Singapore to ease VC rules to promote financing for startups

Singapore is proposing to ease regulations for venture capital managers including shortening their application process in a bid to promote financing for startup development.

Under a consultation paper published by the Monetary Authority of Singapore yesterday, new and existing VC managers won’t be subject to the same capital requirements and business conduct rules that currently apply to fund mangers in general. The MAS will focus primarily on fitness and propriety assessment, and retain regulatory powers to deal with “errant VC managers,” it said in a statement.

The latest plan is part of efforts to support and implement recommendations from a top-
level government-appointed committee that are aimed at sustaining Singapore’s growth at an average of 2 percent to 3 percent annually. The plan for VC managers follows initiatives seeking to make it easier to experiment with financial technology in the city-state and represents the latest step by the MAS toward a more agile, flexible regulatory role.

Under the latest 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. Base capital and risk-based capital requirements will be removed, the MAS said.

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.”

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 is home to 153 venture capital firms, according to data provider Preqin. The city- state saw record private equity and venture capital investments totaling USD3.5 billion in 2016, rising from $2.2 billion in 2015, based on figures from Duff & Phelps, a corporate finance adviser.

The island-nation is taking steps to address a lack of technology initial public offerings on its stock exchange, with the Singapore government-appointed committee last week recommending that dual-class stock be allowed. This share-ownership structure has enabled minority shareholders to control some of the world’s largest technology companies including Facebook Inc. and Alphabet Inc.

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 city-state’s planned easing of requirements for VC managers may bring in more of such firms, 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. David Roman, Bloomberg