Investors are an integral and essential part of a successful and thriving startup ecosystem. If not for investors, many novel ideas that have become part of our everyday lives would not have seen the light of day. Innovators need funds to develop and commercialise ideas; investors come with funds – a critical catalyst for startups. The Singapore government, as part of its comprehensive measures to stimulate the growth of innovative startups, has established Startup SG, an umbrella brand for Singapore startups under which all startup-related schemes are unified. One such scheme is Startup SG Equity, a co-investing scheme targeted to catalyse investments into innovation-driven Singapore-based technology startups. The scheme has replaced the former Business Angel Investor Scheme, withthe government setting aside S$200 million for it. Following is an overview of the scheme.
About Startup SG Equity
This scheme is to facilitate startups engaged in technology innovation to access funding from private investors. Getting investors to fund deep-tech innovation is usually challenging because the path to commercialisation of ideas is longer and arduous. In order to catalyse private investments in such technology-based startups, the Singapore government has launched this co-investment scheme.
SPRING SEEDS Capital Pte Ltd (SSC), an investment arm of SPRING Singapore, is one of the administrators of funds under Startup SG Equity. SSC co-invests along with independent private investors in commercially viable and internationally scalable innovative Singapore-based early-stage startups. Startups that own IP or are in pursuit of technology innovations and are capable of articulating the value and scalability of the innovation to the target market have a higher potential to qualify for equity financing under the scheme.
Health and Biomedical Sciences, Urban Solutions and Sustainability, and Advanced Manufacturing and Engineering are some of the key sectors in which SSC actively focuses on; however, innovations with high intellectual content and commercial value from other sectors will also be considered.
The seven investor-partners under the former Business Angel scheme and the four partners under the former Sector Specific Accelerator scheme have been subsumed under the Startup SG Equity scheme as appointed investing partners.
The investment parameters differ for general-tech and deep-tech startups as seen below:
| Investment Parameters: | ||
|---|---|---|
| General tech | Deep tech | |
| Investment Cap for each startup | $2M | $4M |
| Co-investment ratio | 7:3 up to $250K, 1:1 thereafter up to $2M |
7:3 up to $500K, 1:1 thereafter up to $4M |
The government will co-invest 70 per cent of the investment into deep-tech startups up to S$500,000 and 1:1 thereafter, up to the S$4 million (US$2.9 million). For more traditional startups, the government will invest 70 per cent up to S$250,000 and then 1:1 up to a limit of S$2 million (US$1.4 million). The funds will be disbursed over several investment rounds in tranches based on milestones prescribed in each round.
It must be noted that it is an equity-based financing scheme hence, SSC takes an equity share in the startup and the shareholding varies depending on the valuation of the startup. The investment horizon for SSC is generally five to seven years and may take longer depending on the company’s business traction. SSC’s exit options include all conventional means such as trade sale, IPO and M&A.
The financing by SSC and the private third-party investor is on the same terms.
Post-funding, SSC, besides providing equity financing, plays an active role as a strategic advisor in the investee companies. As an equity holder, SSC would participate in shareholders’ meetings and also observe the Board of Directors meeting and must be kept updated by the investee company on any major changes besides regular updates on performance.
Eligibility Criteria for Startup SG Equity
Both startups and investors can apply for this co-investment equity scheme but the eligibility varies as below
For Startups
- It must be a private limited company incorporated in Singapore with a paid-up capital of at least S$50,000.
- It must not be a subsidiary or a joint venture.
- It must not be incorporated for more than five years.
- Its core activities must be carried out in Singapore.
- It must demonstrate that its products/services/applications are highly innovative and have substantial intellectual content.
- It must have high growth prospects and international scalability.
- It must have identified a third party investor(s) ready to invest in it.
For Investors
- The investor(s) must be able to contribute to the startup’s growth by means of mentorship through experienced management team or help embed the startup into its supportive business network or value-adding expertise.
- The investor(s) must be prepared to invest at least $50,000 each into each startup.
Application Process for Startup SG Equity
Documents Required
The following documents must be submitted for the first level assessment
- Business plan
- Financial statements or management accounts
- Business ACRA
- Background of potential co-investor (if available)
The above documents must be submitted along with a two page executive summary providing the following details:
- Company Profile – provide details on existing products/services, traction achieved, management profile etc.
- Proposed Product/Solution and its Distinct Advantage – explain what needs or problems of the market will be solved, describe the novelty and merits.
- Technology/Innovation to be Developed (if applicable) – describe the technology involved, stage of its development, potential hurdles in the development and prospective partners (if any).
- Business Roadmap – Describe the go-to-market strategy, revenue model and scalability.
- Competitive Landscape – Describe potential or existing competitors and your edge over the competition.
- Use of Funds – provide details on estimated fund requirement and allocation along with information on any existing or potential investors.
Note:
- Startups with foreign founders can apply for equity financing under the scheme, provided they meet the eligibility criteria.
- Since it is a co-investment scheme, startups applying for the scheme must bring an independent third party investor with a matching financial commitment. The potential third party investor’s management efficiency, due diligence process and capabilities to value-add to the startup will also be considered during evaluation of application.
- The third-party co-investors can be foreign but must meet the eligibility criteria for investors.
- If the intended co-investor is an appointed partner of SSC, the startups could approach them directly. The appointed partner after their due diligence, would revert to SSC for its decision.
- An investment panel comprising of experts with diverse professional background in areas such as venture capital, finance, marketing, entrepreneurial and legal, evaluates the applications. Such a panel is engaged in the investment cases where the third party investor is independent and not an appointed partner. In the case of appointed partners, SSC officers seek for approval of investment internally.
- A unique advantage of the scheme is that it does not exclude successful applicants from applying for other government grants and schemes.
Startup SG Equity Closing Note
Private investors’ interest in technology-oriented startups remains muted in the region. In order to build a competitive, knowledge-based economy and to improve productivity, it is critical to build IP assets and encourage innovation among small technology startups. However, the efforts in this direction are slowed by the financing hurdles faced by such young but innovative startups. Schemes like Startup SG Equity address this gap in the ecosystem and catalyses the interest of private investors; with government’s co-investment there is a strong endorsement for the startups. It also helps to draw the attention of international investors towards technology startups. Patient capital is pivotal in such technology innovation as it takes a longer time and more resources to progress from concept to a commercially successful business model. The act of the government stepping in as a co-investor is a great source of moral support for startups besides the capital injection.
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