What to know before launching a tech start-up in Singapore
10 minute read
Did you know that Singapore is one of the most business-friendly countries in the world? The World Bank ranks it at number two for ease of doing business. And if you have a tech business idea, you’ll be happy to hear that the Singapore Economic Development Board (EDB) has launched a Tech@SG program, accelerating the work passes of tech-industry personnel. You may be locked and loaded for your new business venture, but before you take off, we’ve outlined what you need to know before launching your tech business.
Overview:
What makes Singapore the perfect launch pad?
The Singapore government’s Smart Nation Initiative seeks to turn Singapore into a hub for key technologies. Three key strategies in the government’s Digital Economy Framework for Action include:
- Accelerate economic growth by digitalizing industries and businesses
- Help businesses stay vibrant and competitive with a tech ecosystem
- Build an Infocomm Media industry that drives the growth of a Digital Economy
These broad goals are in alignment with a variety of tech products and services, making Singapore a leading hub for tech startups in Southeast Asia.
Besides accommodating government agencies, Singapore boasts a sizeable talent pool (ranked second in the world for attracting talent, according to INSEAD), Free Trade agreements with the EU and Trans-Pacific (with free zones for foreign companies*), and a low tax environment.
Singapore has a flat corporate tax rate of 17 per cent. Start-ups have a tax exemption of up to 75 per cent of the first $100,000 of chargeable income, and 50 per cent exemption on the next $100,000 of chargeable income.
Are you ready to start a tech business?
From a deep tech company to an innovative solutions provider, some core essentials of tech start-ups remain the same. Key considerations include:
- Initial market research
- Existing competition
- Available funding
- Ownership / shareholding details
Initial market research
While Singapore has a strong tech ecosystem, its markets do have unique quirks.
For example, Singapore is a regional hub for Proptech; but most of the real estate tech companies are portal sites, rather than sites run by actual developers. This may prompt a tech start-up to emphasize networking with agencies, rather than builders.
Tech companies seeking to dive into Singapore’s real estate, however, should be aware that 81 per cent of Singaporeans do not own private property, despite an overall home ownership rate above 90 per cent. These kinds of quirks can mark significant departures from equivalent markets elsewhere, and must be understood by new tech companies.
Singapore is known as a financial hub, as well as a tech hub. This leads to a high percentage of even senior citizens (aged 50 and above) being increasingly comfortable with Robo-Advisors; a major draw for FinTech firms.
If your start-up company is in the field of EdTech, you will need to prove substantial innovation. Education is one of the country’s most lucrative but competitive segments. In 2021, for instance, it was discovered that the average Singaporean spends 2.5 times more on their children’s education, than on their own retirement.
Do avoid the trap of overgeneralization, and conduct a deep dive into your chosen sector before launching in Singapore. Understanding cultural and regulatory norms will give a better picture of market sizes, and help you determine if you have a scalable business model.
Existing competition
In 2019, Singapore was the world’s most competitive economy, overtaking the UK and Hong Kong. Government agencies actively promote competition, and have enacted a Competition Act that aggressively breaks up monopolies or cartels.
Foreign tech start-ups will be glad to know that, in 2020, Singapore announced a commitment to defying the global wave of protectionism. This sets a level playing field for local firms and global competitors alike; and foreign tech companies don’t need to fear discrimination.
As a supporting measure, Singapore also ranked fourth in the world for Intellectual Property protection in 2019, and top for Asia. This ensures that, while the environment is competitive, new companies are well protected. It is prudent for tech companies to locally patent any innovative business ideas or solutions, before going to market.
Due to the open technology sector, start-ups should conduct studies such as Strengths / Weaknesses / Opportunities / Threats (SWOT) analysis, or spend some time doing on-the-ground research. Do ensure your tech start-up is well differentiated, and has an appropriate marketing plan, to hold its own against the competition.
Available Funding
Singapore has over 117 foreign banks and six local banks. Within the Asia Pacific region, it is rivaled only by Hong Kong and Japan. Singapore also provides tax deductions for Angel investors, and tax exemptions for eligible Venture Capitalist funds. Whether you’re looking for an independent third-party investor, or partners to raise paid-up capital, Singapore is one of the best places in Asia to start looking.
One of the most popular options is the Startup SG Equity scheme: under this initiative, the government will co- invest with select third party investors.
The large number of financing options, grants, venture capital avenues, etc., means there’s a solution for most any start-up. However, the long list of options requires some time to research; start-up owners may want to contact government agencies like Enterprise Singapore for direct help. You should also check out how to use Business Grants Portal (BGP), to quickly identify available resources; this guide will explain the process in detail.
Ownership and shareholding details
The Shareholder Agreement (SA) is an essential consideration of any start-up. This stipulates the rights, as well as obligations, of shareholders. While it’s not a mandatory document, the benefits to an SA are significant.
One of the key benefits is protection from share dilution. When your tech start-up issues more shares, you could end up holding a smaller percentage of the company than you intended (e.g., if you hold 1,000 out of 2,000 shares, you own half the company. However, if the company later issues more shares, and you end up owning 1,000 out of 5,000 shares, you will own only 20 per cent).
The SA also ensures fairness for every investor, as it spells out the company’s overall direction and goals; this ensures everyone understands what they’re committing their money to.
Steps to success for your tech startup
1. Patent your device or innovation
As mentioned above, Singapore has strong IP laws, which are essential in its competitive economy. Find out more about how Intellectual Property works in this guide.
2. Create your detailed business plan
This is also for presentation to investors, financiers, government agencies, etc. Your business plan should include a description of the following:
- Your product or service, and how it’s innovative or different
- The targeted market segment
- Market penetration / growth forecasts
- Initial costing (at least to build a Proof of Concept prototype, if you don’t have a production model yet)
- SWOT analysis, highlighting recognition of your main competitors
3. Approach incubation centers for start-up and growth
If all you require is a small amount of funding, such as micro-loans, you may not need an incubator. You can instead consider smaller lenders, or non-banking Financial Institutions.
For a fuller look at incubation centers and accelerators across Asia, here’s a free accelerator resource guide that lists various options. Besides this, the most popular options in Singapore are Enterprise Singapore, which has accelerator programs, and the aforementioned IDA labs, which are physical locations aimed at allowing for collaboration and idea generation.
If your tech start-up is local, and also in a position to pitch for its first contracts, you can also contact Accredition@IDA. This scheme is used to help Singapore-based tech start-ups to find and compete for government and large enterprise contracts.
4. Apply for funding
As mentioned above, there are multiple avenues for funding in Singapore; these range from simple business loans, to government-assisted funding with third parties.
You can find a comprehensive list of government funding options here. Alternatively, you can look for other funding sources in the wider market, such as these examples.
If your company is Singapore-based, and you are still currently attached to an education institute (e.g., National University of Singapore, Singapore Institute of Technology, and so forth), you should approach your faculty administration. Many educational institutes in Singapore can connect young entrepreneurs with the right government agencies or mentors, as well as possible funding sources.
5. Register your company
Business registration can be done by visiting the ACRA website. You will have to do the following:
- Decide on your company’s name, which must meet ACRA guidelines. Do read the details closely, as there are many restrictions (e.g., it cannot be too close to the name of an existing company, it cannot use terms that may confuse it with a government body, and so forth).
- Set your share capital, or your company’s paid-up capital. This is a minimum of $1 for now, and you can change this amount later.
- Name the directors of your company (at least one named director must be residing in Singapore).
- List the shareholders of your company (maximum of 50 shareholders). This can be changed after incorporation.
- Appoint a company secretary. This can be a bit tricky, as you need to appoint a qualified person who is also not a shareholder or the director.
- The company secretary will also be responsible for some key tasks, such as handling administrative details of meetings. As such, a professional is almost always engaged for the role.
You can register the company before finding a company secretary, but you must then find one within six months (or else you have to apply all over again). If you’re stuck on this step, experts at Sleek can provide you with a company secretary. State your business address. This cannot be a PO Box address; and while there are some home office schemes for Singaporeans, it’s inadvisable to use your home address (the address will be accessible to the public, costing you some of your privacy).
- Submit the application. You may have to provide some additional supporting documents and follow up questions, so do have all your details ready to reference. The fee for registration will also be charged (you pay this online).
Wrap up
In Singapore, the initial process of setting up a business is straightforward. However, it does involve some needs that can be challenging; chief among these are finding the right corporate secretary, and identifying all the available help. Singapore is a well regulated and business-friendly environment, which attracts a large number of new businesses every year; in such a competitive environment, it’s important to have a smooth start, and get your company off the ground faster. If you need help kick-starting your tech business, contact Sleek. We’ll take care of the admin so you can focus on the tech.
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