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Commentary: Beyond loans and grants, Singapore entrepreneurs should seek out equity investments to grow their companies

The venture capital world pays close attention to which start-ups get investments from the who's who of the investment world, says NUS Enterprise's Jonathan Chang.

Commentary: Beyond loans and grants, Singapore entrepreneurs should seek out equity investments to grow their companies

Shopback held a Facebook live stream in November 2018. (Photo: Facebook/Shopback)

SINGAPORE: How can entrepreneurs find funding to build and grow their businesses?

Often, they start companies by bootstrapping – meaning they fund their initial operational cost out of their own pocket – but that often isn’t enough as operations grow more complex and start-up costs balloon before revenue streams in.

External sources can offer a much larger capital base for entrepreneurs anticipating the need for bigger pots of funding, as their businesses scale up.

Apart from seeking out investments from family and friends, entrepreneurs can tap on an array of grants set up to assist companies adopt new technologies, build capabilities and grow, which make up part of the Government’s efforts to increase the productivity and competitiveness of local businesses.

Entrepreneurs may also seek out bank loans as another source of funding. Banks, including DBS and OCBC, offer business loans but the loan tenor can be short, hovering around four to five years, and the interest rates high (one reaching almost 11 per cent per annum) depending on your credit rating. 

Many small and medium-sized enterprises fund operations through such loans – almost 9 in 10 in a 2017 survey released by Spring Singapore.

Social enterprises may have more recourse, as banks such as DBS have special programmes that offer them unsecured business loans at a preferential rate.

But there are strong reasons for ambitious entrepreneurs looking to expand their businesses rapidly to consider adopting a different mode of funding: Equity investments.

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In the most recent Budget 2019 announcements by Finance Minister Heng Swee Keat, Mr Heng made an interesting announcement of a top-up of S$100 million for investments in SMEs under its SME Co-Investment Fund III, in addition to S$400 million set aside since 2010.

The CIP had been set up to catalyse patient growth capital for Singapore-based enterprises through co-investment with the private sector. The Government, as co-investor, relies on the private sector to assess investments, and seed capital could be matched on a 1:1 basis.

Why is this announcement interesting? Because it further emphasises the growing salience of the use of equity investment as a public policy tool to spur growth in local businesses, beyond a pure grant model.

Finance Minister Heng Swee Keat delivering the Budget 2019 statement.


I often encourage aspiring entrepreneurs and my students at NUS Enterprise to seek additional funding from institutional investors - whether venture capital firms after a company has had proof of value or angel investors at an earlier stage as the company continues to develop its business model - and not to rely solely on grants and business plan competition prizes.

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I know a few entrepreneurs who have gone from one business plan competition to another and one grant proposal to another, thinking this strategy to be an easy way in getting “free” money without giving up equity.

However, filling out grant reports and going through business plan competitions are time-consuming. Each grant comes with required administrative reporting that grantees must fulfill, first to quality and then to receive subsequent tranches of funding.

The amount granted is usually small, as the subsidies are tied to the proportion of costs incurred by the company in fulfilling the conditions of the grant, whether to adopt new technologies, carry out research and development, or invest in human capital.

Similarly, each business plan competition also requires startups to fill out long application forms and present their business ideas to judges, who are often under strict guidelines from their respective donors, to conform to a grant mandate.

In contrast, bringing on board equity funding helps businesses enlist a whole host of other resources to scale up. Where the goal of most equity investors is to see returns on their investments, companies they back can look forward to a huge amassing of resources to do just that.

Selecting and partnering with the right equity investors will provide the support that entrepreneurs often lack as they are often first-time entrepreneurs.

The right investors offer a lot more than just money. They bring in connections, networks, and expertise in exchange for some control and voting rights over key business decisions. 

They often take a Board of Directors seat, providing supervision and guidance over the management team. Investors also often push start-ups to grow by acquiring other start-ups.

ShopBack, a start-up providing cashback reward for online shopping – has a team of 240, over 8 million monthly users across desktop and mobile across seven markets in the Asia Pacific including Malaysia, Thailand and Australia. 

(Photo: ShopBack)

It has raised a total of US$40 million (S$54 million) equity financing from investors like SoftBank Ventures Korea.

That kind of financing has allowed ShopBack to make a strategic acquisition of Seedly, a personal finance and expense tracker, giving it better insights into the millennial demographic. Both companies are barely five years old.

Raising funds from respectable investors with a long track record of success also accords the start-up a better brand positioning for attracting top talent and potentially additional funding. 

The venture capital world pays close attention to which start-ups get investments from the who's who of the investment world - especially Softbank, Sequoia, Monk’s Hill Ventures, Gobi Partners and East Ventures, just to name a few. Other companies would also be more open to partnering start-ups backed by these players.


Issuing equity does not necessarily mean you lose control of your company, so long as you do your due diligence in knocking out a reasonable term sheet and guard against partnering predatory investors.

Still, grants have their merit. They can be useful to kickstart your venture, bringing your business from an idea to prototype stage.

Big institutional investors, which include mutual funds and investment banks, often refrain from investing during the ideation stage given the risks. This is why some educational institutions, government bodies, or foundations offer small grants for aspiring entrepreneurs – helping them build a prototype, and make it investment ready.

Take Carousell for example – it was founded by three National University of Singapore (NUS) Overseas Colleges alumni. The founders received two grants from NUS Enterprise in their early days to pursue their idea.

The co-founders of online classifieds marketplace Carousell. (Photo: Carousell)

But after being incubated further at Block71, Carousell raised its first substantial seed funding of S$1 million from Rakuten in 2013. Subsequently, the start-up raised S$7.8 million in Series A funding from other larger investors including Sequoia, Golden Gate Ventures, and 500 Startups.

I applaud the Government’s initiative of topping up the Co-Investment Programme to encourage private sector investments to share business risks with the Singapore Government, and hope this rallies the private sector and venture capital community to spur more growth in Singapore start-ups.

Ultimately, how much success these schemes will enjoy depend largely on how skillful private investors are in evaluating and assessing investment worthiness of a business venture.

The Government can provide funding to give the needed jolt to a sector, but at the end of the day, it takes effort from both the entrepreneur and private investors to pull off a successful venture. In the long run, once the Government feels comfortable with the uptake from the private sector, it would most likely reallocate its limited resources to other under-served sectors.

That’s the essence of a public-private-partnership that can raise the game of local entrepreneurs, if only they shift towards such funding support to grow their businesses beyond the prototype stage. 

Jonathan Chang is the Executive Director at the National University of Singapore (NUS) Enterprise and oversees units including the NUS Entrepreneurship Centre, NUS Overseas Colleges, Lean LaunchPad Singapore and Social Venture Lab. 

(Editor's Note: The figures on ShopBack have been updated, following a clarification from the company.)

Source: CNA/sl


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