The Southeast Asian startup market is getting bigger with government encouraging more and more private investors by offering them timely tax incentives. Today, the Southeast Asian nations are home to some of the most renowned private equity investors, angel investors and venture capitalists. Especially, Singapore tops the chart when it comes to a comparison between the startup ecosystems of the Southeast Asian nations.
The ease of Capital Raising in Singapore has lead to the growth of many new startups and entrepreneurs are now more confident about establishing new ventures in the country. When it comes to private equity financing, there are mainly three options in Singapore: angel investors, venture capitalists and private funds.
Angel investors are basically wealthy individuals who prefer to invest their money in high-potential and risky startups and enable them to stand as an established company in the market. They usually prefer to invest in the early stage ventures and share a percentage of ownership in the investee company. Their main motto is to support startups with great market potential and lead them to a successful position.
To fulfill this objective, the angel investors also share their knowledge and offer guidance and mentorship to the startups apart from funding just to make sure that the companies get an all round support to reach to a profitable position. Today, the angel investors are considered the best option for early-stage capital raising in Singapore.
Next is venture capital financing – a startup funding method that is already creating a buzz in the Singapore startup ecosystem. Venture capitalists are professional investors who pool money from wealthy individuals and invest it in various sectors like technology, software, energy, etc. – technology and innovation being the biggest attraction.
Venture capitalists are the most powerful and toughest of all investors as it is extremely challenging to convince a VC firm to invest in a startup. An entrepreneur has to do a great deal of planning before approaching a venture capitalist. These investors typically prefer to invest at a later stage when the startup has already raised funds and taken the company to a considerably higher level. However, they also choose to invest in a seed-stage startup provided it has a high growth-potential with a sizable and scalable market.
The main motto of the Venture capitalists is to earn huge profits and to ensure that, they even offer many value-added services to the ventures such as guidance and mentorships, exit facilities, networks etc. Unlike banks, the VCs do not expect an instant repayment; rather they wait for a period of 3 to 8 years to receive their share of profit which is much higher than the interest-included repayments in the case of bank loans. Typically, their expected rate of return is more than 25% for per year’s investment.
To successfully attract a venture capitalist, an entrepreneur needs to have a great business product/service, a planned investment proposal, a sizeable market, a strong value proposition and a smart, experienced and organized management team.
Unlike, the angel investors or the venture capitalists, the private equity industry is quite different. The private equity funds are typically run by financial institutions, banks or investment firms and they prefer to invest in companies that are already operational and exhibiting high growth potential. They restrict their offering only to financing and there is no knowledge sharing or mentorship involved in it.
The different types of private funds include independent funds, corporate funds and institutional funds. Based on their requirements, stage, level and sector, the entrepreneurs can choose the one method that is most suitable for their business.