Venture Funding Options for Singapore Companies
It is a general fact that is known by Singaporeans that the chances of a start-up going down are significantly high. While investors are specifically interested in investing in old yet rapidly growing companies, investing in new or upcoming companies is not uncommon in Singapore. If the company fails, the investors lose money, but if it flourishes, they virtually get more returns on their investments.
The most predominant reason for these failures is the limitations of funds. The starting capital is usually used up for the realization of a business plan, running the business and expansions while little or no amount is left for back up. As an entrepreneur, it’s quite requisite to make sure that your planning has a sound financial strategy. All these should be included in the business plan.
Singapore government has been actively championing for private investors to start investing in the country’s various startups. That has been further encouraged by the introduction of tax incentive schemes. This guide offers an overview of private funding options for startups.
Private equity financing: What is it?
As already noted, the primary challenge many startups have to come to terms with is access to funds. In most cases, new businesses are often funded with money which is mostly sourced from the founders, friends, or family members. However, there’s always a shortage of capital for growing or building the businesses, and this is where private equity financing comes in handy.
Private equity financing virtually means capital from various private investors to firms which are interested in dividend returns and financial gains from their investments. Private funding is an excellent source of start-up financing particularly for businesses that lack adequate collateral for local loans.
For a start-up to have higher chances of securing equity capital, it must have a comprehensive business idea, plan, certified or professional management team, realistic financial projections, clear exiting strategy, and compelling growth potential. Here are some of the private equity capital sources you may need to know about.
They’re private investors who virtually do not just invest capital but offer their business skills at the early stages of the businesses and in return get a significant share of that particular company.
They can be people from the angel network who invest in businesses that have high growth potential in the industries they’re well acquainted with while the rest act as inactive partners. Angel investment is a great source of acquiring capital in Singapore. They also prefer giving support to start-ups at their earliest stages.
Angel investors have a tendency of investing in businesses that have a specific competitive advantage. This could include exclusive distribution and marketing relationships, innovative technology, powerful brands, or access to rare raw materials. The business plan should clearly outline how it will generate returns if funded.
High growth potential is vital for most businesses. Based on a study conducted by the National University of Singapore, business angels tend to invest in industries such as hospitality, retail, and business service sectors. Angel investors can provide an exceptional amount of mentorship and capital for startups seeking seed funding.
Private funds such as investment companies, financial institutions, and banks are another financing option for business entrepreneurs seeking funds for their new businesses. These kinds of sources rarely involve themselves in any active roles in your business—you are in full control of your business and have the autonomy of conducting it in the manner you deem fit.
That also means that these institutions have no business with you, the only thing they require from you is some lucrative returns on their investments.
Private funds are not very newbie friendly as they do not provide any mentorship, although they perform a thorough background check before releasing the funds to avoid losing their returns.
They prefer an already established business, with excellent credit card record, already generating an attractive revenue –in high amounts, have high growth potential and highly beneficial to other people.
However, starts ups can depend on the microloans offered by the Singapore micro-loans programs from the Singapore government through the auspice of IE Singapore and Spring Singapore. You can apply for your business loan by participating in financial institutions such as DBS, UOB, OCBC and standard chartered banks.
These are professional investors who partially take over your business when they invest in it. You practically become somewhat irrelevant as they’re vesting their interest in their clients’ profitability. Venture capitalists do not only offer capital but provide advice and mentorship on growing your business’s profits. They also help as far as operational matters are concerned substantially when your business demands a workforce or input from various areas of expertise.
On average, venture capital can invest up to five times the net profits of the company. They focus on the milestones that are set and calculate the amount of money that would be needed to achieve them. They also asses the current markets and competition and the team’s understanding of the same.
A noteworthy point to take home is that venture capitalists may have to seek higher rates after 2 to 5 years depending on the growth rate. This is perpetuated by the higher profits expected from them by their clients. Venture capitalists have their own share of whom to fund and whom not to. Popular startups with a promising future or start-ups with potential growth sectors like nanotechnology, biotechnology and IT have a significant chance of getting favored by the investors. Other favored start-ups include business prospects involving Intellectual Property creation, scientific breakthroughs, and other similarly large-scale businesses.
Venture capital Singapore industry is relatively small and new compared to the one in Europe and US. Nevertheless, there are equally more than one hundred venture capitalism networks in Singapore that range from independent or individual limited collaboration venture capital firms to corporate-backed venture firms. The attractive incentives have contributed significantly to the high number of venture capital firms due to the involvement by large corporations, government bodies and highly net worthy persons.
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