The impact of the institutional environment on the venture capital industry in Singapore

Abstract

Venture capital in most of Asia may be more accurately termed a private equity industry which focuses on funding mature firms in slow growth sectors of the economy rather than on funding start-ups. However, the venture capital industry in Singapore is becoming substantially different from that of much of Asia in that it funds high technology startups. The industry in Singapore has grown substantially in recent years, with funds under management growing from about US$20 million in 1983 to more than US$7 billion in 1999. These developments together with the government's efforts to make Singapore a venture capital hub for Asia motivate our examination of the venture capital industry there. Institutional theory frames this analysis of the emergence of the venture capital industry in Singapore and the distinctiveness of its evolution. Employing a replication logic methodology during 16 in-depth interviews with venture capitalists and senior government officials, it is found that the institutional environment, particularly the regulatory environment created by the government and its agencies, helps to explain key differences in the Singapore venture capital industry compared with that of the rest of Asia. Cognitive (cultural) institutions also impact how venture capital firms operate in Singapore, particularly causing foreign venture capitalists to adapt their methods to the local cultural setting. Our results highlight the importance of the institutional environment, particularly of the government, in guiding the emergence and evolution of the venture capital industry.