VC funds urge review of regulatory requirements

The Monetary Authority of Singapore (MAS) building at 10 Shenton Way.
The Monetary Authority of Singapore (MAS) building at 10 Shenton Way.ST PHOTO: LIM YAOHUI

They cite cumbersome requirements and costs, welcoming MAS move to review rules

Cumbersome administrative and regulatory requirements make it costly to start a venture capital (VC) fund here, and some are hoping these rules can be relooked.

Their comments came after Monetary Authority of Singapore (MAS) managing director Ravi Menon said that the regulator "will review some of the regulatory requirements placed on venture capitalists", to encourage more such investors to set up in Singapore and boost the funding pool for fintech start-ups.

VC funds - which invest in start-ups showing strong growth potential - are required to apply for and maintain licences.

These can be expensive, especially when the fund is just starting out, said Dr Jeffrey Chi, the vice-chairman of Vickers Venture Partners.

"These funds are often small and the fees generated may not justify the costs incurred," added Dr Chi, who is also the chairman of the Singapore Venture Capital and Private Equity Association (SVCA).

A small VC fund of about US$20 million to US$30 million (S$27 million to S$41 million), earning 2 per cent a year in management fees, "does not have much leeway" for extra overheads.

"These VCs may consider setting up elsewhere in the region, especially if the funds are invested outside of Singapore," he noted.

SOLIDIFYING S'PORE'S POSITION
 

It is not just about making it easier or harder for a VC to operate in Singapore, it is about whether we are doing enough to solidify Singapore's position as the hub for venture investment across South-east Asia.

DR JEFFREY CHI, the vice-chairman of Vickers Venture Partners

Mr Foo Tiang Lim, operating partner at SeedPlus, a seed-stage VC firm backed by Jungle Ventures, said the application process to set up a fund can take six to 12 months.

"The processes are a bit of a black box... Given the length of time for application, this could translate into high opportunity costs as well."

Wavemaker Partners managing partner Paul Santos said VCs in the United States - home to one of the world's foremost start-up ecosystems - do not require a licence. This might be worth reviewing in Singapore, he said. "Earlier-stage funds like ours tend to raise less money and so have less money for management fees. We would rather spend these fees helping our portfolio than on compliance matters."

Still, VCs welcomed MAS' industry engagement efforts and acknowledged that regulators everywhere are still feeling their way around emerging sectors like fintech.

Mr Foo said: "(The regulatory requirements) are a cost of doing business which have to be weighed against fiduciary responsibilities (to our investors)."

Dr Chi said: "I think the key in this regulatory review is recognising the difference between the operations of a VC firm versus other types of financial institutions.

"It is not just about making it easier or harder for a VC to operate in Singapore, it is about whether we are doing enough to solidify Singapore's position as the hub for venture investment across Southeast Asia."

A version of this article appeared in the print edition of The Straits Times on August 27, 2016, with the headline 'VC funds urge review of regulatory requirements'. Print Edition | Subscribe