Equity Financing in Singapore

Equity Capital consists of funds that are raised by a business in exchange for an ownership interest in the company. This could be in the form of ownership of common or preferred stock or instruments that can be converted into stocks. Unlike debt financing, which would be paid back over a period of time, equity financing need not be repaid.

 

Equity Capital can be sourced from various sources including family and friends. It is often raised from high net worth individuals, investors, also known as "Angel Investors" or from Venture Capitalists or Private Equity Firms. Angel investors and Venture Capitalists target upcoming start ups that find it difficult to obtain bank financing, with a return on investment of at least 30-40% and a strategy to exit from the investment within 3-7 years.

 

Ideally companies that receive equity investment are high growth companies, with the potential for high rate of return. They are usually market leader in their domain and leverage on “first mover advantage", being first in a growing marketplace or industry sector.Real estate, Construction, Telecommunications, Power Generation, Electronics, IT services and Logistics are some of the important sectors that see equity funding.

 

Angel Investors and Venture Capitalists show keen interest in companies that have a clear exit strategy, along with a return on investment. They are also known as "liquidity event". They include an initial public offering, private placement, acquisition or merger with another company or management led buyout. Investors are basically looking at opportunities to exit in 3-7 years.

Equity Investors show keen interest in companies that have the potential for financial returns.Private equity investors expect returns above public equity returns to compensate for additional risks, principally liquidity risk and in some cases increased risks due to financial leverage, unproven technology, and/or unseasoned business models.

Equity Finance Instruments in Singapore

 

Equity Finance In Singapore can be broadly classified into three types of investors. They are Angel Investors, Venture Capitalists and Private Equity Financers. As far as business enterprises are concerned the sources of equity financing are extremely important. It has been observed that the companies that have a reasonable track record find it comparatively easier to get equity financing.

 

Angel investors invest in businesses with an objective to have a higher rate of return than they would receive from a traditional investment. Angels are themselves successful entrepreneurs who would want to help other entrepreneurs establish their business. The term "angel' originates from the practice in the early 1900s of wealthy businessmen investing in Broadway productions. Today "angels" typically offer expertise, experience and contacts in addition to finance.

 

Venture Capitalists are high risk investors and in accepting these higher risks, they seek a higher return on investments. A venture capitalist manages the risk/reward ratio by investing in businesses that meet their investment criteria.

 

Different Venture Capitalists have different approaches towards investments. The difference in approach may be related to the location of the business, the size of the investment, the stage of the company, industry specialization and structure of the investment.

 

Other Sources of Private Equity Funds
Banks, Financial Institutions and Insurance companies having funds to invest in businesses come in the purview of other sources of private equity funds. Having a sound knowledge of private equity funding would be important for any startup wanting sources of additional financing. Private equity funding plays a significant role in sustaining entrepreneurship.