Jurisdiction - Singapore
Reports and Analysis
Singapore – Funding For Technology Startups.

1 May, 2014

 

The key obstacle faced by technology startups in Singapore has traditionally been a lack of funding. Many startups have failed at the post-seed and growth stages after their initial funding was depleted, and this may be one of the reasons why Singapore has yet to produce any groundbreaking tech innovation equivalent to Facebook, Whatsapp or Instagram.

 

However, the situation is not completely bleak. The Wall Street Journal (WSJ) reported in February 2014 that the Singapore government has invested some SGD 100 million (USD 79 million) for early-stage startups, out of the S$16 million it has set aside for scientific research and development. There have also been some inspiring success stories – video website Viki which was previously funded by a US venture capital fund was acquired by Japanese online retailer Rakuten for USD 200 million in September 2013.

 

The venture capital figures are also promising. The WSJ reported that venture capital amounting to $1.71 billion was invested in Singapore tech firms by funds in 2013. This puts Singapore ahead of the other Asian giants like Hong Kong, Japan and South Korea. Recently, Golden Gate Ventures, a Silicon Valley- and Singapore-based startup incubator announced plans to set up a S$50 million venture capital fund for Singapore tech startups. All of this goes towards addressing the funding shortage and should be welcomed by tech startups.

 

The current funding schemes piloted by the Singapore government and its associated agencies should also be highlighted for their role in helping to boost the startup landscape. The existing funding schemes in Singapore include cash grants, government-aided equity financing schemes, and business incubator schemes.

 

Cash grants are given subject to conditions such as qualifying criteria and disbursement method, and are usually sufficient only for a portion of funding needs. For instance, the Technology Enterprise Commercialization Scheme (TECS) which is jointly administered by the Infocomm Development Authority (IDA) and SPRING Singapore addresses the early-stage funding needs of tech startups by providing grants of up to 100% of the qualifying costs for each project up to a maximum of SGD 250,000 (for proprietary ideas at the conceptualization stage), or up to 85% of the qualifying costs for a project of up to SGD 500,000 (for further research and development, including development of a working prototype). SPRING Singapore announced in April 2013 that under the TECS, grants worth a total of S$6 million had been awarded to 15 tech startups from a range of industries, namely, infocommunications, electronics, engineering, medical devices, and water and environment.

 

Equity financing schemes involve the injection of capital by investors in return for an ownership share in the startup company. Under a co-investment equity financing scheme, a government agency co-invests in a startup in conjunction with an independent third-party private investor. One example is the Startup Enterprise Development Scheme (SEEDS) administered by SPRING Singapore, under which SPRING’s subsidiary SEEDS Capital matches third party investors dollar-for-dollar up to a limit of SGD 1 million; and usually up to SGD 300,000 for the first round.

 

Business incubator schemes provide not just funding but also guidance for development-stage startups which require a higher level of support and mentoring. One such scheme is the i.Jam Micro Funding Scheme administered by the Media Development Authority which appoints incubators to provide guidance and funding to selected tech startups. Funding is usually an investment of 10% to 25% of the startup’s qualifying project costs; and additionally, a grant of up to SGD 50,000 of the project’s qualifying costs. In return, the incubator gets an equity stake in the startup which is proportionate to its investment.

 

With all of these funding options available, together with the other factors which make Singapore a good place for startup growth including a strong sense of community, solid business infrastructure and proximity to key regional markets, the startup ecosystem is thriving in Singapore, and positive growth can be expected in time to come.

 

ATMD Bird & Bird

 

For further information, please contact:

 

Brenda Chong, ATMD Bird & Bird

brenda.chong@twobirds.com.

 

 

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