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Private sector called on to drive, shape entrepreneurship scene

Venture debt and equity crowdfunding should be made more accessible, says the Entrepreneurship Review Committee


A COMMITTEE set up to recommend ways of enhancing Singapore's entrepreneurship landscape has called on the private sector to do more to drive and shape the spirit of enterprise here.

To facilitate this, venture debt and equity crowdfunding should be made more accessible, said the Entrepreneurship Review Committee (EnRC) yesterday, as it unveiled its list of recommendations ahead of Budget 2014.

Venture debt, a virtually non-existent concept here, is a form of debt-financing specially structured for startups and backed by venture capitalists (VCs).

The Business Times understands that unlike in the US, most banks here do not offer venture debt to startups, tending to lend only to more established companies who are able to produce track records, collaterals and personal guarantees.

Sim Giok Lak, a member of EnRC and the group managing director of engineering firm Zicom Group, told BT: "We therefore recommend the introduction of venture debt as an additional financing option for startups, given the current limited availability of Series A and growth-stage financing."

For that, he said, the EnRC will have to encourage established venture banks to set up shop here; local banks and financial institutions will also need to be convinced to be more adventurous in their lending, particularly to businesses struggling to get off the ground.

Mr Sim added: "Our three local banks made a total of $10 billion in net profit after taxes in 2012. If one per cent of these profits could be allocated to finance venture debt, we will have $100 million available for this purpose. Moreover, the returns could potentially add many more multiples to these banks' bottom-lines."

Julian Low, an entrepreneur-in-residence at Red Dot Ventures, applauded the recommendation, saying that it will significantly increase liquidity in the market and give more startups access to funds.

Red Dot Ventures is a seed-stage venture capital firm focused on Singapore-based, high-tech startups.

Carine Chua, a relationship manager at Practo, a Sequoia Capital-backed healthcare firm, pointed out, however, that while the availability of venture debt was helpful, it would require a community of VCs and venture-backed companies for it to take off.

Venture debt aside, the EnRC recommended equity crowdfunding, the practice of funding startups by selling shares to crowd investors in exchange for partial ownership of the company.

Until last December, equity crowdfunding was absent here, but the EnRC said that the Republic was ready to grow into an equity-based crowdfunding hub, with clear regulations drawn up to facilitate the accreditation of investors and encourage platforms to be based here.

Sunil Rajan, the Singapore country manager at FundedByMe, a Swedish crowdfunding platform, said: "We totally think this is feasible, with the country already an epicentre for foreigners from all over the world and attracting quality capital - financial and human." FundedByMe was launched here last month, becoming the first platform here to offer equity crowdfunding. With more than 30,000 registered global investors who have raised more than 4.2 million euros (S$7.3 million) for campaigns on its platform, it is focused on promoting cross-border investment.

"Our global investors are keen to be exposed to and to invest in Asian companies. Cross-border investors will also facilitate local startups in their international expansion plans in the future," said Mr Rajan.

Crowdonomic, a Singapore-based platform which now offers only reward-based crowdfunding, told BT that the potential for equity crowdfunding is massive, and that it is committed to offer this on its platform soon.

Its chief executive officer Leo Shimada said: "Equity crowdfunding will enable Singapore's startup scene to make that transition from being a government-dependent financing ecosystem to a funding environment led by the private sector and individuals."

This echoes the call made yesterday by Minister of State for Trade and Industry Teo Ser Luck, who, as chairman of the Action Community for Entrepreneurship (ACE), said that the body could eventually be a private sector-led one. Such a shift would be timely, he said, given the sufficiently strong interest from the private sector and a mature, vibrant business ecosystem.

Wong Meng Weng, a serial entrepreneur and co-founder of Joyful Frog Digital Incubator, said that it was a "bold and positive move" on the part of the government last year to appoint Steve Leonard, formerly from the private sector, as executive deputy chairman of the Infocomm Development Authority of Singapore (IDA); Mr Leonard would be unencumbered by the constraints a typical government administrative officer would face, and would thus have a freer hand to take risks and make mistakes.

Aside from recommending more private-sector involvement, the EnRC called for greater market-access opportunities for startups and programmes to enhance the growth of quality startups.

EnRC was set up in July last year, in conjunction with the 10th anniversary of ACE.