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Startups may sometimes not have enough funds during the first stages of their growth, and ways that these startups get funding is through investors who provide funds to startups. Let’s find out more about these investors in this guide.
What is private equity?
Private equity is an investment in which investors will fund private companies that will have high competition in the market in return for capital gains and dividends.
In order to obtain private equity, you must have a comprehensive business plan, an exit strategy, reasonable financial expectations, an experienced management team and a high growth potential.
The major sources of private equity in Singapore are angel investors and venture capitalists.
Angel investing is when investors, usually high-net-worth individuals, provide funding to startups at their early stages in exchange for a portion of the company. In addition to funds, they can also sometimes provide mentorship and advice to early-stage startups. Angel investors can be either an individual or a network of angel investors.
Angel investors usually invest in startups that are expected to have a competitive advantage in the market, high growth potential and generate a return for the investor, which can be exclusive distribution and marketing relationships, a brand name, breakthrough technology or access to scarce raw material.
There are currently approximately 100 angel investors available in Singapore that provide funding from SGD 25,000 to SGD 700,000 to qualifying startups.
Venture capitalists are professional fund managers who invest in late-stage startups depending on the sector that is the focus of the venture capital firm. Venture capitalists usually use institutional money from pension funds, foundations, high-net-worth individuals, universities, insurance companies and corporations.
Venture capitalists do not only provide funding to startups but also give advice on how to make your business more profitable. The return venture capitalists normally expect is approximately 25% or more.
Some sectors that venture capitalists would choose to invest in include nanotechnology, software, biotechnology, financial technology, e-commerce, logistics, advanced manufacturing technology and agri-food technology.
To raise capital through venture capital, you must first evaluate how much the business is worth, such as making financial projections to show the return on investment. Then you will need to determine the total amount of capital that your business needs and how much ownership you will give to the investors. Once that is determined, you should prepare a pitch for your business and get in contact with a venture capital firm.
Venture capital funds approved by the Enterprise Singapore (ESG) for the Section 13H tax incentive is exempt from tax for up to 15 years on income from investments.
To qualify for the tax exemption, venture capital funds must have the following requirements:
- Have necessary approvals and licenses from the Monetary Authority of Singapore (MAS) for proposed activities
- Commit to investing a certain percentage of their subscribed capital in Singapore-based seed/early-stage companies and Singapore-based (excluding seed/early-stage) companies and/or overseas companies with economic spin-offs to Singapore
Approved funds can also claim tax remission on incurred on goods and services expenses at a fixed recovery rate.
Investors provide funding to startups in return for shares, capital gains and dividends.
To get funding, you should determine which stage your business is at and have a clear business plan as investors already have in mind which type of industry they would like to fund. If you have any further enquiries, feel free to contact Acclime.
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