Venture Capitalists vs Angel Investors in SingaporeDownload Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
As business owners, we always came across venture capitalists and angel investors at some point. One of the ways in which businesses mature and take the next step in their development is by acquiring funding from parties outside the business. Most importantly, partnering with people who are as enthusiastic and visionary about your business idea as you are.
In this article, we’ll talk about two important sources of funding in Singapore: venture capitalists and angel investors . We’ll explain why your company needs funding, the difference between angel investors and venture capitalists, and where you can find them.
Why Does My Company Need Funding?
Many entrepreneurs engage in something called bootstrapping, which is when you build your business from the ground up without any outside funding. The only resources that these entrepreneurs use are their personal savings, revenue from product sales, and a lot of luck.
However, while bootstrapping is a great way to get your business off the ground, it may be difficult to take your business to the next level.
Another reason that your company needs funding is that once you start hiring employees, you need working capital to pay for their salaries. While you might be able to skip paying yourself for a month or two, you can’t stop paying your employees.
What Are Angel Investors?
Angel investors are high-net-worth individuals who provide financial support for small startups or entrepreneurs, typically in exchange for equity in the business. While angel investors do provide the entrepreneurs with advice and mentorship, they are typically quite hands-off regarding the day-to-day management of the company. That said, they do want to see a return on their investment; in other words, their financial contribution is not a donation.
Advantages and Disadvantages of Angel Investors
The primary benefit of angel investments is that they are less risky than debt financing, as invested capital does not have to be repaid in the event of business failure. Additionally, many angel investors possess a deep understanding of business and take a long-term view. However, the downside of having angel investors will be causing you to lose complete control over the company's operations, as well as having to share profits when the business is sold. Conversely, debt financing does not involve relinquishing control to a third party and all profits remain with the company.
What Are Venture Capitalists?
A venture capitalists is a person or company that invests in a business that has long-term growth potential in exchange for an equity position in the company. Although it can be a person, most venture capital comes from professionally managed venture capital firms. These firms pool money together from venture capitalists and then invest these funds in promising start-ups.
Since venture capitalists inject far more money into businesses than angel investors do (more on this later), they generally seek higher rates of return and are more actively involved in the management of the company. It’s common for venture capitalists to demand a position on the company’s board when investing in it.
Advantages and Disadvantages of Venture Capitalists
One of the benefits is they provide start-ups or young businesses with financial backing, as well as a valuable source of guidance and consultation. This can be beneficial in making decisions related to financial management and human resource management, which are critical for the growth of the company. Additionally, venture capitalists may offer active support in legal, tax and personnel matters. These factors could lead to faster growth and greater success for the business. Furthermore, venture capitalists are usually well connected in the business community; thus tapping into these connections could prove advantageous.
On the flip side of the coin, venture capitalists often emphasize rapid expansion and high returns when investing in business. If founders are not meeting these expectations, they can be removed from the company. To avoid such a situation, founders should heed their board's advice and keep them apprised of their progress and goals. As a result, they are more restricted to make decisions based on their own judgements.
When Do They Invest?
Venture capitalists and angel investors typically invest in young, early-stage companies (also known as the “seed” funding phase).
Angel investors are more comfortable investing in companies that are still an idea, while venture capitalists are more risk-averse and look for companies that have either already generated sales or have a proven concept.
The key difference is that venture capitalists invest in extremely high growth companies because their clients expect high returns on their investments.
Angel investors tend to invest in companies slightly before venture capitalists do. This is because angels are usually more interested in mentoring the entrepreneurs, tend to invest in companies out of personal interest or a desire to give back, and want to get involved with promising start-ups before the bureaucracy of venture capital firms enters the scene.
How to Attract Angel Investors and Venture Capitalists?
If you’ve made it this far, you now understand what venture capitalists are, what angel investors are, and at what stage in the company life cycle they invest.
But, how can you attract these individuals?
Since angel investors tend to be just one person or, at most, a group of two individuals, the best way and place to find them is through personal connections.
Angels like to invest in companies that are closer to home and that they have a more personal connection with, so start by working your network and talking to people in higher places. Since wealthy people tend to socialize with other wealthy people, it’s important to get involved in those social circles.
Venture capitalists are more difficult to find. Given that they’re usually big firms, you can’t just knock on their doors and ask for money. They come to you; you don’t go to them.
The best way to attract their attention is, frankly, to be successful. Say, if you win prestigious entrepreneurship competitions and generate as much national buzz in Singaporean and international media as you can, you have a good chance of attracting venture capital funding.
Venture Capitalists and Angel Investors In Singapore
Venture Capital Firms in Singapore
- Quest Ventures
China-Singapore-based, backing companies like Carousell, 99.co, Tencent, Carro, and Shopback with a focus on a digital economy strategy stretching across Asia.
- Monk Hill Ventures
Southeast Asia-based, invest in logistics and software companies like Ninjavan, Glints, Zipmatch.
- Jungle Ventures
Singapore-based, invest in tech companies like Pomelo, ZipDial, iflix
- Golden Gate Ventures
Singapore-based, invest in SaaS, e-commerce, marketplace companies like Carousell, Carro, Omise.
Angel Investors in Singapore
- Business Angel Network Southeast Asia (BANSEA)
An angel investor network, assists startups in the seed stage to connect with business angels.
- Royston Tay
An angel investor in fintech, IT, business software.
Real-Life Success Stories
When we think about the term “angel investor”, we tend to think about the hit television series “Shark Tank” or “Dragon’s Den”, where entrepreneurs pitch their business concepts in exchange for an investment offer from an angel investor in return for equity.
An example of this is viral TikTok product Scrub Daddy. None of us will ever forget how the founder, Aaron Krause demonstrated the exceptional cleaning quality of the yellow smiling sponge on Shark Tank. The judges were fascinated and the whole world was excited for it. Aaron went on and accepted an offer from business mogul Lori Greiner, who put down US$200,000 for 20 per cent equity for his Scrub Daddy. Ever since then, Scrub Daddy continues to grow with an estimated net worth of $150 million. It has definitely put a smile on Aaron’s face!
Speaking about business that took the whole nation by storm, it has got to be Flash Coffee. The retail-style coffee shop has recently raised $33 million in first Series B tranche, with investments from industry leaders like White Star Capital, Delivery Hero and more. Flash Coffee launched its first store in Indonesia in January 2020, and has since experienced a remarkable increase in presence across Asia. Despite commencing operations during the onset of the Covid-19 pandemic, the chain has expanded to over 200 stores across Indonesia, Singapore, Thailand, Hong Kong, Taiwan, South Korea and Japan till 2022. We’d say that’s a solid win for both the founders and investors!
Sprout with Us!
Here at Sprout, we want you to focus on want you do best and let us do the rest! While you source for investors and prepare your pitch, our experts can take care of all your administrative tasks with ease.
For those planning to pitch to venture capitalists, a professional Financial Statement is be helpful. Unsure how to go about that? Our team of chartered accountants can help. Contact us with any questions, we’ll respond within 24 hours.