Simpler rules to draw more venture capital managers

The booming venture capital industry here is set to grow further in the coming months as new rules kick in to allow start-ups easier access to funding.

The slimmed-down and simpler framework outlined by the Monetary Authority of Singapore (MAS) will allow venture capital (VC) funds to get a licence within weeks instead of the average of about 21/2 months under the existing process.

The proposed changes, which aim to cut red tape and lower compliance costs, will also relieve VC funds of having to do independent valuations and submit audited financial statements to the MAS.

The aim is to attract more VC managers here and spur them to play a greater role in supporting entrepreneurship and innovation. There are about 30 VC managers here now.

Mr Sam Phoen, co-founder of investment management firm Wateram Capital, welcomed the initiative, although he questioned why the proposals were limited to helping newly incorporated firms of five years or less.

"What we are seeing in Singapore is that companies in later stages of growth (roughly between the fourth and eighth year of incorporation) are facing a dearth of funding and financing options. This is the time when they need the most money to grow the company," he said. "Unfortunately they would be at a stage where they are not so small to appeal to VCs, but at the same time not large or profitable enough to get financing from financial institutions."

He said start-ups in successful VC markets such as the United States and China have good access to finance across the entire life cycle from seed funding right through to the IPO market.

"MAS should consider extending this relaxation to the entire funding value chain and simplify regulations to nurture the development of the entire value chain," Mr Phoen added.

He also suggested that VC firms be allowed to invest in other VC managers, much like a fund of VC funds. Mr Phoen said: "As long as funds eventually help the start-ups, it doesn't matter whether it is direct or indirect."

Currently, VC funds are restricted to accredited or institutional investors. Accredited investors are those with net personal assets exceeding $2 million or whose income was not less than $300,000 in the preceding 12 months.

While retail investors need additional protection, they are also restricted from participating in good long-term VC or private equity deals simply because they do not qualify as accredited investors.

Mr Phoen noted that just as accredited investors may not mean they are sophisticated enough to take care of themselves, being categorised as non-accredited investors does not mean they are financial illiterates.

"Opening up to retail investors will provide an additional source of investment diversification for retail investors, as well as additional funding support for start-ups," he added.

"Criteria that could be introduced before retail investors can participate might include suitability assessments and a limit to their total investment amounts to be no more than 20 per cent of their investable assets."

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on June 25, 2017, with the headline 'Simpler rules to draw more venture capital managers'. Print Edition | Subscribe