Funding for Start-ups in Singapore 101
Startups can be founded upon a variety of great ideas and concepts. However, if a startup is to prosper and succeed, one must obtain adequate funding to turn those ideas and concepts into reality. A startup can obtain funding from different ways and Singapore has proven to be a great source of support for aspiring entrepreneurs. The following will cover the options and stages that a startup can acquire the necessary funding.
1. Different stages of funding:
I. Seed Capital:
The first stage of funding start-ups go through is obtaining seed capital. Seed capital is the start-up’s first investment of money and is used for market research and developing product. This first stage of funding tends to come from the entrepreneur’s own personal savings or from friends and family. Seed capital can also be received as a loan in exchange from common stock.
II. Angel Investor Funding:
The second stage of funding would be the angel investor funding. More often than not, seed capital is insufficient and the need for external help arises. In this stage of funding, money can be received as a loan which is convertible to preferred stock. Investors which are friends and family may also choose to participate in this stage of funding if they are affluent investors.
III. Venture Capital Financing:
The next stage of financing comes from venture capital. At this stage, companies are already selling or distributing their product or services. However, their services may not be profitable at this point of time. Venture capital financing is used at this stage to offset the negative cash flows incurred by the company. There are multiple rounds of venture capital funding and are represented by the letters of the alphabet in increasing order with every subsequent round. In venture capital financing, money is received in exchange for preferred stock similar to the stock in the angel investor funding stage. The value of the stock in each round is also reflective of the valuation of the company. Should the company be prospering, the stock would be valued higher in the next round of financing.
IV. Mezzanine Financing and Bridge Loans:
When a company gets large enough to consider initial public offerings and other larger opportunities, they might require to take mezzanine financing or bridge loans. These types of funding are short-term high interest funding solutions until the company is able to obtain long-term low interest options which they will use to pay off the loans.
V. IPO Stage:
The last stage of financing is the initial public offering (IPO) stage. During the IPO stage, companies can raise funds by selling stock to the public. The opening stock price is usually determined with the assistance of investment bankers and once the stock is out, it will be traded through the stock exchange.
2. Where does NUS Enterprise come in?
NUS Enterprise serves as a start-up incubator and accelerator for aspiring start-ups. Thus, it plays a larger role for early-stage start-ups looking to take off. NUS Ventures mainly focuses on start-ups in IoT, AI, fintech, hardware, and software. The NUS Startup Runway grants start-ups with access to mentors, industry contacts, seed funding, and even university resources. In addition, NUS Enterprise offers several programmes and grants to help start-ups take off or go global.
NUS Enterprise has supported large startups in their early stages such as Carousell. In 2012, Carousell received a $7000 Practicum grant from NUS Enterprise and began working at a hot-desk at Plug-In@Blk71. Under the support of NUS Enterprise, Carousell was able to grow into the widely used mobile shopping app it is today.
3. Types of funding available in Singapore:
In Singapore, the types of funding a start-up can obtain include venture capital, angel investors, private equity, government schemes, and start-up incubators.
Previous start-up assistance schemes by the government have been consolidated into the Startup SG programme. Startup SG offers a few programmes catered to different categories of start-ups. The programmes include Startup SG Equity, Startup SG Tech, and Startup SG Founder.
I. Startup SG Equity
Under the Startup SG Equity scheme, the government co-invests with independent third-party investors to eligible start-ups under the scheme. For general tech start-ups, the government invests 70% of initial funding out of $250k and a 1:1 ratio for subsequent private investments for up to $2m. For start-ups classified as deep tech, the government invests 70% of initial funding out of $500k and offers the same 1:1 ratio for up to $4m.
Start-ups seeking government co-investment under Startup SG Equity should meet the following criteria:
- Be a Singapore-based company with core activities carried out here.
- Be incorporated as a Private Limited company for less than five years.
- Have paid-up capital of at least $50,000.
- Be able to prove substantial innovative and intellectual content for its products and/or services and applications.
- Have high-growth potential with clear scalability for the international market.
- Have identified a ready, independent third-party investor(s).
- Business must not be involved in the following business activities: gambling, tobacco-related products, or any other activities which are in violation of law, or against public interest.
- Company cannot be a subsidiary or joint-venture.
II. Startup SG Tech
The Startup SG Tech grant catalyses the growth of start-ups based on proprietary technology and a scalable business model. Startup SG Tech provides early-stage funding for Proof-of-Concept (POC) and Proof-of-Value (POV) for commercialisation of innovative technologies.
Applicants for the Startup SG Tech grant should be:
- Registered for less than 5 years at time of grant application;
- At least 30% local shareholdings;
- Company’s group annual sales turnover is not more than $100 million or group employment size is not more than 200 workers; and
- Core activities to be carried out in Singapore.
III. Startup SG Founder
Startup SG Founder was developed with first-time entrepreneurs with innovative business ideas in mind. Startup SG Founder provides eligible start-ups with mentorship and start-up capital grant, Enterprise Singapore matching $3 for every $1 raised by the entrepreneur.
The grant is open to all Singaporeans/Permanent Residents who are first-time entrepreneurs. In addition, the applicant would need to adhere to the following conditions at the time of application:
- Applicant(s) must hold or propose to hold at least 30% equity in the underlying company;
- The company must have at least 51% of local shareholding and not be incorporated for more than six (6) months at the point of application to Enterprise Singapore;
- The applicants must not have registered or incorporated any business entity;
- The applicants must not have received any funding for the proposed business idea from another government organisation.
4. 5 prominently owned VC firms in Singapore:
There are many venture capital firms that operate in Singapore and other parts of the world. Here are a few prominently owned venture capital firms in Singapore.
B Capital Group is a venture capital firm that invests in transformative technology start-ups during the early expansion stage, typically in Series B or C. They tend to focus on B2B technology start-ups in the fields of consumer enablement, financial services and insurance, health and wellness, and industrial and transportation. B Capital Group has invested in start-ups such as Ninja Van and Bizongo.
Golden Gate Ventures is an early stage venture capital firm investing across Southeast Asia. They invest in internet and mobile start-ups across sectors such as e-commerce, payments, marketplaces, mobile applications, and SaaS platforms. Start-ups Golden Gate Ventures has invested in include Carousell, RedMart, and Xfers.
Quest Ventures was founded in 2011 and is a leading venture capital firm based in Singapore and China for companies that have scalability and replicability in large internet communities. Quest Ventures has invested in start-ups like SGAG and 99.co.
500 Startups is based in Silicon Valley but has offices around the world including Singapore. For start-ups in Singapore and regions outside of the US, 500 Startups has a Series A Programme catered to post-seed and Series A start-ups. Start-ups that have benefited under 500 Startups are Talkdesk, WePay, and Intercom just to name a few.
Singtel Innov8 is a corporate venture capital fund with its own set of decision-making, approval, and funding processes. They focus on technologies and solutions that lead to quantum changes in network capabilities, next-generation devices, digital content services and enablers to enhance user experience. Singtel Innov8 has supported start-ups such as ShopBack and Carro.
5. One case study — Carousell and its different stage of funding:
Seed Capital:
- 2012: $7000 Practicum grant from NUS Enterprise
- 2013: $1m seed investment led by Rakuten
Venture Capital Financing:
- 2014: Series A: S$7.8m
- 2016: Series B: S$47m
- 2018: Series C: S$113m funding last year
Conclusion
With Singapore housing an abundance of funding resources for start-ups, aspiring entrepreneurs are faced with plentiful opportunities to get their start-ups off the ground. The various government programmes and startup incubators such as NUS Enterprise provides start-ups with the support they need to develop and expand into the global market. With that in mind, Singapore proves itself to be a very welcoming environment for entrepreneurs and one of the top start-up hubs in the world.
Are you an entrepreneur working on a cool product and looking for more than just a co-working space? Do apply for a hotdesk here and become part of the exciting community that we offer at BLOCK71 Singapore.
