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Venture Funding in Singapore: What You Need to Know

Published on June 9th, 2016 by in Blog

Venture funding requires you to sell a portion of your business’ interests to an investor. The investor will, in turn, provide you with cash and financing to help operate and grow the business. Funding is provided as on a one-time basis unless a further interest in the business is given.

Investors assume all of the risk in venture funding, and the rewards are substantial if the business does well.

Debt financing, the financing that is provided from banks and lenders, requires that you take on debt to run the business. In the short-term, debt financing is more expensive, but in the long-term, if your business is a success, equity financing (venture funding) is more expensive.

Singapore is a business hub and attracts a plethora of new startups that choose equity financing to fund their venture.

The country was the leader in private equity investment in Southeast Asia between 2005 and 2010, with data indicating that 52% of all equity funding in the region occurred in Singapore. Private equity financing makes sense for Singapore-based entities because it allows them to secure early stage capital that can lead to the success of their business.

Equity Financing Sources in Singapore

Start-ups and businesses interested in equity financing will find three main avenues to secure venture funding:

Angel Investor

An angel investor is a wealthy individual that is willing to invest in a business that is in the early stages or is considered high risk. Angel investors may lend their experience to the business and play an active role in mentoring business owners. Many angel investors will remain silent partners.

A significant source of capital in Singapore, angel investment often:

  • Seek early-stage investment opportunities (start-ups)
  • Provide funding, mentorship and guidance to the company
  • Invest in business services, retail and hospitality
  • Invest S$25,000 – S$100,000 on average
  • Form networks to pool angel investor resources

When resources are pooled, larger sums can be invested in companies. Investors that group together are called “angel groups.” Angel groups invests, on average, in the S$250,000 to S$750,000 range.

Singapore has several outlets that will help business secure angel funding. A few of the most prominent funding sources, include:

  • Business Angel Network Southeast Asia
  • Angel Capital Network
  • Business Angels Pty Ltd.
  • Angels Den

Private Funds

Private funds include financing form private institutes, such as banks and investment companies. These entities are not interested in helping manage or run the business, and private funds are hard to secure. Institutions offering equity capital in this sector choose to invest in businesses that generate revenue and have a high growth potential.

Private equity funds are setup by:

  • Financial institutions
  • Banks
  • Investment companies

A few key points to consider are:

  • Private equity funds do not, normally, invest in developing or early-stage startups
  • Start-ups must demonstrate high earning potential and already be operational to receive private equity funds
  • Management, guidance and technical expertise are not offered

There are numerous fund options when considering private funds:

  • Corporate Funds: Businesses that budget in order to invest in smaller entities
  • Independent Funds: Funds provided by rich individuals or families
  • Institutional Funds: Funds that are provided via banks or financial lenders

If you’re a start-up seeking private funds, you can reach out to the following resources:

  • Singapura Finance Limited
  • Development Bank of Singapore
  • Enspire Capital
  • OWW Capital Partners

Venture Capitalists

The final source of venture funding comes from venture capitalists. These professional investors will maintain an active role in the business, and they will advise you on how to grow the business and boost profitability. Venture capitalists typically require 25% interest in the companies they invest in, and they seek start-ups that are in the advanced stages.

As a whole, the venture capitalist industry in Singapore is relatively new and small. There are over 100 venture capital firms in the country.

When seeking funding from a venture capitalist, it’s vital to know:

  • Management skills and expertise are often provided alongside capital.
  • Singapore’s venture capital industry tends to invest in late-stage expansion and late-stage start-ups to keep risks lower.
  • Funding is typically offered in amounts of 4 – 5 times the company’s net earnings.
  • Investments last 2 – 5 years on average.
  • Venture capitalists seek an annual ROI of 25% or higher on their investment.
  • Capital is directly linked to the milestones of the company and the funding needed to achieve the milestones.
  • The team’s understanding of the competition and current market in the field will be assessed.

Venture capital is provided to smaller start-ups in the event that the start-up is in a unique position in the industry, or the start-up has a unique attribute that the venture capitalist believes will prove profitable in the future.

Venture funding as a whole may be easier to secure than traditional funding, but the industry has increased their demands to lower risks. Equity in the business is not enough to satisfy the needs of all venture funding providers.

Securing capital in Singapore requires a business to have:

  • A robust, professional business plan
  • An exit strategy
  • Experienced management team
  • Strong growth potential
  • Acceptable financial projections

Professionalism and a unique business idea are a fundamental necessity to obtain venture funding in Singapore.

Singapore’s thriving tech and e-commerce industry has drawn in venture capital firms from all over the world. Statistically, venture capital investments more than doubled between 2013 and 2014, moving from $454 million in 2013 to over $1 billion in 2014.

Singapore aims to be the next Silicon Valley, and for the country to succeed, it needs venture funding to be easily accessible to budding start-ups. Five years ago, when venture funding started to grow in the country, start-ups were left asking “how do I get financing?”

Venture funding has become easier to obtain in the country, but the industry still has a long way to go to match the likes of Silicon Valley.

The Singapore government has also tried to boost the venture capital industry. In April 2014, the government provided $10 million to six venture capital firms under the Early Stage Venture Fund scheme.

The scheme is an effort to promote venture funding to smaller entities.

 
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