Business Times Singapore. English., © 2010 Singapore Press Holdings Limited

This Week's Topic:
During his Budget speech, Finance Minister Tharman Shanmugaratnam announced the government's intention to mobilise up to $1.5 billion worth of growth capital, half of which will come from the private sector. The funds will be used to support companies that have achieved initial success and are looking to scale up. What do you hope to see from such a move? How can we attract the investing community to contribute their share as well?

Dr Wilson Chew
Group Principal Consultant & CEO
StrategiCom

THE mobilisation of up to $1.5 billion worth of growth capital, half of which will come from private sector, is indeed welcoming. While funds will be used to support companies that have achieved initial success and are looking to scale up, scaling up is not something which can be achieved overnight.

Government officers in Spring Singapore, IE Singapore, IDA and EDB come into contact with Singapore companies from a variety of industries every day. They know who the business owners are and to some extent, these respective companies' capabilities, strengths and weaknesses. It would be helpful and interesting if these government agencies' officers could also play a matchmaker role in the facilitation of bringing together owners of synergistic companies. In doing so, the probability for companies to scale up through amalgamation can potentially be higher. Companies can choose to come together through many ways - some may choose to sell out while others may choose to merge as equals; but whatever the arrangements may be, companies through such facilitation can scale up quickly. Such a service, over time, can yield larger companies quickly because in some industries, size does matter.

Government investment in post-amalgamation can be very helpful too. Hence, there could be some funds directed at either hiring or training these agencies' officers to better understand the financial and non-financial dynamics of the convergence of companies for up-scaling. From an outside-in perspective, foreign-deployed officers from these agencies can also play a more operational introduction role between potential customers in their respective countries and our SMEs. Here, the facilitation should not just be in the form of an e-mail or phone introduction but go much further - such as a physical operational introduction at introductory meetings. In short, the officers should facilitate the physical introduction too. This will become very useful and helpful to smaller enterprises seeking foreign clients. The presence of government officers will add weight to our SMEs, and such a physical presence and facilitation will indeed be very helpful and meaningful.

In the aspect of inviting other investing parties to invest in Singapore enterprises, particularly SMEs, it is commonplace to note that most of the time, investment amounts correlate to the size of the organisation. Smaller companies require less funds than larger ones. However, due to perceived risks, investors are careful to evaluate if other investors are also investing in a particular company. In investing, herd mentality does occur. Hence, increased investment participation on the government's part towards smaller companies will help these companies to attract more financial investments from the private investing community.

When a small company's CEO can stand up and say with pride that 'the Singapore government has taken a stake in my company and hence you should seriously consider too', it gives a boost to the corporate brand of the company; albeit a small or medium-sized one. Such conditions can give rise to a more spirited investing environment for SMEs.

Jeffrey Hong
Executive Director
HSR Property Group

THE growth capital for helping, viable, deserving and vulnerable SMEs should be broad-based to ensure survival and success; targeted so as to help SMEs respond to key issues such as productivity and competitiveness; catalytic so that they can leverage on it to achieve the next level of growth; and timely so that SMEs can access the funding without too much red tape and at the appropriate time.

Growing SMEs predominantly require a higher limit of and easy access to financing; equity capital and expert input for managing the business. To help them grow, they need assistance in major areas, including R&D, HR development, infocommunication technology, capabilities building and new market development. To ensure that SMEs can tap on the growth capital, the government should hire the equivalent of 'salespersons' to proactively seek out qualified candidates to help them complete the necessary application and approval processes. The mass media can help to highlight success stories so that it will stimulate further and better use of the growth capital.

As Singapore does not have a strong culture and legacy of venture capital and angel funding, perhaps the first task should be to foster the start-up and growth of such enterprises. The government can help initiate a steering committee - comprising representatives from all relevant constituencies - to expand these initiatives, including helping to form networks of different investors to share information, tap on each other's resources, and co-invest in companies.

As partners with the investing community, the government can provide loan guarantees, funds at favourable rates and additional tax advantages. It can also help set up infrastructure and systems for loan syndication, securitisation of funds and business risk management. The government can look at how to enhance the success rate by co-investing with relevant parties to, for example, provide strategic consultancy, training and coaching services to key executives so as to help them grow their business and generate better returns.

Jackie Cheng
CEO
Hisaka Holdings

SUCH initiatives will provide companies like us with the muscle to grow the company and a stronger platform to compete with other bigger boys internationally. We hope to see more venture capital firms focusing on growth-stage companies - especially those companies which have the potential but lack the funds. These are the companies that require the most assistance in terms of funding, as they are already capable enough for the bigger market. In order to attract such venture capital firms, companies must be able to provide sufficiently attractive returns in a relatively short time horizon for venture capital firms to be interested.

Henry Tan
Managing Director
Nexia TS

GROWTH capital for aspiring SMEs is very important. In the life cycle of any company, there are different stages of capital required. The initial or risk capital is usually funded by owners or their friends and relatives, but this will not last. At the appropriate time, external help either in loans or growth capital is required. With this government initiative, SMEs get another avenue outside the loans. I am excited to see how the assessments of these SMEs are made, and if this will be similar to existing schemes of one-to-one investment of private and government money.

Cheryl Tong
Managing Director (PowerPRO)
Pursuit Pte Ltd

SECURING financing at the early stage of growth is one of the primary problems companies face. The proposed $1.5 billion growth capital would certainly provide more affordable financing options for early-stage SMEs. Local companies could tap on these initiatives to expand abroad and become globally competitive.

However, I hope to see a fair amount of flexibility when administering the initiatives. The devil is always in the details. The government and fund managers should not make it too difficult for firms to apply for funds. Guidelines on how companies can tap on the funds should be simple, clear and accessible. One common complaint is that there are too many strings attached to government grants. The application process should entail minimum paper work and red tape so as not to deter deserving companies, especially SMEs, from applying.

This year, Pursuit is planning to launch its products in the China market. In addition, we plan to further our environmentally friendly concepts. Thus the government's intention to raise capital for a growth fund is timely for us. We hope that we can tap funding support from this new initiative as it is very difficult for SMEs to obtain loans from local banks for overseas ventures.

Tax breaks such as the waiver of capital gain tax would incentivise institutional investors to contribute to the fund.

Murli Ravi
Senior Investment Manager
South Asia Investments
JAFCO Investment (Asia Pacific) Ltd

THE Finance Minister's move to attract financing for young and growth-stage SMEs is commendable. Our focus as a venture capital firm is to fund technology businesses that have reached growth stage. This naturally presumes the existence of a pool of younger companies.

Incentivising angel investors to fund these young companies is smart (and is very welcome). Requiring them to hold the investment for at least two years before they are eligible for tax deductions is even smarter, though it will probably tend to (correctly) dissuade a certain number of investors with short-term expectations. I also like the fact that the government does not aim to compete with these angels in providing funding, by which I mean that the government's contribution is by way of tax deduction and not direct investment in the companies.

Not only is this more efficient from a fiscal and administrative point of view, it is probably also better for the companies themselves - governments are not investors, by definition, and, for a variety of reasons, cannot directly assist companies on a day-to-day basis the way that an individual angel can.

On the growth side, it is not clear to me how the government's ideas will be implemented in practice and how much they will differ from previous schemes. There is a continued stated preference for the government to act as a co-investor and not to 'pick winners', which, in my opinion, is the way it should be.

What remains to be seen now is whether we can develop the habit of repeatedly germinating successful home-grown companies, ie, companies with Singapore in their DNA as opposed to transplants from elsewhere. This is harder to tackle by simply providing financial capital. (Lest I am misunderstood, by Singapore DNA I refer not to the nationality of the founders but to whether the company has roots in Singapore.)

Johnny Goh
Financial Controller
King Plastic Pte Ltd

THE move to catalyse growth capital for SMEs is a long-awaited one. An appropriately developed SME growth fund in collaboration with the private fund management and investment community will come in handy to help many businesses seeking to grow but lack resources and networks.

The government could consider developing this scheme in conjunction with promoting the fund management and alternative assets investment industries here; attracting more foreign investment houses (particularly those that specialise in small businesses, early-stage innovations or new technologies etc) to Singapore while encouraging a more visible population of investable potential businesses with many pro-business incentives, fiscal policies, good legal environment and possibly a strategic positioning of Singapore as an Asia gateway for these players.

The sourcing and origination of deals are best done by the private sector. While the government could co-invest, we also want to be prudent with investment risk and tax payers' money. A panel of suitably qualified investment houses, including local financial institutions and foreign players, could be selected with which the growth fund would co-invest upon their due diligence and proposals. To attract meaningful contributions from the investing community, the risk/reward ratio might have to skew more favourably to the private investors with appropriate exit strategies for both.

While we look forward to more details of this plan, we are hopeful that this will provide a catalyst to promote more entrepreneurship and local business growth.

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