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Firms Tap New Venture Capital Source

Beth Hughes, of the Examiner Staff
March 24 1991

Momenta Corporation could be just another Silicon Valley start-up -- potential larded with risk -- but given the reputation of CEO and president Kamran Elahian, getting in on the latest round of financing is almost a sure thing.

And the latest round of financing, he's discovered, is coming from Singapore.

Venture capital from cautious Singapore, the city-state on the Straits of Malacca, is the newest wave of Asian money to become available to high-tech entrepreneurs,
starving for cash as American money sources dry up. For those northern Californian entrepreneurs such as Elahian, who have attracted their attention, the
low-profile Singapore moneymen are, more and more frequently, an answered prayer.

For if Japanese money is controversial, Taiwanese money acquisitive and Hong Kong money desperate, by the same rough standards, Singapore is "a classic passive
investor," said Richard Radez, president of Russell & Company, a New York financial advisory group that specializes in Pacific Rim financing arrangements. He is the author of a recently released 130-page report, "Accessing Venture Funding in Singapore."

One Singaporean fund manager with impeccable government connections, who asked to remain unnamed, estimated that there is easily the equivalent of $500 million (U.S.)
invested in high-tech ventures in the United States, with about $1 billion worth in cash ready and waiting. At least half is destined for California, and most of that will end
up in the Bay Area. "Singapore is a very interesting country," said Elahian, the name behind CAE Systems, a design automation software company sold to Tektronix for $75 million. He went on to co-found Cirrus Logic, a semiconductor firm that grew to over $85 million in five years, before starting Momenta.

"We liked the way the government was operating," he said. "There is a very low level of corruption and a high-level of efficiency. . . . They see a new age and a high level of technology is moving in there, that is beyond Japan and beyond the U.S. Our technology is a few years ahead and they could see that."

Among Momenta's initial investors for its pen-based computer now being developed is the Walden Group, based in San Francisco, with three international funds based in
Singapore. Lip-Bu Tan, the general partner of the Walden Group U.S., has by his own account worked closely with the Singapore government for some 10 years. After he invested in the first round of financing for Momenta, he helped the company obtain funding in later rounds from other Singapore sources, including the government, when
Elahian decided to locate manufacturing and regional offices in Singapore.

Elahian returned the favor by investing some of his money in a Singapore government-directed fund that invests in entrepreneurial ventures in Singapore.

"It's not only money," said Tan of the fund for fledgling entrepreurs, "it's role models." It is, he points out, a very positive cross-pollination.

It is also an arrangement that underscores the complex relations in the Singapore venture capital community, and one that suggests that in Singapore, the government
may in fact be among the most influential funding sources. The government is renowned for its "mommmy knows best" micro-management of citizens' lives, attempting to
regulate everything from flushing in public toilets to marriages among college graduates. But in the business arena, this has earned it a reputation for efficiency, innovation and honesty.

Regional Economic Leader

The motive? Singapore, with a population of 2.7 million on 245 tropical square miles, sees itself assuming economic leadership of southeast Asia in the 21st century. The
center of a regional financial and trading network, the 26-year-old Singaporean economy grew 9.2 percent in 1989 and 11 percent in 1988.

The private sector in Singapore is "in a way, like Japan, where the private companies try to work in unison with the government to maximize the benefit of the strategy," said Richard Yen of Wearns Technology Corp. in Santa Clara, which is wholly owned by Wearne Brothers, which is listed on the Singapore Stock Exchange. Most of their
investment is in California, "because helping start-ups takes a lot of time, so it is better to be in one region." "Rather than something sporadic, one or two investments a year, it was a steady stream, indicating that something fundamental had taken place out there, something systematic, structured. What changed was that the Singapore government decided it would be beneficial to have a venture capital commmunity. They took the initiative and put their money behind it."

In the past two years, Singapore companies have invested more than $580 million worth overseas in acquisitions, strategic alliance and mergers, half of them in the U.S.,
according to Singapore government figures.

"Singapore has been investing in the U.S. lots longer than has been obvious or apparent to most people," said Dr. George Koo, manager and chief executive officer of
International Strategic Alliances in Mountain View.

Keep a Low Profile

But these are investors with such a low profile, they're almost invisible. The Singaporeans are quietly targeting what they see as technologies of the future -- bio-technology, micro-electronics, information technologies, agrotechnology and aerospace industries.

"There is a lesson to be learned from the Japanese," said Yen. "If you want to become very successful in an industry or a segment, sometimes you have to leapfrog. With a new industry, there's not much catching up, there's not much in the past, it's all in the future, so everyone's more or less on par. As long as you have good people, sometimes in the newer technologies, brainpower can count more than capital."

Radez estimates there is at least $665 million under management by the top Singapore venture capital funds. He estimates there is another $69.6 million worth managed by
the Singapore Economic Development Board. And there are at least 10 corporate venture funding sources with several able to marshal resources up to $100 million.

About one of every two Singaporean investments is in the U.S., said Radez, with most of that landing in Northern California, within easy reach of several fund offices scattered about Redwood City where they are an insider's secret.

"If you went around the Valley asking every entrepreneur if they knew about this money, I don't think that many would know," said Elahian.

Elahian would not give an exact figure for the amount of Singaporean investment in his company, saying only he's received "multi-million dollar investments" from Walden Capital, which controls substantial amounts of Singapore money, Singapore Technologies Corp., the Singapore Economic Development Board and PACVEN, a fund
which is part of the Walden Group.

"They've taken a low profile. I'm not sure if they've kept a low profile as a strategy or not," he said, adding, "these guys are professional. They take their time doing due diligence. They're not just in it to make a quick buck. They're strategic thinkers."

Part of the strategy involves a "you scratch my back, I'll scratch yours" arrangement. For some hefty chunks of change during its early life, Singapore expects the company to repay the favor later on by setting up regional offices that generate jobs requiring brains rather than brawn. Not that this is a such a bad deal. "The American company gets positioning for access to the dynamic markets of the Pacific Basin and local help for building a business base," Radez said.

The Singapore business community is switching from labor-intensive to service-oriented industries, said Kristine Bluhm, an economist the WEFA Group of Bala Cynwyd, Pa., a consulting firm specializing in economic forecasting for greater Asia.

Singaporeans now want labor-intensive manufacturing to shift to nearby Thailand, Malaysia and Indonesia while the financial services and regional corporate
headquarters remain in the city-state. "Singapore is trying to take more advantage of their college graduates," said Koo. " There's nothing secretive about it, they're looking for things where they can add value."