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Guide to finding investors for your startup in Singapore

February 13, 2023

Startups are growing and changing the Singapore ecosystem for the better with their innovative ideas and new technologies. However, like small and young companies, startups may need funding and guidance to start their business. This is where investors come in handy.

If you are a startup founder looking for investors for your business and want to know how to attract them, this article is for you.

Why should I consider finding investors for my startup?

In the early stages of setting up your business, you will need capital to develop and market your products. Investors can provide the necessary funds to support your business actively. With more money, you could hire experts and employees to create your startup. You can also start developing and selling your product. Then, as your business gains momentum, you can compete faster in a growing market and start making profits.

In addition, investors can also help your business grow through mentorship, advice, and representation in the business community. Investors may have more hands-on experience than startup founders and can help you with risk analysis, hiring the right team, and making business decisions. In addition, some investors may be well-versed in marketing or finance, which can help your startup grow faster.

What attracts investors to startups?

To understand what attracts investors, you need to put yourself in their shoes. Investors are often looking for competitive returns on their investments. They will invest in promising and reliable companies. These companies should also positively impact people's lives or transform industries with unique and unusual ideas.

In addition, you must have a solid and profitable business plan that contains financial details, target customers, and products or services offered. These questions should be presented clearly, concisely, and backed up with factual information and/or numbers if you want your investor to believe in the viability of your business. Otherwise, they may be interested in something other than investing in your business.

Finally, it would be best if you had a strategic plan to keep your business growing in the long run. You must make financial projections to assess and plan for the future performance of your business. These projections will keep your investors informed about the future earnings of your business (and, therefore, their ability to earn a return on their investment).

In addition, forecasts highlight possible factors, such as technological advances in the market, that could affect your company's financial position. So, presenting these forecasts to investors will convince them of your company's future growth potential.

What are the types of investors?

Friends and family, angel investors, venture capitalists, and banks are some examples of investor types. Angel investors are professionals who invest their finances in startups with good prospects. On the other hand, venture investors are raising large amounts of capital to invest in businesses with high growth potential.

To determine what type of investor is best for your startup, you need to consider several factors, such as the amount of funds you require or the degree of experience you are looking for. For example, Angel and venture capital investors may be in a stronger financial position to allocate more funds than, for example, friends and family.

In addition, you can look for investors with hands-on investment experience or industry knowledge. They can offer you new perspectives and ideas and support you in growing your business.

However, keep in mind that your investors may want to take a stake in the business in exchange for providing you with capital. If you dislike sharing property, you can consider getting bank loans and government grants instead.

How can I contact investors in Singapore?

Startup SG has launched "the Network", a platform where you can meet and connect with individuals and organisations, including potential investors.

Once you've reached out to potential investors, you can offer them a pitch or live demo of your product. During this presentation, you should explain to potential investors what they will gain by investing in your startup. In addition, you must present your business model clearly and concisely.

As mentioned earlier, investors will generally want to acquire a stake in a business in exchange for providing capital to your startup. Therefore, it was recommended that companies offer between 10% and 20% of their assets. However, the negotiation and decision on the percentage of shares they should receive (if any) are entirely up to you and the investors.

After convincing potential investors to invest in your startup, you must prepare an offer document that sets out the terms both parties have agreed to. This will ensure the terms of the investment agreement and the expectations of each party are understood.

Negotiating agreements with investors can seem like a daunting task. Therefore, if your potential investors are venture capital investors, you can use the model agreements as a starting point.

The Singapore Law Academy and the Singapore Venture Capital and Private Equity Association have published Venture Capital Investment Model Agreements (VIMA) to facilitate investment transactions. Model agreements aim to set out general provisions, reducing transaction costs and conflicts that may arise during negotiations.

It would help if you also considered hiring a corporate lawyer to draft or negotiate these agreements. A lawyer can help draft clear and valid investment contracts or review and negotiate terms that will ultimately govern your relationship with potential investors.

What needs to be done after successfully attracting investors?

Ultimately, promises must be kept, and agreements must always be adhered to. You must keep your promises to investors, such as striving to capitalise and run the business following the mission, plans and/or expectations. However, you must be careful not to violate the agreement with investors and not commit any wrongdoing. Otherwise, investors may sue you for compensation.

For example, four investors previously sued the founder of a local skincare brand called "Klarity". The founder violated his obligations to the company by diverting business income for personal purposes. This resulted in Klarity and the investors, who were company shareholders suffering huge losses. After learning that the founder created a rival company to sell Klarity products and appropriated the profits, investors sued it. In the end, it was prosecuted and falsely had to pay damages.

Starting and managing a startup in Singapore can be a daunting task. You may have to deal with legal issues, such as preparing investment agreements, and non-legal matters, such as profiling your business and hiring employees. You may also need more time to deal with so many issues simultaneously. Hence, you are strongly advised to use the services of a corporate lawyer to handle your investment transactions.

A corporate lawyer can help you draft clear and valid investment contracts that benefit you and your potential investors. In addition, they may negotiate and renegotiate agreements on your behalf to ensure the best outcome for you. This is especially useful if you need to become more familiar with the drafting and proper understanding of the terms of agreements. It will also free up more time and energy to build your startup and realise your vision.

If you still have (have any!) questions regarding the search for investors for your startup in Singapore or other questions related to registering and doing business in Singapore, you can contact the specialists of our company. We are ready to help you solve your problems. We are waiting for your requests to info@eltoma-global.com!

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