Singapore relaxes VC fund manager rules

Downtown Singapore from Elgin Bridge. Photo credit: Erwin Soo.

The Monetary Authority of Singapore (MAS) – the country’s central bank – today revealed a streamlined framework for the regulation of VC fund managers.

The relaxed requirements for managing VC funds are intended to make it easier for startups to access growth capital. The revised rules largely reflect proposals put forward by MAS alongside a public consultation earlier this year, after the Singaporean government’s Committee on the Future Economy (CFE) recommended that VC regulation be simplified in order to encourage more investment into the country.

Previously, VC fund managers have been treated similarly to managers of other types of investment fund – with the authorization process for new fund managers sometimes taking up to 12 months.

After the CFE published its report back in February, MAS noted that VC investment activities are substantially different from other fund types, since they exclusively invest in unlisted companies that are usually less than five years old, and do not accept new subscriptions after the close of a fund. Moreover, it is typically only accredited and institutional investors that are able to participate in VC funding activities.

Shortened process

From today, the VC fund manager authorization process will be significantly shortened. Managers will not be subject to the same capital requirements as other fund types. Also, MAS will no longer require them to have directors and representatives with at least five years of relevant work experience.

To qualify under the new regime, the funds under a VC fund manager must:

• Invest in business ventures that are not listed on a securities exchange
• Invest at least 80 percent of committed capital in securities that are directly issued by startups that are no more than ten years old
• Not make units of the funds available for new subscription after fundraising has closed
  and can only be redeemed at the end of the fund life
• Only be offered to accredited and institutional investors

As you’d expect, this doesn’t mean MAS won’t be keeping a close eye on VC fund managers going forward.

The central bank says its authorization and supervision processes will now focus primarily on existing fit-and-proper and anti-money laundering safeguards under Singaporean law, while it “will also retain regulatory powers to deal with errant VC managers.”

MAS also said that the new framework “takes into account the extent of contractual safeguards that are already present in typical contracts negotiated by VC managers’ sophisticated investor client base.”

Speaking to Tech in Asia after MAS first proposed the rule changes back in February, TNF Ventures partner Frank Lee described it as a “welcomed and much needed move,” adding that many potential investors have been discouraged by Singapore’s setup and compliance costs. “The MAS safeguards are there,” he said. “MAS is letting go of a tight rein, not totally letting go of control.”