What Is Venture Capital? A Beginner’s Guide for Startups in Singapore
Startups are often built on bold ideas, but bringing those ideas to life requires more than passion and persistence. Yes, it needs dollars. It takes funding. That’s where venture capital comes in. For many new businesses in Singapore, venture capital funding has become vital to scaling rapidly and making a mark in a competitive market. Unlike traditional bank loans or debt financing, venture capital involves equity investment. In simpler words, it means that venture capitalists provide funding in exchange for an ownership stake in the company, usually in the form of shares. They become partial owners and often play an active role in guiding the business to new heights. This guide provides a comprehensive overview of venture capital meaning, how it works, and how startups in Singapore can benefit from it.What Is Venture Capital?
Venture Capital Meaning and How It Works
Venture capital (VC) is a type of private equity financing provided by investors to startups and early-stage companies that are believed to have long-term growth potential and the potential to become “big” in the future. These investors, known as venture capitalists (VCs), provide capital in exchange for equity (ownership) in the business. Understanding venture capital requires examining the risk-return dynamic. If the startup succeeds, VCs invest in unproven business models with high risk and reward. In return, they expect substantial returns on investment, typically through an IPO, acquisition, or other liquidity event. Unlike traditional loans, venture capital funding is not repaid with interest. Instead, investors gain a stake in the company and often actively guide its success and growth.Why Startups Choose Venture Capital Over Traditional Loans
Traditional bank loans are often out of reach for early-stage startups with little or no revenue history. Banks typically require substantial collateral and a proven track record – two things most new businesses lack. This is why many turn to startup venture capital. Venture capitalists focus on an idea’s potential and the founding team’s capability rather than solely on financial history, collateral, or financial backup. Additionally, VC funding usually includes mentorship, strategic guidance, and valuable industry connections.The Role of VCs in a Startup’s Growth Journey
Beyond funding, VCs play a significant role in shaping a startup’s trajectory. They often:- Join the Board of Directors
- Offer strategic advice for the company’s growth.
- Introduce startups to partners and customers.
- Assist with future fundraising rounds.
- Provide support in operations and hiring.
Why Venture Capital Matters for Startups in Singapore
The Current Venture Capital Singapore Landscape
Singapore has rapidly grown into Southeast Asia’s hub for innovation and entrepreneurship. With its business-friendly policies, strong IP laws, and robust digital infrastructure, venture capital is booming in Singapore. Singapore is home to over 200 VC firms, including local giants like Vertex Ventures and Golden Gate Ventures, as well as international players such as Sequoia Capital and 500 Global. The country’s location and position make it an ideal launchpad for startups looking to scale across Asia.Government Support for Venture-Backed Companies
The Singapore government actively supports startups and VC-backed businesses through:- Startup SG Equity – Co-investment schemes where the government matches VC investments in early-stage startups.
- Tax incentives for VCs and family offices investing in startups.
- Enterprise Financing Scheme (EFS) – The Enterprise Financing Scheme (EFS) is a comprehensive tool that allows Singapore enterprises to access financing more readily across all stages of growth.
Types of Venture Capital Funding
There are several types of venture capital funding, each aligning with different stages of a startup’s growth:- Seed Funding – Early-stage funding used for product development and market research.
- Series A – Helps startups scale operations and build a customer base.
- Series B – Focuses on business development, expanding market reach, and team growth.
- Series C and Beyond – Used for significant expansion, multi-geography presence, acquisitions, or IPO preparation.
How Does a Venture Capital Fund Work?
Structure of a Venture Capital Fund
A venture capital fund is a pooled investment vehicle where investors (limited partners or LPs) commit capital managed by professional investors (general partners or GPs). Here’s how it works:- Limited Partners (LPs) – Institutional investors, pension funds, HNWIs.
- General Partners (GPs) – Fund managers who make investment decisions, conduct due diligence, and support portfolio companies.
- Invest in startups (typically in the first 3-5 years)
- Nurture portfolio companies to grow and scale
- Exit investments through IPOs, acquisitions, or secondary sales
Who Qualifies for Venture Capital?
VCs look for startups that demonstrate:- A scalable business model with significant market potential
- Strong founding teams with relevant experience
- Innovative products or services that solve real problems
- Early signs of traction, like user growth or revenue
- A clear exit strategy
Pros and Cons of Venture Capital
Pros
- No repayment obligation like a loan
- Access to large sums of capital
- Mentorship and strategic guidance
- Enhanced credibility in the market
- Access to VC networks and future investors
Cons
- Loss of ownership and control
- Pressure for rapid growth and returns
- Possible conflicts of interest between management and investors
- Exit expectations may not align with the founder’s vision.
How to Raise Venture Capital in Singapore
Step-by-Step Process to Raise Capital
- Validate Your Idea
Ensure you have product-market fit, a scalable model, and evidence of demand and success. - Prepare a Pitch Deck
Your deck should include the idea, problem, solution, market size, business model, traction, team, and financials. - Build a Data Room
Include business plans, revenue forecasts, customer data, legal documents, and product information. - Network and Reach Out to VCs
Tap into startup accelerators, LinkedIn, and VC events in Singapore. - Attend Meetings and Negotiate Terms
Be ready for due diligence and negotiate valuation, equity, and board representation. - Sign Term Sheets and Final Agreements
Work with legal advisors to review documents before closing the funding round.
Legal and Compliance Considerations
Raising capital in Singapore involves:- Company incorporation (typically as a Private Limited Company)
- Shareholder agreements and cap table management
- Compliance with the Companies Act and MAS regulations
- Handling Fund Administration and Fund Services efficiently
- Understanding Fund Formation processes if you’re building a VC giant.
Empowering Your Venture Capital Success with Lanturn
Venture capital can be a game-changer for startups, especially in a dynamic, agile, and innovation-driven economy like Singapore’s. Whether you’re developing a groundbreaking app or pioneering sustainable technology, venture capital funding provides the capital, connections, and guidance needed to scale. But remember – understanding venture capital deeply is key before pursuing it. Know your business goals, prepare thoroughly, and choose investors who align with your long-term vision. At Lanturn, we have supported over 600 clients in fund administration and formation, offering tailored solutions to elevate your fund management strategy. Our dedicated team of experts brings deep industry knowledge and regulatory expertise, helping you navigate the complexities of Singapore’s fund management landscape. Ready to take your fund management to the next level? Speak with us today to see how we can support your success.Frequently Asked Questions (FAQs)
Venture capital is funding from investors in exchange for equity in a startup. VCs invest in early-stage companies with high growth potential and exit when the business scales or gets acquired.
The goal of a VC is to support a company during its growth phase, then eventually exit by selling their stake, usually during an initial public offering (IPO) or acquisition. This exit allows them to realize a return on investment (ROI), which can be significant if the startup becomes successful.
In practice, VCs often take an active role in guiding the startup. They may offer mentorship, strategic advice, and access to a network of industry experts, potential customers, and follow-on investors. Because of the high risk involved, VCs look for startups with a scalable business model, innovative products or services, and a strong founding team. Not every startup will succeed, but those that do can yield exceptional returns for investors.
Incorporate a company, develop a strong business case, build a pitch deck, and connect with VCs through events, incubators, or introductions. Platforms like Startup SG and Enterprise Singapore are great starting points.
Remember, VCs are selective. Out of hundreds of pitches, only a few receive funding. Persistence, preparation, and strategic targeting are crucial to succeed.
They include seed funding, Series A, Series B, and later-stage rounds like Series C, each designed for different stages of business growth.
Venture capital focuses on early-stage, high-growth startups, while private equity typically involves investing in mature companies, often through buyouts and restructuring.
Aspect | Venture Capital | Private Equity |
Target | Early-stage startups | Mature businesses |
Risk | High | Lower (comparatively) |
Control | Minority stake, active mentorship | Majority stake, active control |
Strategy | Focus on growth | Focus on optimisation, restructuring |
Exit | IPO or acquisition | Strategic sale or IPO |
Some leading firms include Vertex Ventures, Golden Gate Ventures, Monk’s Hill Ventures, Jungle Ventures, and Insignia Ventures Partners.
The pros include capital, mentorship, network access, and growth support. The cons involve giving up ownership, losing equity and control, potential conflicts, and high pressure to perform.
You likely qualify with a scalable model, a solid team, traction, and a large addressable market. A clear business plan and exit strategy also help.
Early-stage funds: These usually range from USD 20 million to USD 150 million. They write smaller cheques (USD 500,000 to USD 3 million) and invest in more startups.
Growth-stage or multi-stage funds: These can range from USD 250 million to USD 1 billion, supporting larger cheques from Series B onwards for growth.
Lanturn’s Bespoke Fund Services
At Lanturn, we make raising venture capital easy. We combine fund services tailored to each client with a proprietary technology platform that lets you worry less about documentation, so you can focus more on raising and deploying capital.
- Experienced Fund Administration Team
Whether you’re a fund or a family office navigating complex regulations, Lanturn can help. We leverage years of experience, leading cloud-based accounting technology, and our unique fund administration platform to keep your documentation up to date and give you access 24/7.
- Delight Investors
Our investor portal allows your Limited Partners (LPs) and potential LPs to access documents, performance data, and reports quickly and securely. This simplifies everything from investor reporting, relationship management, LP KYC, and onboarding to fundraising, capital calls, and distributions. - Real-Time Platform
Our platform helps streamline everything from fundraising, capital calls, and distributions to new investments, portfolio monitoring, and statutory filings. Aside from saving you time, our platform lets you generate KPIs and reports on demand, or you can instruct us to help you with this.
Apply – Structure – Fundraise – Deploy – Manage, we are there every step of the way!
