Singapore Budget 2010 – What’s In It For Startups and Investors?
Singapore finance minister, Mr. Tharman Shanmugarathnam announced the annual budget recently with major focus on growth of skills, productivity and innovation. Considering the fact that government agencies have been taking a lot of initiatives to nurture startups and bring in more mentors and investors to Singapore, Budget 2010 is definitely on the right monetary path to execute this vision.
While the community in the past has been griping about the lack of talent, innovation and mentors. We have to wait and watch if this year’s budget will lead to any significant change.
Here are the relevant parts of Budget 2010 that we thought would be useful for investors and start-up community.
Improving Access to Growth Finance
D.26. Companies aspiring to grow and eventually become significant players in markets abroad need capital at various stages of their development. Existing schemes like SPRING’s Local Enterprise Finance Scheme are working well. Following the ESC’s recommendations, we will strengthen the availability of both growth capital to young companies and financing for companies’ expansion overseas, including to emerging markets.
D.27. One of the hurdles companies face – not only in Singapore, but in many countries – is in securing finance at a very early stage of their growth. In recent years, there has been a shift in the venture capital industry towards later stage companies, especially towards those at the mezzanine stage, in other words, pre-IPO. To bridge the gap, we will help strengthen the availability of early-stage and more patient financing.
Attracting investors to nurture start-ups
D.28. We want to encourage greater angel investment, by incentivising private individuals with appropriate investment and business expertise to provide financing to start-ups. Angel investing is at the higher end of the risk spectrum, with less assurance of returns. Successful angel investors nurture start-ups not just by contributing funds, but also by providing mentorship, and access to business networks and markets. We have a few well-known angel investors in Singapore, and we want to encourage more investors who can add value to start-ups.
D.29. I will therefore introduce a new incentive for angel investors. Under this incentive, an eligible angel investor who commits a minimum of $100,000 of equity investment in a qualifying start-up in a given year can claim 50% tax deduction on his investment at the end of a two-year holding period. This deduction is subject to a cap of $500,000 of investments in each Year of Assessment. SPRING will administer the scheme for eligible angel investors and qualifying start-ups. The scheme will be available for the next five years and is expected to cost the Government $60 million over the period.
Catalysing growth capital for SMEs
D.30. Companies also need growth capital beyond the start-up phase. The Government will help catalyse financing for companies that have achieved initial success and are looking to scale up. However, the Government cannot pick winners. Our role will be that of co-investor, relying primarily on the expertise and business networks of private fund managers. This is also essential to ensure commercial discipline in investments.
D.31. We will mobilise up to $1.5 billion of growth capital by seeding a range of funds over 10 years, for which the Government will contribute up to half the capital.
D.32. We will implement the new co-investment programme in phases. We cannot hope to find good companies simply by pouring in liquidity. We will grow the programme in tandem with the appetite of the investing community and with the number of companies they find attractive.
D.33. The first phase will be launched this year, with the Government providing up to $250 million to match private sector investments. This will allow for a few funds to be established, with a combined total of $500 million of growth capital for Singapore-based enterprises.
Productivity and Innovation Credit
C.32. First, we will introduce a ‘Productivity and Innovation Credit’. The Credit will provide significant tax deductions, for investments in a broad range of activities along the innovation value chain. Specifically, it would cover spending on:
- Research & Development;
- Registration of intellectual property – including patents, trademarks, and designs;
- Acquisition of intellectual property – for example, when a company buys a patent or copyright;
- Design activities;
- Automation through technology or software; and
- Training of employees.
On what all this implies for the funding and startup ecosystem is a thesis for another post. In the meanwhile, let’s get back to our job and focus on working smarter, not necessarily harder.
Do let us know what you think of the budget and how will it affect you in our comments section.
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