Singapore government to pump extra $39 million into early stage investment ecosystem

Update: More details about the scheme and its historical context have been added.

Deputy Prime Minister Teo Chee Hean. Photo credit: Techventure

Singapore’s Deputy Prime Minister Teo Chee Hean has announced today that the government will invest S$50 million ($39 million) to catalyse the early-stage investment ecosystem.

The money will be disbursed through government agency National Research Foundation’s Early-Stage Venture Funding Scheme (ESVF), an initiative where the state co-funds startups together with chosen early stage investment firms. This is in addition to a S$50 million injection into the first iteration of the scheme in 2008.

The ESVF will be involved in funding rounds of the one million to three million dollar Series A range, contrasting with less than one million by the Technology Incubation Scheme (TIS).

As a limited partner, it will provide one-to-one investment matching in selected venture capitalist firms. So if an investor decides to put one million into a startup, NRF will contribute an equal amount. VCs will have the option to buy back the shares from the agency at five percent interest. The NRF will launch a call-for-proposal soon to invite investors to participate.

The first take of the ESVF scheme involved five VC firms, including NanoStart Asia, Raffles Venture Partners, and Walden International. Altogether, the program invested in 21 projects, out of which three (including YFind) were acquired.

Startup investor and Silicon Straits founder James Chan believes that the ESVF was ahead of its time then. He writes:

“Back in 2008, there weren’t that many startups in the seed stage funnel looking to raise their Series A. I’d say NRF had put the cart before the horse by launching their ESVF ahead of TIS.”

But with a blossoming of Singaporean startups in the seed stage, NRF is now finding itself with drastically different circumstances. He continues:

The onus is now on NRF to execute on the ESVF refresh quicker than their first time round… everything has to be seamlessly executed to avoid flushing all that good work of revving up our early stage technology scene down the Drain of Broken Dreams.

Minister Teo made the announcement at Techventure 2013, a conference for venture capitalists and startups in the region. The funding is aimed at closing the gap in Series A financing in Singapore and the region. “Startups have to try very hard to get the attention of VCs from other parts of the world in order to secure funding,” he says.

Unlike the initial ESVF program, venture capital firms will no longer need to set up a closed Singapore-only fund to participate in it. This means that a firm can extract an amount from its global fund and use it for Singapore. The goal of doing this is to attract more investment firms to set up in the country.