korea or somewhere else in China. So, the funding doesn’t get recycled,” points out Loke.
Loke says the aim of policymakers should be to create a start-up/VC/capital market ecosystem with the momentum to recycle capital.
Even so, there is always a risk of “leakage” of money invested in the company as most are sold off and not listed, he adds. “If you have a viable capital market, at least you have the option to capture some, although not 100%. But you are capturing nearly 0% right now. So, if you want to capture 5%, that is going to be a 500% increase,” he reasons.
“SGX needs an extraordinary push now because it is stuck in an orbit. Doing more of the same puts you in the same orbit. You need some kind of kinetic energy to take it to the next level. And it’s almost like physics, right?” says Loke. “So what is that kinetic energy? It is a flush of liquidity.”
- reporting for all stories by Nicole Lim, Goola Warden, Felicia Tan, Douglas Toh, Jovi Ho, Samantha Chiew, Khairani Affifi Noordin and Chan Chao Peh
