Faster set-up, fewer hurdles for venture capitalists

ST ILLUSTRATION: CHNG CHOON HIONG

Upcoming framework will allow VC funds to get a licence within weeks, instead of months

No minimum capital, no relevant experience or audit required: The bar has been lowered for venture capitalists, who will soon just have to be "fit and proper" if they want to set up shop here.

The slimmed-down set of rules is part of a broader strategy to make it easier for start-ups to get funding.

The proposed rule changes for the booming venture capital (VC) industry were outlined yesterday by the Monetary Authority of Singapore (MAS).

Once the new framework is in place - the MAS is targeting July - VC funds will be able to obtain a licence within weeks. It takes an average of about 21/2 months under the current process. The MAS said it hopes the reforms will attract more VC managers here and spur them to play a greater role in supporting entrepreneurship and innovation. There are 29 VC managers here now.

Mr Lee Boon Ngiap, MAS' assistant managing director of capital markets, said in a statement: "The proposed simplified regulatory regime for VC managers recognises the lower risks they pose, given their business model and sophisticated investor base.

"It will allow new VC managers a faster time to market and reduce their ongoing compliance burden."

One change involves simplifying the authorisation process for VC managers, focusing primarily on the criteria of fitness and propriety.

That will mean checking if the directors of a VC fund have criminal records or any negative regulatory issues that call into question their honesty and integrity, but other criteria will be dropped. So the MAS would no longer require VC managers to have directors and representatives with at least five years of relevant experience in fund management.

VC managers will also no longer be subject to the capital requirements and business conduct rules that now apply to fund managers in general and they will not have to meet certain capital requirements.

They will also not have to undergo independent valuations and internal audits or submit audited financial statements to the MAS.

Mr B. Paul Santos, the managing partner of VC manager Wavemaker Partners, said a lot of these valuations and audits do not give a meaningful picture of a VC manager's performance anyway. "I think too much time and money are wasted figuring out holding values of start-up portfolios... The only time the values are real are when the companies are wound up or are sold or listed."

The MAS noted that VC managers are different from other fund managers as they manage funds that are typically invested only in unlisted business ventures and are offered only to accredited and/or institutional investors. These differences make some fund-management rules that are now imposed on VC managers less relevant, the MAS said.

Vickers Venture Partners managing director Damian Tan said the lighter rules will lower VCs' compliance costs, which means they could put their capital to better use.

Jungle Ventures managing partner Amit Anand said the new regime would liven up the sector: "Over the last four years, we have seen deal flow increase by at least 10 to 20 times, depending on the sector, a great sign that Singapore is evolving into a platform for global entrepreneurship. Initiatives such as these changes proposed by the MAS help accelerate this development." 

The MAS will also retain the power to deal with errant VC managers.

The public consultation paper is available on the MAS website. Public consultation ends on March 15.

A version of this article appeared in the print edition of The Straits Times on February 16, 2017, with the headline 'Faster set-up, fewer hurdles for venture capitalists'. Print Edition | Subscribe