Types of Fundraising Options & IPO
One of the key factors that ensure proper growth of a business is the availability of funds. For a business to grow and expand, funds are required. Start-up capital is not just enough to run everything in a business. There is a need for a business to raise fund.
Choosing the right method to raise funds is very vital. Below are some of the main types of fund-raising options in Singapore.
#1: Angel Investment
Angel investment is one of the main sources of raising funds for a business in Singapore. An angel investor is typically a wealthy individual who is willing to invest in start-up enterprises or companies. They invest their money in high-risk start-up business ventures in exchange for some share in the business. Business angels can form and operate from an angel network or work independently. In Singapore, individual angel investors can raise between S$25,000 – S$100,000 while an angel network can provide larch sums of cash.
#2: Venture Capital
Venture capital is funds provided by investors (venture capitalists) for a start-up or expanding a business. Such funds come from venture capital firms specialized in building high-risk portfolios. Apart from the funds that they provide, venture capitalists also give the advice on how to improve the profitability of the business. When they invest in a company, venture capitalists will require a high rate of return, with a general estimation of 25%.
#3: Debt Financing
Debt financing is another significant fund-raising option in Singapore. Debt financing refers to raising capital by selling bills, bonds, or notes to institutional or individual investors. The investors will then become creditors and are promised the return of the principal and interest on the debt. Businesses can obtain debt financing from bondholders and banks. Though it may be difficult to obtain, debt financing provides capital at lower interest rates as compared to equity financing.
Debt financing can be found from:
- Commercial banks
- Community banks
- Credit unions
- Customer/supplier financing
Crowdfunding is the latest fundraising technique that used technology to raise funds from several people. This fundraising technique is done through internet-mediated registries. Other ways of raising money with this method include the use of mail-order subscriptions and benefit events among others.
There are three actors in this type of funding, namely: Project initiator who comes up with the idea or project, groups or individuals who are in support for the idea, and a Moderating organization. A moderating organization is a platform that brings the first two actors together in launching the project.
#5: Initial Public Offering (IPO)
Initial Public Offering (IPO) is the most significant source of capital for businesses in Singapore. Initial Public Offering also referred to as Stock Market Launch, is the process of selling a company’s shares to the general public for the first time.
To raise funds for its expansion, a private company may want to sell its shares. By monetizing the investments of its early private investors, the company becomes a public traded company. This process is referred to as Initial Public Offering.
Why IPO or go public?
Going public in Singapore comes with a great deal of advantages. Below are some of the reasons for using IPO in Singapore.
Access to more capital
Private companies face a lot of limitations when it comes to raising capital for expansion. Initial public offering provides a corporation with an opportunity to access a large amount of capital. In Singapore, public companies enjoy access to large capital as compared to private companies. In IPO, the shares of a company are made available to the general public. This will provide significant cash influx.
Initial Public Offering also increases the liquidity of a company’s shares. With IPO, investors can trade freely in the public market created thus increasing liquidity of the shares. They are allowed to find individuals who are interested and willing to acquire the shares.
Initial Public Offering improves the company’s publicity and visibility. In Singapore, publicity is very important in marketing your company. In most occasions, media outlets cover public companies, thus, increasing publicity. Public companies’ publicity is also increased as they undergo careful and close monitoring as compared to private institutions.
Initial Public offering in Singapore brings about the benefit of prestige. When a company goes public in Singapore, investors are assured of stable investments. Any perception of stability improves personal and companies prestige. Prestige comes with benefits such as improved marketing of products and services, and chances for recruiting qualified employees.
Mergers and acquisition made easy
Public Companies’ stock is valued as cash. If a Singapore company wishes to acquire or merge with another company and does not have cash, the stock that it has can be used.
Since public companies’ securities have an already established market value, Singapore public companies can provide offer securities as a means of compensation for their officers, workers, and directors.
Improved company’s Image
Generally, the public views public companies positively. IPO will improve the image of a private company. A good image is vital for maintaining long-term relationships with customers and suppliers.
Sourcing funds for your enterprise may not be easy. However, fundraising can be made easy if you identify the right option that best suits your business. If you are operating in Singapore, you can use any of the above types of fundraising options. IPO is the best of all.