SINGAPORE: An Introduction to Startups & Emerging Companies
Authors:
1. Joshua Tan, Managing Director
2. Lim Wei Jie, Associate
3. Mary-Lisa Chua, Associate
An overview of the startup scene in Singapore
As a global business hub, much of Singapore’s economic performance comes as a result of it attracting investments into Singapore. Amongst the next great waves of change in a disruptive world, innovation stands at the forefront of development, fuelled by the creative minds behind the startup founders of Singapore and the world.
In Singapore, the traditional leaders of their sectors have made way for, and adapted to, the dealings of their leaner startup counterparts – albeit begrudgingly at the initial stage. One only needs to look at the change in the landscape of taxi providers or the retail sector in Singapore, which experienced great waves of change recently.
In the wake of COVID-19, and despite a global pandemic, Singapore has continued to remain one of the top startup ecosystems in the world, with a combination of government regulation, grants and support aimed at attracting startups, investors, incubators, and talents.
Singapore has also managed to attract startup investment through its investor-friendly policies and regulation, a natural branch out of the generally investment-friendly environment in Singapore.
We now examine the specific regulations and government measures aimed at assisting startups and investors in turn.
The startup as a groundbreaker and an innovator
At the forefront of a startup’s value is its innovation and the success of a startup indeed lives and thrives firstly by its ideas. It is a common pitch to position a startup as an 'X for Y' (such as the 'Amazon for car-sellers').
Singapore’s regulatory framework has attempted to meet the needs of the startup ecosystem, with various initiatives to protect startup interests. We will examine common matters faced by startups and the regulatory measures implemented.
Expedited Intellectual Property registration
Singapore boasts a strong IP regime, with the Intellectual Property Office of Singapore (“IPOS”) administering the registration and licensing of trade marks, registered designs, and patents. However, registration often involves multiple stages of applications, examinations, and prosecution.
IPOS has implemented the SG IP Fast Track programme, which seeks to assist startups by facilitating certainty of their IP through an expedited registration process. Under this programme, eligible patent applications will be granted as fast as six months. Trademark applications can be registered as fast as three months, and registered designs can be registered as quickly as one month. These programmes may assist startups seeking interest with investors at the earliest stage.
Data as a commodity – legal implications
One key concern faced by startups is the collection and retention of data, whether personal or otherwise. Startups typically collect user data through user input alongside the use of the startup’s services, such as through account signups or app usage. Under the Personal Data Protection Act 2012 (No. 26 of 2012) (PDPA), restrictions are broadly placed on the collection, use, and dissemination of data in Singapore.
Given that data has been described as 'the new currency for the future,' startups seeking to cash in on this commodity must be prepared to comply with the regulatory measures to protect their users’ personal data.
The MAS regulatory regime for FinTech innovators
The realm of financial services, including providing capital market services and giving of financial advice, typically falls under the regulatory and licensing requirements of the Monetary Authority of Singapore (MAS).
MAS offers to FinTech startups a Regulatory Sandbox programme, which entails a relaxation of legal and regulatory requirements for FinTech developers to experiment their products in a live environment. Two types of sandboxes are available at this point: (a) Regulatory Sandbox and (b) Regulatory Sandbox Express, with approval in the latter case typically fast-tracked known or lower-risk activities. After the end of such experimentation stage, startups will be required to apply for such applicable licence(s) from MAS to continue operations.
Funding and Investment into Startups
Government support for startup investments
Generally, startups can tap into government grants and sector-specific support for focus areas, such as FinTech and Deep Tech. New startups can apply for the Startup SG Founder or the Startup SG Tech Grants, with their specific application criteria and conditions. Startups are also granted exemption on corporate income tax obligations for the first three (3) years of incorporation.
Some programmes, such as the Startup SG Equity co-investment scheme, feature the government matching investments by accredited venture capital or private equity funds.
Investors may also receive support under the Startup SG Investor incentives, which include the Angel Investor Tax Deduction scheme, which had lapsed after 13 March 2020, as well as concessionary tax rates on income derived from approved funds.
Regulatory carveouts to facilitate venture capital and investment into startups
Singapore’s focus on attracting investment has resulted in its business environment being relatively friendly to investors. Startup investors stand to take advantage of the tax-friendly environment in Singapore, among other regulatory measures to facilitate investment in startups. We shall examine two such mechanisms – the Variable Capital Company (VCC) and the Venture Capital Fund Manager (VCFM) in brief.
The VCC is a corporate vehicle aimed at investment funds, either as a single standalone fund or as an umbrella fund with two or more sub-funds, each holding a portfolio of segregated assets and liabilities. This mirrors the previous approach of incorporating a company for each investment portfolio as a special purpose vehicle (SPV), and with each SPV acting as a fund, but being treated in law as a company. Other benefits include the freedom to redeem funds without capital reduction restrictions applied towards companies, and registers of shareholders of VCCs need not be made public.
VCFMs hold capital markets services (CMS) licences for fund management and are regulated by MAS. VCFMs are permitted to only carry out business activities in respect of qualified investors and with restrictions on investments and fund type with restrictions generally carved around the startup sphere. Compared to Licensed fund management companies (LFMCs), which are typically investment funds which may include retail funds, VCFMs are subject to simplified admission and ongoing requirements.
Conclusion
Singapore’s startup ecosystem has proven to be conducive for startups to achieve success in an extremely competitive space, with the rise of several homegrown ‘unicorns’ leading the pack with many more on the horizon. Startups have been described as disruptors, and are typically dynamic, agile and cutting-edge. Given their broad scope of concerns and issues, legal advisors are typically required to be all-rounders and adept in providing solutions to the broad range of issues which a startup may face throughout its life-cycle. At JT Legal LLC, we are familiar with the startup and FinTech landscape in Singapore, South East Asia, and Australia, having represented startups, incubators, accelerators and investors in these regions.
“From Startup to IPO, and everything else in between," we believe we are strongly positioned to help companies achieve their goals.