In this article, lawyer WanHsi Yeong from ArrowGates LLC talks about funding and offers practical advice for existing and aspiring startup entrepreneurs.
Funding is undeniably a priority for startups. Staying true to its renowned reputation as a business friendly hub, Singapore offers a myriad of schemes and grants to aid startups in growing and expanding their capabilities.
However, given the wide range of schemes and grants that are available, it can often be confusing and challenging for startups to navigate through them and evaluate which one would be most applicable to their respective businesses. To make this process easier, I have compiled a non-exhaustive guide of the key schemes and grants that are available to startups.
This guide is divided into the following sections:
- Co-Investments: Equity funding
- Funding Grants: Funding in the form of cash/vouchers
- Tax Incentives: Cash or Tax deductions
Here is a brief overview on the types of schemes available
1. Co-Investment
Co-investment schemes are schemes in which the sponsoring organization makes an investment alongside a financial sponsor or other private investors for an equity stake in the startup.
When to pick co-investment?
Co-investment schemes are most suitable for startups that are in the process or are planning to raise funds in the near future, and when the quantum of funding sought is relatively high.
| Benefits of co-investment schemes | Disadvantages of co-investment schemes |
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What are the co-investment schemes that are available?
SPRING Singapore and the National Research Foundation (NRF) provide the following co-investment schemes:
| Scheme | Overview | Eligibility | Comments |
| Business Angel Scheme (BAS)
By SPRING Singapore
|
SPRINGS may match the sum invested by investor(s) dollar-for-dollar up to a maximum of S$2 million.
SPRING and investor(s) will take equity stakes in the start-up in proportion to investments. |
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| Startup Enterprise Development Scheme (SEEDS)
By SPRING Singapore |
Same as above | Same as above |
Requirements of 3rd party investor(s):
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| Sector Specific Accelerator (SSA) Programme
By SPRING Singapore |
SPRINGS co-invests with accelerators on a 1:1 basis.
Accelerators invest and help startups build up management teams and meet regulatory requirements |
No specific guidelines currently available |
Current accelerators
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| Early Stage Venture Fund (ESVF)
By National Research Foundation (NRF) |
NRF invests S$10 million on a matching basis, to seed corporate venture capital (VC) funds that invest in Singapore-based early stage high-tech companies.
VCs will be given an option to buy out NRF’s share of the fund within five years by repaying the capital and interest |
Contact respective VC firms to seek funding eligibility | Selected VC firms
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Which co-investment scheme should you pick?
The type of scheme that is most suitable for your startup depends on the type of investors that you are seeking and on the particular sector in which your startup is engaged in. For example if you have an independent 3rd party investor and wish to seek matching funding from SPRING Singapore, than you would want to consider SEEDS. However, if you do pick SEEDS, you would have to ensure your independent 3rd party investor is able to meet the criteria outlined by SPRING Singapore in order to qualify for the scheme. This might pose its own challenges compared to picking BAS in which the Angel Investors have already been approved by SPRING Singapore and therefore it might easier for startups to qualify for the scheme.
The sector in which your startup operates is an important consideration as well. Most Angel Investors, Venture Capital firms and Accelerators focus on particular sectors and you would have to approach the most appropriate one when seeking funding. For example if your startup is in the medical technology sector, the SSA scheme would be a good option to consider as the Accelerators in the scheme are currently focused on developing startups in that specific sector.
As a general guide, if your startup is under one of the following sectors, than you may wish to consider the respective schemes as follows:
| Sector | Scheme |
| All sectors |
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| Medical Technology |
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| Information Technology |
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| Engineering / Clean Technology |
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2. Funding Grants
Startups are provided with grants in the form of money and prepaid vouchers for various purposes including improving technological capabilities, internal systems, licensing and even international expansion.
When to pick Funding Grants?
Funding grants are suitable for startups that do not wish to part with equity and those that might not require a significant amount of funding.
| Benefits of funding grants | Disadvantages of funding grants |
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What are the Funding Grants that are available?
Sponsoring organizations such as SPRING Singapore, Info-communications Media Development Authority and IE Singapore provide the following schemes:
| Scheme | Overview | Eligibility | Comments |
| ACE Startup Grant
By SPRING Singapore |
Grant matches S$7 to every S$3 raised by the entrepreneur, up to a cap of S$50,000.
Mentor is assigned to guide the start-up in the first year |
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| Technology Enterprise Commercialisation Scheme (TECS)
By SPRING Singapore |
Scheme provides early-funding to help startups commercialize their proprietary technology products and services.
Two grants are available under TECS depending on the stage of development of the technology or solution/concept |
The Company
The Tech solution
|
Type of grants
Proof-of-Concept (POC) Project
Proof-of-Value (POV) Project
Qualifying Costs
Operating Expenditure |
| Innovation & Capability Voucher (ICV)
By SPRING Singapore |
Maximum S$40,000 in vouchers of S$5,000 (i.e. 8 vouchers cap).
Vouchers can be used to procure Consultancy Services or implement pre-scoped Integrated Solutions
Vouchers are to be redeemed from participating Service Providers. i.e. Consultancy and Integrated Solutions Service Providers. |
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Participating Service Provider – Consultancy service and Solution providers that have been approved by SPRING Singapore
Consultancy services
Integrated Solutions – tried and tested tools to improve productivity
Note: Max 2 vouchers to implement pre-scoped Integrated Solutions or per capability area for supported consultancy services |
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Capabilities Development Grant – Technology Innovation (CDG-TI)
By Info-communications Media Development Authority (IMDA) |
Grant for Small and Medium Enterprises to develop capabilities across 10 key business areas.
Funding of up to 70% of qualifying project costs. |
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Development areas
Qualifying Project Costs
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| iSPRINT
By Info-communications Media Development Authority (IMDA)
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Grant to develop technological capabilities.
Up to 70% of costs, capped at $20,000 for procuring packaged solutions.
Up to 70% of costs for procuring sector specific solutions.
Solutions have to be procured from IMDA approved vendors. |
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Packaged Solutions – solutions that are available off-the-shelf or on a pay-per-use basis
Sector Specific Solution
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| Market Readiness Assistance Grant (MRA)
By IE Singapore |
Grant for international expansion.
70% of eligible cost for supported activities in relation to expansion, capped at S$20,000 per company per fiscal year. Maximum of two applications per fiscal year, starting on 1 April and ending on 31 March the following year.
Valid till 31 March 2018. |
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Supported Activities
Global HQ refers to global management control and decision making functions are based in Singapore SME is defined as is a company whose turnover is not exceeding S$100 million based on the most recent audited report |
| Global Company Partnership Grant (GCP)
By IE Singapore |
Grant for international expansion.
SMEs get up to 70% of eligible costs.
Non-SMEs get up to 50% of eligible costs.
Eligible costs are costs incurred in engaging a third-party professional to develop the business in the following areas: (1) Capability Building (2) Market Access (3) Manpower Development.
Valid till 31 March 2018. |
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Capability Building
Market Access
Manpower development
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Which scheme should you pick?
As seen above, there are numerous schemes that provide funding to improve various aspects of your startup and each scheme has its own merits and demerits that you would have to consider before applying.
For example, the Ace Startup Grant is attractive in that not only does it provide substantial funding but also assigns a mentor which is imperative for young startups that need the guidance of more experienced individuals. However, the evaluation criteria of applications are rigorous and you would have to show, among other things, how distinct your business is from other applicants. Further, unlike other grants that may be given in lump sums, funding under this grant will only be given over two to three tranches when the startup hits certain pre-determined milestones.
Another one is the Technology Enterprise Commercialisation Scheme (TECS). Startups that satisfy the requirement may get up to 85% or 100% of qualifying costs depending on the type of grant they apply for. The amount offered under the scheme would significantly relieve the financial burden on the startup. Nonetheless, similar to the Ace Grant, the eligibility criteria to qualify for TECS are stringent and proving that your technological solution is of a breakthrough level might be a challenging task.
If you desire to expand your business overseas, you might want to consider the Market Readiness Assistance Grant (MRA) and the Global Company Partnership Grant (GCP). The grant supports critical areas such as internationalisation strategy, manpower development and identification of overseas partners. However, in order to qualify for GCP for example, your annual sales turnover has to be at least S$500,000. Most startups that are in their infancy would find difficult to meet this target. Therefore, if you wish to consider expanding your business overseas, you might have to grow your sales and prove that you can meet the target which might take considerable amount of time.
Overall, the purpose of your application would dictate the type of scheme that is suitable for your startup. Therefore, it is essential to determine which aspect of the business the funding is being sought for. The following provides some guidance as to which scheme might be suited for your startup based on the purpose of your application:
| Purpose | Scheme |
| General Development |
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| Commercialization of Technological Products/Services |
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| Developing Technological Capabilities |
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| Overseas Expansion |
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3. Tax Incentives
Perhaps the most common and well utilized tax incentive is the Productivity and Innovation Credit (PIC) scheme by the Inland Revenue Authority of Singapore (IRAS) which will be in effect till 2018. Businesses that meet the eligibility criteria can opt between receiving tax deductions or cash payouts for expenditure incurred in any of the Six Qualifying Activities.
| Benefits of PIC | Disadvantages of PIC |
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Overview of PIC
| Scheme | Overview | Eligibility | Comments |
| Productivity and Innovation Credit (PIC)
By Inland Revenue Authority of Singapore (IRAS) |
Tax deduction – 400% tax deductions or allowances on up to $400,000 of spending per year in each of Six Qualifying Activities.
Cashpayout – convert qualifying expenditure of up to S$100,000 for each year into cash at a conversion rate of 40%. |
Cash Payout
For PIC IT and automation equipment claims relating to 2016 onwards, equipment has to be “in-use” when opting for cash payout |
Qualifying Activities
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OVERSEAS COMPANIES
There is another scheme available in Singapore, which is more geared towards overseas companies, and particularly for the financial industry. This scheme is termed Financial Sector Technology and Innovation (FSTI) by the Monetary Authority of Singapore (MAS). It is essentially a financial assistance scheme, where a sum of Financial assistance scheme where a sum of S$225 million is to be granted to participants over 5 years.
The purpose of the scheme is to (i) attract financial institutions (FIs) to set up their R&D and innovation labs in Singapore; (ii) catalyse the development by FIs of innovative solutions that have the potential to promote growth, efficiency, or competitiveness; (iii) support the building of industry-wide technology infrastructure that is required for the delivery of new, integrated services (Applicable to start-ups/tech companies)
There are presently no guidelines from MAS as to the eligibility of participants to the scheme.
Maximize and explore your options in order to grow your business
Given the availability of schemes and grants in Singapore as discussed above, startups are encouraged to explore and maximize these options to grow their businesses.
Before deciding whether to opt for a co-investment scheme, a funding grant or a tax incentive you would have to consider a multitude of factors including the
- technical and operational needs of your startup,
- the urgency in which you would require funding and
- the level of control that you would be comfortable giving up
| If control is your biggest consideration |
Funding grants might be your best option. |
| If you require a large amount of investment in a considerably shorter amount of time |
A co-investment scheme would better suit your needs. |
| If you require tax deductions or cash payouts |
Tax incentives might be your best option |
Need Advice?
If you need advice on any aspect of funding, grants, and/or business documentation, you might consider having a Quick Consult with me where I can advise you and answer a specific question you may have on Startup or Fintech-related issues over a 15-minute discussion on the phone for a transparent, flat fee of S$69 here.
This article was co-authored with Seah Ern Xu, Content Strategist at AsiaLawNetwork.com.
If you want to know more about finding a lawyer
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This article is written by Yeong WanHsi from ArrowGates LLC and Seah Ern Xu from Asia Law Network.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.
