It was recently published in the local media that a small Israeli start-up called Trax Technology raised $6 million in funds from an undisclosed Singapore-based VC. Trax, contrary to the common trend of Israeli start-ups basing their R&D center in Israel with their management in the U.S., decided to base its management in Singapore.

From the perspective of someone who is not involved in the Israeli start-up scene, this would probably not be seen as a big deal and may even be perceived as a very logical step. Singapore has a highly developed financial eco-system, an active governmental policy of making it the “Silicon Valley” of Southeast Asia, and an English-speaking and friendly environment for Israelis. Singapore might just seem like the perfect place for Israeli start-ups to place themselves in a world which is shifting to the East.

So why don’t we see many more examples like Traxs?

This seems to be the million dollar (or more) question. While Hong Kong-based investors such as Li Ka-Shing’s Horizons Ventures are storming the Israeli start-up scene with tens of investments in Israeli start-ups in the past year and taking advantage of the current weakness of their U.S. and European counterparts, why aren’t their neighbors in the Lion City doing the same? Here are my two cents.

It’s all about culture, dummy!

Should you ask most Singaporean investors, and most Israelis who have had the opportunity of doing business with Singaporean investors, they will probably tell you that the risk averse Singaporeans are just not willing to take the high stakes risks involved in investing in Israeli start-ups.

In a recent post my colleague Yair Geva mentioned that only about 10%-15% of start-ups which were able to secure financing will ultimately be successful. For the average Singaporean investor, the notion that he has a good chance to lose 9 out of his 10 investments is the equivalent of losing a kidney – let’s just say this is a situation he would prefer to avoid. This risk averse approach sometimes leads to non-realistic expectations and results in the Singaporean investor looking for a profitable, medium size start-up with strong sales, global reach, and, if possible, backing by a strong American or European VC. Or as we call it here, a non-existing start-up.

Asia, Asia, Asia

Most Singaporean investors do not see themselves bringing any added value to a start-up unless the start-up is either based in Singapore, in another place in Asia or it has strong links to Asian markets. Most Israeli start-ups will find this hurdle hard to climb since most are U.S. and Europe oriented, and view the Asian markets as not relevant for them, at least not in their early stages.

There are only handful of Israeli start-ups who view Asia as their main market, and even then some are irrelevant to Singaporeans, who tend to prefer investing in software and medical devices companies and less in fabless companies, which are typically the type of Israeli start-ups active in Asia.

The chicken and the egg

Sometimes, even if we are able to locate a start-up which is profitable, at a mature stage, in a relevant industry and that wishes to expand in Asia, we will still encounter what I call “the chicken and the egg” syndrome. Meaning, many of the Singapore-based investors, especially the Global Investor Programme Funds (“GIP”), have a mandate to invest only in companies which are physically based in Singapore or in other places in Asia. This means that a start-up must have either its management or R&D in Asia (preferably in Singapore).

Now the tricky issue is, who will come first? The money or the company? Since one of the only personality traits that Singaporeans and Israelis share is a deep distrust of their business partners, this has proven to be a challenge that only a selected few have been able to resolve.

Not all is gloom and doom!

Although it may seem that the match between local start-ups and Singaporean investors is something which was never meant to happen, reality and life have proven otherwise. Singaporeans, as fast learners, have watched the recent exits such as the Waze deal, in which Asian investors took home jackpots, and are aware of the potential. The recent acquisition of Amobee by Singtel and its recent opening of a start-up screening center (in partnership with Amdocs) in Israel, show that the winds of change are already here.

The continuing influx of “Silicon Valley graduate” investors to Singapore, who bring a bit of a different approach to the Singapore VC scene, together with more success stories of Israeli start-ups in Asia, will hopefully bring more and more Singaporean investors to look at Israel as a place for investments, rather than only for procurement of top-notch technology.