Guide to Finding Investors For Your Singapore Start-Up
Start-ups are evolving and changing Singapore’s ecosystem for the better with their innovative ideas and new technologies. As small and young companies, however, start-ups may require business funds and guidance to kick off their business. Investors are of great help to this end.
If you’re a start-up founder looking for investors for your business and wish to know how you can get them on board, this article is for you. It will address:
Why Should I Consider Seeking Investors For My Start-Up?
During the early stages of setting up your business, you would require capital to develop and market your products. Investors can provide these necessary funds to actively support your business. Accordingly, with more capital, you could hire experts and employees to build your start-up. You could also begin to develop and market your product. As your business takes off, you can compete in the growing market faster and begin to generate profits.
Furthermore, investors can also provide your business with mentorship, advice and networks to help you grow your start-up. These investors may have more practical experience as compared to a new start-up founder, and can hence assist you in analysing risks, hiring the right team and making business decisions. Additionally, some investors may be knowledgeable in dealing with issues relating to marketing or finances which could help your start-up progress faster.
What Attracts Investors to a Start-Up?
To understand what attracts investors, you need to think from the investors’ point of view. Investors often seek a competitive return on their investments. They will invest in promising and reliable companies. Ideally, these companies should also make a positive impact on lives or transform industries with unique and exceptional ideas.
Moreover, it is important that you have a credible and profitable business plan that comprehensively sets out the details of finances, targeted customers and products or services offered. These issues should be addressed clearly, concisely and supported by reliable information and/or numbers if you want your investor to trust that your business is a viable one. Otherwise, they may not be interested in investing in your business.
Lastly, you need to plan strategically to sustain and keep your business growing in the long run. Thus, you should conduct financial forecasts to assess and project your business’ future performance. These forecasts will keep your investors well-informed about your business’ future earnings (and hence their ability to reap a return on their investment).
Additionally, forecasts highlight possible influences, such as technological advancements in the market, that could shape your company’s financial position. Presenting these forecasts to investors will therefore reassure them of your company’s future growth potential.
What are the Types of Investors?
Friends and family, angel investors, venture capitalists, and banks are some examples of the types of investors. Angel investors are professional individuals who invest their own personal finances in a start-up with good prospects. On the other hand, venture capitalist firms raise large amounts of capital to invest in businesses that show high growth potential.
To determine which type of investor is best suited for your start-up, you need to consider several factors like the amount of funds you require or the extent of expertise you seek from your investors. Angel investors and venture capitalist firms might be in a stronger financial position to give more funds as compared to friends and families, for example.
Furthermore, you might wish to look for investors with practical experience in investing or are familiar with the workings of the industry. They could offer you fresh perspectives and ideas and support you in growing your business.
However, be aware that your investors might wish to have a stake in the business in exchange for granting you capital. If you do not wish to split your equity, you could consider obtaining loans from banks and grants from the government instead.
How Can I Reach Out to Investors in Singapore?
Start-up SG has launched “the Network”, which is a platform for you to meet and connect with individuals and organisations—including potential investors.
When you have connected with potential investors, you could pitch to them by doing a presentation or live demonstration of your product. During this pitch, you should explain to potential investors what they would gain out of investing in your start-up. Additionally, you should present your business model in a clear and concise manner.
As mentioned earlier, investors will generally want to take up shares in the business in exchange for providing your start-up with capital. It has been recommended that businesses offer 10% to 20% of its equity. Nonetheless, it is entirely up to you and the investors to negotiate and decide on the percentage of shares that they should receive (if any).
Once you have successfully convinced potential investors to fund your start-up, you should produce an offer document that stipulates the terms of the offer that both parties have agreed to. This will ensure that the both of you are on the same page, and prevent any misunderstanding on either the terms of the investment agreement or each party’s expectations.
Coming up with investor agreements might seem like a complicated task. Hence, if your potential investors are venture capitalist firms, you could use model agreements as your starting point.
The Singapore Academy of Law and Singapore Venture Capital and Private Equity Association have published Venture Capital Investment Model Agreements (VIMA) to facilitate investment transactions. The model agreements aim to set out general clauses, reduce transaction costs and conflicts that might occur during negotiations.
You should also consider engaging a corporate lawyer to draft or negotiate these agreements. The lawyer can help to draft clear and valid investment contracts, or review and negotiate on the terms that will eventually govern your relationships with potential investors.
What Must Businesses Do After Successfully Gaining Investors?
Ultimately, promises are meant to be kept and agreements should always be adhered to. It is important that you keep your promises to investors, such as striving to create value for them and living up to your business’ mission, plan and/or expectations. You should be careful to not breach a contract with investors or engage in any wrongdoing. If not, investors may sue you for compensation.
For instance, four investors previously sued the founder of a local skincare brand known as “Klarity”. The founder had breached her duties to the company by diverting business revenue for a personal gain. This caused Klarity and the investors, who were shareholders of the company, to suffer huge losses. After learning that the founder had set up a competing company to sell Klarity products and pocketed the profits for herself, the investors sued her. Eventually, she was held liable to pay damages.
Starting and running a start-up in Singapore might be challenging. You might have to deal with both legal matters such as preparing investment agreements, and non-legal matters like profiling your business and hiring employees. You might also not have enough time to deal with so many issues at once. Hence, you are strongly recommended to engage a corporate lawyer to handle your investment transactions.
A corporate lawyer can help you to draft clear and valid investment contracts that are beneficial for both you and your potential investors. Moreover, they could negotiate on and review the terms of agreements on your behalf to secure a better outcome for you. This is beneficial if you are not familiar with drafting and understanding terms of agreements. Doing so will also free up more time and energy for you to build your start-up and fulfil the vision that you have for it.
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