Bootstrap or find an investor? What are the best ways of funding your Singapore startup?

how to raise funding singapore

Money.

It makes the world go round and it’s the oil that keeps the wheels of a startup turning. Regardless of which stage in the startup cycle you’re in, you’re going to need access to money and while word on the street is that money flows loosely in Singapore, the much ballyhooed global economic slowdown in 2016 and beyond might cause the purse strings in Singapore’s funding scene to tighten.

There are myriad ways in which you can raise funds in Singapore but in a nutshell, it all narrows down to informal capital and formal capital.


Informal Capital

1). Bootstrapping

Otherwise known as “living like a peasant to fund your own startup”, bootstrapping is a great way to fund your startup. In fact, many argue that bootstrapping is the mark of a true entrepreneur.

Advantages

  • Working your ass off to save up enough money to fund your startup with a runway of a couple of months before you go broke tends to force founders to watch their cash like a hawk. I won’t say that having to do so makes for a better entrepreneur but when your back is against the wall, you tend to focus more on actually making money rather than getting ten million users without any foreseeable way of monetizing them.
  • You’ll also get to make decisions for your startup by yourself (or with your partners) and you also get to own all (or more) of your company. Trust me when I say this is much more liberating than having to answer to investors on how you’re spending their money (and yes, this includes family and friends as well. See the next point.)
  • You don’t have to spend time researching, hunting and pitching for investment. Instead of having to explain for the hundredth time how you calculated your TAM, you can just focus on actually running your business.

Disadvantages

  • Generally, it’s easier to grow a company faster if you have more money. Due to the nature of bootstrapping, you’ll usually be cash-strapped and it can take a much longer time to grow your business.
  • Some types of businesses, particularly the ones that require a lot of startup capital, aren’t a good fit for bootstrapping. For example, certain FinTech startups might require a capital markets license just to operate their business, and such a license would set the company back a hefty S$250,000.
  • It’s your money at stake. You have everything to gain here. But you also have everything to lose.

2). Family and Friends

If you were ever a student studying in a university overseas and you weren’t a scholar, you were most likely on what’s become commonly known as the father-mother scholarship. Unfortunately, raising father-mother funding for your startup in Singapore doesn’t always translate to terms as generous as the father-mother scholarship (though the terms will still likely be much more generous than that of more formal sources of capital). It may be a bit of a misnomer to refer to family and friends financing as "informal" though. Not all transactions will be free and easy, and family and friends can and do discuss terms and conditions of investment, and a fairly common way for friends and family to invest is through a convertible note.

Advantages

  • Raising money through friends and family is probably the easiest way you can get financing outside of saving up for it yourself. At the very least, you’ll be able to make a pitch to them. If you can’t even get an audience with friends and family regarding your business idea, you should probably reconsider entrepreneurship.
  • Depending on who your family and friends are, it’s also probable that you can raise enough money to get your startup off the ground within a much shorter period of time than if you were to pursue more formal options. There’s no need to get approvals from limited partners, much less paperwork and probably a lot less negotiation.
  • As mentioned above, you can possibly get financing terms that are a little more generous than that of more formal options. These are the people who want to see you succeed the most, and will usually be willing to back you with less strings attached, unless it just so happens that your friends and family are sophisticated investors who insist on squeezing the best terms and conditions out of you.
  • You’ll likely have more leeway to build your startup at your own pace. There’ll be less pressure for you to realize value for your investors quickly, and more time to figure out a business model than can actually be sustained.

Disadvantages

  • If your startup tanks, you’ll be losing the money of people you love and care for. This can be particularly painful if these people are giving you a significant portion of their savings. In a worst case scenario, you could even end up damaging your closest relationships.
  • You could screw up future funding opportunities. Inexperienced entrepreneurs and inexperienced investors aren’t a good combination. Even if you’re a serial entrepreneur, it’s hard to be objective about how much you think your startup is worth. If you over-value your startup, it can be a big turn-off to subsequent investors and the last thing you want is to have a down round for your friends and family.

 

how to raise money in Singapore

Formal Capital

1). Government Financing

Singapore is one of the most pro-business countries in the world. Low taxes, an excellent legal system devoid of corruption and a highly skilled workforce make starting a business in Singapore a much easier proposition than in other parts of the world. Recognizing that money is needed for the startup ecosystem to flourish, the Singapore government has rolled out a number of funding initiatives for startups. There are various cash grants, debt-financing schemes and incubator schemes, the variety of which are evolving in 2016. At the moment, the Singapore government seems highly focused on supporting tech startups, and this doesn’t look to change in the near future.

Advantages

  • This focus on supporting entrepreneurship has led to a variety of funding initiatives focusing on different industries, and isn’t limited to the early stages of a company’s growth. Regardless of what industry you intend to penetrate, there’s likely to be some form of help available as long as you’re willing to put in the effort into looking for it.

Disadvantages

  • Eligibility for most government financing involves a due process and fulfilling the relevant criteria for the various schemes. Some even argue that there’re just too many schemes spread across the different statutory boards in Singapore. It can take a fair amount of time to demystify exactly what is required for government funding and the funding process in itself can take a much longer time than a founder would be accustomed to. The sheer number of hurdles you’ll need to clear to get funding has actually resulted in a cottage industry of government funding “consultants” (some of which you might have to be wary of), who’ll help you sieve through the bureaucracy for a price.
  • Contrary to some startup founders’ beliefs, it’s necessary to know that your startup won’t just be getting free money. While some government initiatives provide cash grants that match or exceed the amounts that the entrepreneur puts in himself without taking any equity in the business, other government financing schemes require startups to get a certain amount of financing from third party investors first before the government tags along (usually in these situations, the government takes an equity stakes in the startup alongside the other investors).

2). Venture Capital

In line with Singapore’s status as a startup hotspot in Southeast Asia, the venture funding scene here has been growing from strength to strength. When it comes to raising money from investors, venture capital is usually the first thing that pops into a founder’s mind (while technically different, I’m including angel investment and seed financiers in this category as well).

With notable homegrown firms such as Crystal Horse Investments, Monk’s Hill Ventures and Tri5 Ventures, as well as the influx of international luminaries such as Golden Gate Ventures, 500 Startups and Sequoia Capital in recent years, there are no lack of options for an entrepreneur looking for seed or Series A funding.

Advantages

  • One of the biggest intangible benefits of hooking up with a venture capitalist is an access to business mentors and connections you’d otherwise never have. You can get guidance from their partner networks and these networks tend to extend throughout the region, which can be very useful for the entrepreneur trying to expand his business to other countries.
  • You’ll get money. Money from investors who’ll have a vested interest in seeing you succeed and who may possibly be interested in giving you even more money in the future.
  • Raising money from certain venture capitalists can garner you credibility quickly in the startup world. Being able to jump through the various hoops and hurdles a venture firm requires you to go through is a huge seal of approval, and can be a signal to potential customers, suppliers and creditors that your startup is “legit”.
  • With the appropriate startup idea, the larger sums of money provided by a venture capitalist can help your startup scale much faster (and a whole lot more aggressively) than if you didn’t have the money. With the right startup, this influx of money can be a rocketship towards success.

Disadvantages

  • The process from start to end before finally getting a decision to invest in your startup is usually a long and tedious one. Venture capitalists usually pump in a lot of money into their picks and will usually undertake due diligence at a snail’s pace to make sure there aren’t any skeletons in the startup’s metaphorical closet. If you’ve set your mind on venture funding, make sure you start the venture dating process early (preferably a year in advance) before expecting to see results.
  • Loss of control. Venture capitalists aren’t idiots. They’re not investing in your startup out of the generosity of their hearts (not entirely anyway). Even if your venture capitalist is only taking a minority shareholding in your startup, you can bet your last dollar that he’s going to be asking to have a say in the running of the company. This can be in any number of ways, from asking for directorships to having veto rights when deciding on certain reserved matters. More often than not, the larger the stake, the more say they’re going to want in the decision-making of your company.