Good ideas are everywhere, venture capital isn’t

Good ideas materialize in diverse locations, yet venture capital investment remains concentrated in select hubs. Investors typically back exceptional founders and groundbreaking concepts, but they also assess the surrounding ecosystem that supports these companies. Factors such as regional customers, regulatory familiarity, and access to financial and technical talent significantly influence investment decisions.

For instance, Airwallex, founded in Melbourne, chose Singapore as its global headquarters due to its advantageous position, which enabled the company to tap into regional markets, maintain a familiar regulatory environment, and establish connections with a rich pool of financial and technical talent. Subsequently, Airwallex expanded into San Francisco to bolster its American investor base and recruit engineers.

This pattern highlights the importance of the surrounding ecosystem in the investment process. While investors evaluate individual companies, they also consider the viability of the surrounding ecosystem to provide employees, customers, advisors, subsequent funding, and eventual buyers. Venture capital funding tends to concentrate in established technology centers, with a small number of cities attracting the majority of global venture capital.

The rise of artificial intelligence has further intensified this concentration, with significant investment rounds going to companies that are already close to major investors, research institutions, computing infrastructure, and specialized talent. However, the presence of strong ideas does not equate to success solely due to the location.

Investors assess the probability of an idea becoming a large, financeable, and liquid business, considering various factors that can influence the company's trajectory. In essence, a venture investment is a series of interconnected bets. Founders must develop the product, recruit the right talent, and persuade customers to adopt the solution.

The company must navigate challenges, management changes, and funding difficulties. It must expand into larger markets, secure additional capital, and eventually achieve liquidity through acquisition, public listing, or other means. A robust ecosystem can mitigate risks at multiple stages of a company's lifecycle. Startups rarely operate as planned, and unexpected changes in products, customer acquisition costs, executive departures, regulatory interventions, or the withdrawal of lead investors can occur.

In well-established startup hubs, companies typically have multiple options to overcome such setbacks. Investors may assist in recruiting replacements, provide bridge financing from existing angel investors, engage specialist lawyers for deal restructuring, or establish corporate partnerships as strategic investors or acquirers.

Conversely, in weaker ecosystems, a single setback can become terminal, as the company may lack the necessary institutions, talent, and relationships to weather the storm. This underscores why investors might prefer a moderately promising company within a functioning network over an exceptionally talented company operating independently.

The latter is more likely to have access to institutions, talent, and relationships, providing a better chance of survival. The strengths derived from a thriving ecosystem often remain invisible in pitch decks. Investors recognize and price these advantages, even if they are not explicitly highlighted in the startup's presentation materials.

Successful startups contribute to the growth of their ecosystems over time. As companies raise capital and build teams, some employees eventually launch their own ventures. Founders who sell their companies become angel investors, injecting capital and expertise into new startups. Early backers benefit from successful returns, allowing them to raise larger funds for future investments.

Lawyers, recruiters, and advisors develop specialized expertise through repeated transactions, enhancing the overall ecosystem's capabilities. Mature ecosystems are challenging to replicate due to the accumulation of infrastructure, knowledge, capital, and relationships accumulated over decades. Governments can create innovation centers, launch public funds, and subsidize accelerators, but replicating decades of interaction among universities, technology companies, investors, professional advisers, and experienced founders is nearly impossible.

Silicon Valley stands as the most prominent example of a mature ecosystem, characterized not only by its substantial capital but also by the constant movement of people and knowledge between established companies, startups, and investment funds. Singapore has developed a similar role within Southeast Asia, albeit on a smaller scale.

The region has a large population, burgeoning digital markets, and a substantial technical talent pool. However, the startup economy remains fragmented, with significant differences in language, regulation, purchasing power, and corporate behavior between countries. Singapore occupies a unique position, providing many legal, financial, and professional institutions that facilitate funding for companies operating across the region.

Southeast Asia as a whole is often perceived as a single growth opportunity. Yet, the region's startup economy remains highly fragmented. While the region boasts a large population, growing digital markets, and substantial technical talent, the differences in language, regulation, purchasing power, and corporate behavior make regional expansion challenging.

Singapore, despite having a smaller domestic market compared to Indonesia, Vietnam, Thailand, or the Philippines, offers many of the legal, financial, and professional institutions necessary for funding companies operating across the region. Southeast Asia presents a distinct proposition, with its appeal linked to the scale and growth of its domestic economy, technical talent, and the potential for companies to achieve meaningful scale domestically before expanding abroad.

Thailand, with its strong infrastructure, large corporations, sophisticated consumers, and substantial financial system, maintains a limited venture market relative to its economy's size. This distinction highlights an important point: a country can possess abundant capital without necessarily providing a thriving venture capital ecosystem.

Banks generally assess borrowers based on their creditworthiness, independent of the ecosystem's support.