Singapore's Move to Ease VC Regulations May Level Playing Fieldby and
Central bank proposals seek more capital options for startups
Proposals lower barriers of entry and simplify paperwork
Singapore, the world’s second-easiest place to do business, plans to ease regulations for venture capital managers under a proposal that industry firms said would provide early-stage startups with more funding options.
New and existing VC managers won’t be subject to the same capital requirements and business conduct rules that currently apply to fund managers in general, according to a consultation paper published by the Monetary Authority of Singapore Wednesday. The plan will reduce paperwork and cut the application time to get a VC license in the city-state to “a matter of weeks,” from an average of two and a half months, the MAS said in an e-mail.
The plan is part of efforts to support and implement recommendations by a top-level government-appointed committee to help sustain Singapore’s annual growth at an average of 2 percent to 3 percent. It also places the city-state’s rules in line with those in the U.S., according to Jeffrey Chi, chairman of the Singapore Venture Capital & Private Equity Association, who said his group has been in consultation with the central bank to prepare the proposals.
“The whole notion that MAS is rethinking and putting in place a new regulatory framework for VC management is very encouraging,” said Chi, who is also vice chairman of Vickers Venture Partners in Singapore. “It’s a healthy development for the industry and the startup ecosystem.”
As part of the proposals, open for public consultation until March 15, the central bank won’t demand that VC managers have directors and representatives with at least five years of relevant experience in fund management.
It also won’t require VC managers to provide independent valuation, internal audits and audited financial statements -- a proposed change that Paul Santos, Singapore-based managing partner at VC firm Wavemaker Partners, described as “very encouraging.”
“The holding values of startup portfolios are just like mid-term marks,” he said. “Nobody makes any money from these mid-term marks. The only time the values are real are when the companies are wound up or are sold or listed.”
Sameer Narula, managing partner of ACP, a Singapore-based VC, said the changes could have “far reaching implications” on the way early-stage investment is conducted in Singapore and around the region.
The MAS proposals include removing base capital and risk-based capital requirements. Narula said this would make it much easier for smaller fund managers to compete, ultimately offering more funding options to early-stage companies and “level the playing field.”
The central bank said other requirements, involving the annual submission of information on funds and the prevention of money laundering and financing of terrorism, will remain unchanged.
Singapore saw record private equity and venture capital investments totaling $3.5 billion in 2016, rising from $2.2 billion in 2015, based on figures from Duff & Phelps, a corporate finance adviser.
The reduced entry barrier demonstrates Singapore’s “progressive stance towards business,” said Vinnie Lauria, founding partner of Golden Gate Ventures in Singapore.
Still, Singapore isn’t the only country in Southeast Asia trying to lure startups. Last year, Indonesia announced plans to establish a dedicated section within its main stock exchange to host IPOs by startups, pursuing its vision of becoming a regional cradle of technology entrepreneurs.
The planned easing of regulations may bring in more VC firms to Singapore, but the MAS would need to mitigate any risks through the enforcement of industry standards, according to James Bitanga, chief legal officer at Reapra Pte, a Singapore-based VC firm.
“While there is an implicit recognition here that VC investments take on a different risk profile than that of other types of investments, we should wait and see how the government plans to ensure that it can attract and retain quality VC players,” Bitanga said.