Entrepreneurship Ecosystems vary vastly across different cities and navigating the landscape to get funded is often tricky not just for start-ups expanding in foreign markets, but also for those who just got started on their business idea. Back when I was setting up the Startup Leadership Program (SLP) chapter in Singapore, one common question asked is often where to find grants or get invested in here. One of the main draws of starting-up in a country like Singapore is certainly the relative abundance of business grants disbursed by different government agencies as well as investments to help fund start-ups across various industries, so leverage them well. In this post, I hope to share as much as I can to provide an overview of the system and alternative solutions.
In Singapore, most companies with at least 30% local shareholding and in the high tech area will find themselves benefiting from several grants in the early stage of their start-up. However, each grant has its set of qualifying criteria, industries of focus and disbursement method and I will be covering the salient points below. Generally, grants only cover a percentage of the finance needed in the initial stage. The business owner will have to top up the remaining capital. Most grants for start-ups are designed to encourage investment in innovation, research and development, and social causes. Popular grants that are made available to start-ups in Singapore include the following initiatives.
ACE Start-ups Scheme
ACE Start-ups Scheme is a financial assistance scheme where ACE (Action Community for Entrepreneurship) will match S$7 to every S$3 raised by an entrepreneur for up to S$50,000. In other words, the entrepreneur will need to raise about S$21k if he or she wishes to receive a grant of S$50,000. For selected ventures, ACE will match S$3 to every S$7 raised by the entrepreneur for an additional S$50,000. For these ventures, the total grant is capped at S$100,000. (But I have yet come across a successful start-up which has qualified for it.)
It is especially advantageous for teams with cofounders who are students or alumni of tertiary institutions in Singapore and are below the age of 26, as there is a greenlane arrangement where they can fast track their application process. Generally, to get the grant, you will need to show that the business plan is innovative, differentiated and scalable.
The upside is that ACE does not take equity in exchange for the financial grant and the grant is given in disbursements of 2-3 tranches, instead of the cumbersome reimbursement method. The downside, however, is that only first-time entrepreneurs can qualify and that you will need to meet business milestones like acquire x number of customers or users in the early stage of your business. For more details, please click here.
Technology Enterprise Commercialization Scheme (TECS)
For startups in the interactive digital media (IDM) or Infocomm Tech (ICT) space, the TECS scheme is jointly administered by the Infocomm Development Authority (IDA) and SPRING Singapore spurs the formation of new technology start-ups in Singapore by addressing their early-stage funding needs towards the commercialization of proprietary technology ideas. Startups can get awarded up-to 100% of qualifying costs for each project up to maximum of S$250,000 under the POC grant and up to 85% of qualifying costs for each project up to maximum of S$500,000 under the POV grant. In addition, the applicant for POV must demonstrate proof of interest from a potential customer or third-party investor.
Do note that you can apply for POC throughout the whole year but the window for POV applications only opens twice a year. Do expect the application – till – grant disbursement period to last at least 3 – 6 months so that advice is to apply early. Please click here for more details.
For Social Enterprises
In Singapore, there are various recognized forms of social enterprises, like the profit-plough back model etc. Personally, I feel that social enterprises should ideally serve a social cause and at the same time, maximize profit or rather, not incur losses. I understand that it may not be possible in all cases, but perhaps social enterprises benefiting disadvantaged individuals may be able to achieve that end. According to my past experience with these individuals, most of the time, they also value dignity and want to contribute meaningfully to the society, like normal individuals. In this case, instead of simply accepting donations to serve the basic needs of the beneficiary, the social enterprises and the beneficiary may both benefit from helping the latter to contribute economically. For example, the Professor Brawn cafe in Singapore employs Persons with Disabilities and the YMCA hostels and Food for Thought restaurants utilize the profit-plough back model.
ComCare Enterprise Fund (CEF): The ComCare Enterprise Fund that is administered by the Ministry of Social and Family Development (MSF; formerly Ministry of Community Development, Youth & Sports) provides seed funding for social enterprise start-ups (strictly from the social services sector) that train and employ disadvantaged Singaporeans of up-to 80% of the capital expenditure and first two years’ operating costs, subject to a maximum of S$300,000. More details can be found here.
New Initiative Grant (NIG): The New Initiative Grant that is administered by the National Volunteer and Philanthropy Centre (NVPC) provides seed money for Singapore-based start-ups with new initiatives that meet community needs in Singapore and are strong in volunteerism and/or philanthropy. Qualifying start-ups will receive funding that covers up to 80% of costs (e.g. manpower, rent, equipment, volunteerism and philanthropy-related costs) in furtherance of the initiative for one-year subject to a maximum of S$200,000. Click here for more details.
Other Financing Schemes
In this section, we are discussing other forms of financing, such as equity financing which refers to the capital that is lent by investors to a business in exchange for a share of ownership in the company. From past experience, if your business is able to survive on just grants in the initial phase of your business, that will be better, compared to giving away equity before your startup even reach series A. Giving away equity too early in the business may cripple your start-up’s ability to raise more funding to accelerate further growth as it reduces your start-up’s attractiveness to future investors.
Having said that, this form of financing may be helpful for start-ups that require larger amount of capital (for example hard ware based businesses) and they value the knowledge capital and networks that the investor(s) bring to the business. In Singapore, the government co-invests in start-ups along with a third-party investor. The popular government-backed equity financing schemes include the following:
NRF Technology Incubation Scheme (TIS Scheme)
A popular program, the Technology Incubation Scheme (TIS), is an initiative under the National Framework for Innovation and Enterprise (NFIE) program, which was set up in March 2008. Under the TIS scheme, the National Research Foundation (NRF) Singapore could co-invest up to 85% of investment (up to S$500,000 per company) in a Singapore-based start-up, on recommendation from the Technology Incubator. The Technology Incubator will be required to co-invest the remaining 15% of investment into the start-up. In addition to funding, the Technology Incubator will be required to provide active mentorship and guidance to the start-up.
This scheme is rather interesting because, as an incentive, the Technology Incubator will be given an option to buy over NRF’s stake in the start-up within three years by repaying the capital plus interest. This will align the interests of all parties towards the success of the start-up companies, and help to develop the entrepreneurial ecosystem in Singapore. There have been a few successful cases where the tech incubators have bought over NRF’s stake, especially when the start-ups have raised significant investment from other investors.
However, it is worth noting that the TIS incubator usually provides the investment in the form of convertible note, a debt instrument that provides the incubator priority access to the assets and money after the company liquidates. Some investors may find start-ups with convertible note less attractive. Please click here for more details.
SPRING Startup Enterprise Development Scheme (SPRING SEEDS): SPRING SEEDS is an equity investment scheme where SPRING SEEDS Capital, a subsidiary of government agency SPRING Singapore, co-invests in commercially viable Singapore-based start-ups along with independent third-party investor(s), matching dollar-for-dollar up to a maximum of S$1 million; the first round of investment is usually limited to S$300,000. SPRING SEEDS Capital and the third-party investor(s) will take equity stakes in the company in proportion to their investments. Click here for more details.
The entrepreneurs in Singapore do get rather significant support in terms of grants and access to incubation facilities depending on their affiliation to alma maters etc. The advantage of the S$50,000 seed grants is that it enables the entrepreneurs to hire their first employees to start the proof of concept or sales process, without having to part with any equity. Getting the grant is also a way of validation, though at times the most passionate entrepreneurs would not be deterred by a mere no from the grant administration panel.
One fallback, however, is that the types of start-ups that can be supported under the grant schemes are quite limited to those in the interactive, digital media space as well as the biotechnology space. Not all types of entrepreneurship are encouraged in Singapore’s ecosystem. While the grants are helpful, it may also inculcate an environment of “grantopreneurs”, who are building start-ups that meet the criteria of the grants but do not necessary solve real world’s problem or benefit the society.
The other fallback is also the lack of support for older entrepreneurs. We see that there are grants and incubation support aplenty for those who are studying at institutes of Higher learning or those who recently graduate.
Having said all this, Singapore is still a nascent entrepreneurial ecosystem. Policymakers and venture capital investors are still experimenting with the initial models and I am certain that in a few more years, the grants and funding will evolve and become more sophisticated.