Capital is the number one challenge that start-ups face during their early stages. Most of the newly incorporated companies are funded by the founders, family members, and friends. However, as the business starts to thrive, you will need to find other sources as the informal sources of funding may not be sufficient to support the company operations. Private equity financing fills this gap by providing the capital required to take the new business to the next level.
Concisely, private equity financing is a term that is used to refer to capital acquired from private investors. This form of financing is an ideal choice for Singapore incorporated companies that are yet to accrue sufficient collateral to qualify for traditional loans. To benefit from this type of funding in Singapore, you need to have a comprehensive business plan.
Here are three private equity financing options available in Singapore for newly registered companies.
Venture capitalists are professional investors who provide not only funding but also their business expertise to enhance the growth and profitability of the business. They often expect a high rate of return from the companies that they invest in, usually above 25%. More often than not, they invest in new businesses that are in high growth sectors such as IT.
Angel investors are wealthy people who invest in high-risk businesses, usually at the seed stages, in return for a share of the business. Simply put, these are investors who will invest capital and their business skills to newly registered companies in Singapore in exchange for an agreed amount of equity.
They can operate as part of an existing angel network or independently depend on the stakes. Individual business angel can commit between S$25,000-S$100,000, while angel networks or groups can invest between S$250,000-S$750,000.
Start-ups that have a high growth potential and operating in industries that angel investors are familiar with are more likely to benefit from this form of private equity financing in Singapore. They not only offer financial support but also their business expertise to the investee company.
Banks, investment companies, financial institutions are in this category. Unlike venture capitalist and angel investors, they do play an active role in the company. Their primary goal is to get a return on their investment as agreed during the negotiations. Rarely do they invest in businesses that are at their early stages as most of them require collateral and a proven positive credit record.