It is a known fact that the rate of start-ups failing within the first few years of incorporation is quite high. One of the most common reasons for such failure is that the companies have limited funds as working capital to fulfil their business plans, run their business activities or expand sufficiently — which is why it is important for you as an entrepreneur to ensure the planning of a sound financial strategy for your company, even as you are drafting up your business plan pre-incorporation.
There are several ways of ensuring that your start-up does not suffer the same fate as many other spectacular blowouts in the corporate landscape of hopes and dreams, just because you have limited access to capital. The following are sources of funding options for Singapore start-ups that may propel the business to greater heights.
Equity Fundraising
The landscape for the Singapore private equity funding scene is getting more robust these days, because the government actively encourages private investors to invest in the country’s start-ups with numerous tax incentives, making Singapore one of the top most attractive markets for private equity and venture capital activities. If you opt to finance your business by selling equity in your start-up company, you sell partial ownership of your company (in the form of shares) for a cash investment.
One could wonder why anyone would give money to a company that has no proven track record and no concrete guarantees of profitability. Usually, this is because the investor is your family member, friend or simply someone who believes that your business has great potential. If your investor is in the latter category, this means that typically this investor would get a substantial financial return on their investment if your company subsequently succeeds as they (and you) think it would.
What such equity financing means to you as an entrepreneur is this: what you pay to your investors in the form of dividends on shares is typically comparably lower than interest rates you would pay to service a bank loan (called debt financing). Thus, depending on the situation, equity financing may sometimes be more expensive for you if your company turns out to be overwhelmingly successful— because if your company earns high profits, you will be paying out a total amount of dividends on these investments that are a greater value than the interest amounts you would pay on a fixed bank loan (that is independent of how much profit your business makes); however, if the company does not make profits then equity financing becomes less of a financial liability upon the company given that you are not obliged to pay your investors if there are no profits (versus having to still pay the bank back for the loan you took). In some ways, equity fundraising is preferable because the investors bear such investment risks if the company makes losses or fails i.e. the investors will then lose the money that they invested in that company.
Read more about the funding options for Singapore startups at Rikvin.com.
