Notable VC Financings of the Past 12 Months

Notable 2024 VC deals involving Singapore-headquartered companies included:

• insurtech start-up bolttech’s Series C fundraise – USD100 million;
• semiconductor manufacturer Silicon Box’s Series B fundraise – USD200 million;
• AI and data collaboration start-up Atlan’s Series C fundraise– USD105 million; and
• open-source developer platform start-up Supabase’s Series C fundraise – USD80 million.

Macroeconomic headwinds, including high interest rates and volatile capital markets, persisted as many start-ups approached the end of their cash runways. Financial irregularities resulted in the repricing and collapse of several start-ups, most notably, the high-profile downfall of agritech unicorn eFishery. Geopolitical challenges, such as wars and tariffs, also had significant repercussions for the fundraising landscape in 2024. Notable trends included:

• further risk shifting in venture financing rounds from investors to founders by requiring founders to stand behind warranties (including being expected to provide uncapped indemnities on an expanded set of fundamental matters, including company financials), and investors conducting additional due diligence before committing to invest;
• “wait-and-see” approach by investors hesitant to commit entire allocations without concrete evidence of performance, resulting in an uptick in tranched closings, with investors retaining the option to invest the remaining amount within a 12- to 18-month period at the same or slightly higher valuation;
• continued preference by companies and investors alike to rely on fundraising through convertible notes in lieu of priced equity financings in order to defer discussions around valuation; and
• pay-to-play structures to incentivise and reward investment by existing investors and penalise non-participants.

For further insight into the terms and conditions characteristic of recent venture financings, please see the Singapore Trends and Developments chapter in this guide.

Financial services and technology (“fintech”) start-ups continued to account for a significant portion of all venture funding in Singapore, particularly those seeking to offer payment and lending solutions to the large unbanked but digitally sophisticated populations in suburban and rural areas. Businesses leveraging blockchain and Web 3.0 technologies to solve foreign exchange and currency inefficiencies also saw success in fundraising. E-commerce and consumer-focused start-ups with reliable revenue streams and the capacity to turn a profit (even at the expense of growth) continued to attract investors with a renewed preference for financial stability over scale.

The application of generative AI (as opposed to traditional, symbolic AI) by start-ups is driving a new wave of investor interest in fintech, healthtech, biotech, e-commerce and many other sectors. Start-ups that adopt the power of AI hold a distinct competitive advantage by harnessing the power of data augmentation to innovate more quickly, optimise processes, and deliver superior products and services. These start-ups can allocate resources more strategically to uncover patterns and correlations, adapt to changing market dynamics and scale their operations through automation, which frees up monetary and human capital for other core business activities.

The power of AI has been deployed across start-ups operating in many distinct verticals:

• In fintech, AI optimises the assessment of credit risk and default in lending and significantly expedites the loan approval process and pricing of premiums in insurance products. AI tools are also being deployed to provide low-cost financial advice through portfolio strategy and diversification solutions in wealth management. This has spawned significant new investment opportunities in fintech beyond the payment and digital banking solutions previously seen. 
• In healthcare, AI enhances telehealth platforms by enabling virtual consultations, assessment of symptoms and remote monitoring of patients. 
• In biotech, machine learning accelerates the analysis of vast datasets to uncover patterns, predict drug efficacy and identify novel therapeutic targets, leading to faster and more cost-effective drug development.
• In e-commerce and other direct-to-consumer channels, AI-driven chatbots are providing personalised customer interactions, around-the-clock support, product recommendations and virtual shopping assistance.

For further insights into recent trends in Singapore’s venture investment and exit transactions, please see the Singapore Trends and Developments chapter in this guide.

Organisation and Documentation of VC Funds

Singapore-managed VC funds commonly opt for a Cayman Islands or Singapore limited partnership. Under both constructs, the main governing document is the limited partnership agreement, with the fund being controlled and managed by the fund’s general partner (GP).

Singapore adopted the variable capital company (VCC) legislation in 2020, and a number of Singapore-managed VC funds have successfully utilised this structure. The VCC is a corporate entity that can be used both for traditional and alternative investment funds (including mutual funds, hedge funds, private equity funds and VC funds). VCCs allow for the segregation of assets and liabilities between multiple sub-funds or special purpose vehicles, enabling multiple investment strategies or portfolios to be housed within a single umbrella entity while maintaining limited liability. Under the VCC construct, the main governing document is the shareholders’ agreement and constitution.

A mixed structure is also seen where the main pooled investment fund is formed in the Cayman Islands and the Cayman fund establishes a wholly owned VCC in Singapore as a holding company. The Cayman fund then deploys most of its portfolio investments through the VCC, allowing it to benefit from tax treaty advantages associated with the VCC structure.

Economics for Fund Principals

Fund principals participate in the economics of the VC fund through two key methods:

• carried interest – typically 20% of fund profits, though this may scale up to 25% or 30% after the overall return to investors has achieved certain milestones (for example, 25% after a 2x return and 30% after a 3x return); and
• management fees – typically 2% to 2.5% of the total capital commitment during the investment period, and thereafter a step down to 1.5% to 2% of the undisposed investments.

Key Terms Relating to Fund Economics

Distribution model

Fund managers with strong bargaining power may negotiate for a deal-by-deal distribution model, where carried interest is calculated with respect to an investment at the time liquidity is realised. This allows fund managers to realise returns earlier. An alternative approach is the return-of-capital model, where carried interest is only calculated after all investments in the portfolio have been liquidated, deferring distributions until the overall fund performance can be ascertained.

Transfer rights

To obtain early liquidity, limited partners (LPs) may negotiate for the right to transfer their partnership interests to third parties prior to the conclusion of the fund cycle.

Investment restrictions

Because of the risks involved in start-up investments, investors may negotiate guardrails around the maximum total fund commitments allocated into a single portfolio company. This is true especially for early-stage-focused funds.

Formation of new funds

To align interests between GPs and LPs, LPs may implement restrictions on the GPs’ ability to form any other investment fund with similar objectives and operations until a certain proportion of their fund’s capital commitments have been deployed, or for a fixed period after the closing date of their fund.

Advisory committee

Singapore-based VC funds typically have an investors’ advisory committee, comprised of three to five members representing the largest investors. Matters involving conflicts of interest are typically subject to advisory committee approval.

Regulations With Respect to Formation of VC Funds

A VC fund formed in the Cayman Islands is generally required to register as a “private fund”. The Cayman fund may be managed by a fund manager registered in the Cayman Islands or another jurisdiction recognised in the Cayman Islands (Singapore fund managers are recognised). The formation of a VC fund vehicle in Singapore is generally not a regulated activity in Singapore.

Singapore Fund Manager Regulations

Singapore fund management companies with more than SGD250 million of assets under management are required to obtain a licence from the Monetary Authority of Singapore (MAS). Most Singapore-based VC fund managers obtain a venture capital fund manager (VCFM) licence from the MAS, which takes less time to obtain than a full licensed fund management company (LFMC) licence.

A fund managed by a VCFM must invest at least 80% of committed capital in securities that are directly issued by an unlisted business venture which has been incorporated for no more than ten years at the time of the initial investment. In other words, a fund managed by a VCFM may only invest up to 20% of committed capital in other unlisted business ventures (including secondary investments and any investments in digital assets). Therefore, a secondary fund manager or a Web 3.0 fund manager would have to obtain a full LFMC licence in Singapore.

Securities Laws

A VC fund raising capital from LPs will need to ensure that it is compliant with relevant securities laws of the jurisdictions of such LPs. For example, a VC fund raising capital from US investors is required to comply with US securities laws, typically by qualifying for one or more exemptions from the relevant securities acts.

Notable Trends in VC Funds

In Singapore, Web 3.0 funds are becoming increasingly popular, while impact funds (which are often highly publicised but poorly capitalised) have become less prevalent. Fund-of-funds remain actively involved in investing in VC funds in the region. Singapore government-backed funds such as GIC, Temasek and Pavilion Capital are active LPs in the market. In addition to directly investing in promising start-ups, such funds may also support regional and overseas VC funds as an LP or anchor investor.

Favourable Tax Incentives for Supporting Local Start-Ups

VC funds that focus the deployment of their capital commitments on Singapore-based start-ups may be eligible for Singapore income tax exemptions with relevant approval from certain government agencies, such as Enterprise Singapore (the government agency responsible for promoting enterprise development and supporting the growth of Singapore as a hub for start-ups). A number of other initiatives are undertaken by the Singapore government to promote venture investment (see 4.3 Government Endorsement).

Extended Holding Periods

To accommodate longer average holding periods for investments, GPs in Singapore may choose to extend the fund term. Any extension of the fund term would typically require the consent of the LPs and/or the advisory committee, and GPs usually forgo management fees during the extended period. Alternatively, if the fund is unable to extend its term or if a secondary purchaser is identified, GPs may raise a continuation fund. A continuation fund provides the capital necessary for a longer holding period without requiring any changes to the original fund term. The GP will also be able to charge management fees and carried interest on the continuation fund.

Legal Due Diligence in VC Deals

The scope of legal due diligence conducted by VCs depends on the stage of investment, and whether the investor is a new or existing investor. Investors performing “high level” or “light touch” due diligence should, at minimum, review the ownership structure and capitalisation and understand the key terms of material contracts and past or pending acquisitions by the company. Intellectual property and regulatory issues may also be important, depending on the nature of the business.

Ownership

Many start-ups with substantial operations in South-East Asia and India, among other regions, choose Singapore as their place of incorporation, but record revenues, incur expenses, hire talent, enter into contracts and hold tangible and intangible assets through foreign subsidiaries. Because investors purchase and hold their equity in the Singapore entity, it is important to ensure that any value derived from downstream subsidiaries flows back to the parent with minimal leakage. Most subsidiaries are 100% wholly owned, though in certain countries (such as Indonesia and Vietnam) subsidiaries frequently enter into a nominee ownership structure with the parent.

Capitalisation

Issued and outstanding shares of Singapore companies are recorded by the Accounting and Corporate Regulatory Authority of Singapore (ACRA), including the Electronic Register of Members (EROM). Under the Companies Act 1967 of Singapore (the “Companies Act”), certain entries in the EROM are prima facie evidence of their existence, so companies should ensure that their corporate secretary provides up-to-date and accurate lodgements of changes to the share capital. The requirement to maintain an EROM has only been in effect since 3 January 2016. As a result, corporate transactions prior to that date may not be completely reflected in a company’s EROM, and the correctness of the EROM (and all other records maintained on ACRA) is ultimately dependent on the corporate secretary’s efforts, and, as discussed below, may not reflect recent transactions.

Although the accuracy of these registers ultimately depends on the underlying information provided to the corporate secretary, VC investors generally rely on these registers to ascertain the share capital of the company, rather than undertaking an independent “tie-out” or chain-of-title review. However, in acquisitions and exit transactions, it is not unusual for a buyer to perform a comprehensive review of the relevant corporate approvals, share transfer or application forms, and subscription/transfer agreements. Ongoing system updates to the ACRA portal in December 2024 have resulted in delayed updates to the EROM for transactions affecting share capital (including issuances and transfers). Until ACRA returns to full functionality, investors should consider whether a comprehensive tie-out is appropriate, and should also ensure that contractually, they are treated as shareholders upon funding even if the EROM is only updated retroactively at a later date.

Investors should note that the number of shares reserved for issuance under a company’s employee share option plan (ESOP) is not typically recorded with ACRA, and must be verified by a review of the relevant resolutions and underlying documents. Understanding the precise number of shares reserved under the ESOP is an important part of the diligence exercise, as it directly impacts an investor’s fully diluted ownership stake.

Material contracts

Depending on the nature and complexity of material contracts, investors may either conduct a “red-flags” or in-depth review. This is true especially for the start-ups in the enterprise software, manufacturing and supply sectors, where several large customer contracts may account for a substantial portion of overall revenue. Key considerations include:

• understanding monetary obligations, whether in the form of fees, contingencies, royalties or other payments;
• termination provisions (including whether either party may terminate for convenience, and if so, whether a substitute counterparty is available on commercially similar terms);
• exclusivity terms regarding inbound and outbound licensing of technology, anti-competition restrictions and other restrictions on the company’s business;
• anti-assignment terms, which may delay a future exit (particularly if such transaction is structured as an asset sale);
• burdensome warranties or covenants that are impractical for an early-stage start-up to satisfy; and
• high liability caps or uncapped liability that could expose the company to extensive damages in a breach, especially in businesses that may be more vulnerable to product liability claims, or companies that aggregate or store sensitive customer data.

Acquisitions

If the company has engaged in any past acquisitions or business combinations, or is in the process of negotiating such transactions, it is important for an investor to understand what contingent obligations the company may continue to owe to the counterpart(ies), including:

• any earn-out arrangements and other retention or similar obligations to sellers’ employees and founders;
• escrow or holdback arrangements that may not be immediately recorded, but which the company will need to account for in the future, whether in cash or equity; and
• breaches or potentially indemnifiable losses identified at closing, if a full audit cycle has not yet been completed on the target.

Intellectual property

Intellectual property (IP) diligence includes ensuring that:

• all IP necessary to operate the business is properly owned and enforceable against infringing third parties; and
• the company is not infringing third-party IP.

Ownership diligence involves ensuring that:

• all service providers who have contributed to the development of IP have assigned all inventions created in relation to their engagement without further action required to effect the assignment;
• no other person (whether a joint venture partner, research institution, governmental body or otherwise) owns or may claim joint ownership of the company’s IP;
• the company has proper policies in place for the protection of its codebase and its trade secrets;
• the company has validly registered, and maintained its registrations for, all registrable IP, including copyrights, marks and patents;
• the company has proper licences on sustainable terms for requisite third-party IP, and has provided licences to use its IP under enforceable and sustainable terms; and
• the company is not using any open-source software subject to copyleft licences that would require the company to distribute/reveal its source code.

Non-infringement diligence involves confirming:

• general compliance with third-party licences and no pending or threatened claims;
• that the company has reasonable policies in place governing the use of open-source software, or is, at a minimum, keeping track of its use of open-source software; and
• in a minority of cases (primarily due to cost), that the company has conducted freedom-to-operate analyses in certain markets.

Regulatory matters

Companies operating in regulated sectors – such as direct-to-consumer goods, financial services (particularly payments and lending), insurance underwriting, education, healthcare and life sciences, and the development of critical technologies with national security implications – should ensure they possess the requisite licences to operate. Compliance with local labour, tax and securities laws are also common focal points of due diligence.

Non-legal Due Diligence

Non-legal business and financial due diligence has historically been performed in-house but is increasingly being outsourced to professional vendors. This is particularly true in later-stage companies, where VCs frequently engage audit and forensics firms to review company accounts, examine ownership structures, conduct litigation searches and inspect the personal backgrounds of key personnel. Such qualitative diligence processes have become standard practice in recent years, and regional VCs are seeking increasingly higher reimbursements for their vendor expenses as a result of such exercises.

Timeline for Growth-Stage Financing

The timeline for a financing round in the growth stages ranges from 12-16 weeks from the signing of a term sheet, and investors typically negotiate for an exclusivity period (during which the company must negotiate in good faith and must not actively solicit competitive term sheets) of 60 to 90 days. In the past few years, as growth funding became less accessible, the commercial due diligence timeline leading up to a term sheet has expanded, with investors sometimes engaging in conversations with start-ups for months before seeking formal investment committee approval. For growth-stage companies with a large investor base, the tension between existing investors reluctant to concede favourable terms to new investors and new investors unwilling to fund without additional protections can result in a protracted negotiation and approval process. 

Involvement of Counsel

Separate counsels are typically engaged by the lead investor and the company, and existing investors may also engage independent counsel to review revised agreements once these are substantially agreed with the lead investor. Unsurprisingly, timelines and costs almost always directly correlate to the number of parties involved in negotiations, and it is not unusual for existing investors participating in a new round to seek expense reimbursement for their advisers.

Consent Thresholds

Shareholder agreements are typically structured to allow for new financings to take place and for amendments to be made without having to obtain unanimous shareholder consent. However, the consent of a specified majority of a class of shares is typically required. In addition, the consent of at least 75% of the outstanding shares (on an as-converted-to-ordinary-shares basis, in the case of preference shares) is required under the Companies Act to amend the constitution of the company, which is required to establish the rights of any new class of preference shares. 

The consent of a majority of the outstanding shares (on an as-converted basis) is also required under the Companies Act to issue new shares. Unless certain requirements are met, the authority to issue new shares expires at the conclusion of the next annual general meeting (AGM) or on expiry of the period within which the next AGM is required to be held by law.

Standard Economic Rights in Early-Stage Financings

A new class of preference shares is typically established in connection with a venture financing. These preference shares feature downside protections, including:

• anti-dilution rights (eg, the right of an investor to adjust their fully diluted stake in the company and to protect their ownership percentage in the event of a future “down round”); and
• liquidation preferences (the priority in which investors are paid in the event of a company’s liquidation, sale or dissolution).

Standard terms of preference shares include “broad-based weighted average” anti-dilution rights protections which account for the size and severity of a future down round, and “1x, pari passu, non-participating liquidation preference” which provides newly issued shares priority in distribution up to the dollar amount of their principal in the company, on equal seniority with other preference shares, and without “double dipping” or participating with the remaining proceeds distributable to ordinary shares. 

Contractual Rights

Shareholders’ agreements generally include extensive negotiated contractual rights. These include:

• board and observer rights, which detail entitlements to nominate directors or non-voting observers;
• information rights, which require the company to periodically provide certain financial reporting and operating metrics to investors, as well as annual budgets and business plans;
• pre-emption (or pro rata) rights, which provide some or all investors with the right to maintain their ownership percentage by investing in future rounds;
• rights of first refusal (or first offer) and tag-along rights over the shares held by other shareholders (typically founders), which allow investors the first right to purchase shares being sold by founders or, alternatively, to participate in a sale transaction by founders to a third-party buyer;
• drag-along rights, which enable a subset of shareholders to force a minority of shareholders to participate in an exit; and
• board and shareholder reserved matters, which set out actions that the company may not take without the approval of a certain group of investor directors and/or preference shareholders.

It is not uncommon to confine certain rights to “major investors” holding a specified percentage of the share capital, and to require a “burn-off” threshold with respect to board and observer rights, where an investor that has been diluted below a certain ownership percentage over time will lose such rights.

Founder Transfer Restrictions, and Good and Bad Leaver Provisions

In addition to subjecting founder shares to the aforementioned restrictions, investors typically expect founders’ shares to be re-vested or subject to lock-ups. Founders may negotiate for a “liquidity basket”, whereby a portion of their shares may be freely transferable without being subject to such transfer restrictions. 

Finally, “good” and “bad” leaver scenarios and associated claw-back rights in founder equity are staple terms in shareholders’ agreements. A bad leaver is typically defined as a founder who has been terminated for “cause” or has resigned without “good reason”, and the definitions of “cause” and “good reason” are heavily negotiated. 

In a bad leaver scenario, the company and, occasionally, other investors, may have the right to purchase some or all of the vested equity held by a founder at nominal value or a discount to the “fair value” of such shares. Fair value of ordinary shares may be assessed by an independent third-party appraiser or be pegged to a percentage of the latest preference share price. In a good leaver scenario, vested equity may not be subject to a right of purchase, or may be subject to such a right only at fair value. In both good and bad leaver cases, unvested equity is purchasable by the company at nominal value.

Singapore Forms for Pre-seed and Later-Stage Rounds

Singapore companies raising pre-seed investments typically use convertible notes or simple agreements for future equity (SAFEs) on widely adopted industry forms. When raising the first (and subsequent) priced equity round(s), the key definitive documents are:

• a subscription agreement, governing the subscription terms of the preference shares being issued;
• a shareholders’ agreement, governing the rights and obligations between the incoming and existing shareholders and the company; and
• an amended and restated constitution, providing for other corporate governance matters and replicating certain key provisions of the shareholders’ agreement.

If there is any inconsistency between the shareholders’ agreement and the constitution, the shareholders’ agreement generally prevails.

Relevance of US NVCA Model Forms

The documents published by the US National Venture Capital Association (NVCA) are rarely relied upon by regional investors. However, when drafting and negotiating Singapore law-governed shareholders’ agreements, the standards set by the NVCA remain a useful point of reference due to the developed and sophisticated venture market in the USA and the prevalence of US VCs investing in Singapore-headquartered companies.

Please refer to Structured Rounds and Downside Protections in the Singapore Trends and Developments chapter of this guide for a discussion of the structures and terms used by investors in recent down cycles.

Common Terms in a Down Round

The starting point for structuring any down round is to ascertain whether the requisite consents required by the shareholders’ agreement and constitution (and any other documents) can be obtained. For example, new investors in a down round may expect anti-dilution protections to be waived by existing investors, so as not to severely penalise founders who often bear the burden of the anti-dilution adjustment. 

A down round investor will usually expect seniority in liquidation preference, dividends and redemption terms. Investors may also negotiate for a multiple on their liquidation preferences, and for participation rights, as well as ratchet anti-dilution protections to “reset” their entry valuation in the event of future down rounds, although this remains the minority approach. Significant governance oversight may be enforced through extensive reserved-matter rights, along with transfer restrictions on the shares of founders and other investors to prevent a premature exit. Lastly, investors may also negotiate for favourable terms in a future upside scenario, including super pro rata rights that exceed their post-closing ownership percentage.

Minority Protection Under the Companies Act

The Companies Act provides a number of statutory protections for minority shareholders. Section 74 provides minority shareholders with the ability to apply to cancel a variation or abrogation of their class rights in certain circumstances, and Section 216 provides the ability to apply for relief under the oppression remedy.

Board- and Shareholder-Reserved Matters

Investors exercise influence over governance and operations by stipulating consent requirements for certain actions taken at the board and shareholder level. Board-level oversight is typically required for operational matters, including:

• the incurrence of debt;
• entry into agreements outside the ordinary course of business;
• significant deviations from the business plan and budget;
• executive compensation and approval of equity awards for key personnel; and
• hiring or firing of key personnel. 

Shareholder-level oversight is typically required for matters that directly impact the value of an investor’s ownership stake and the rights attached to their shares, including:

• amendments to the shareholders’ agreement and to the constitution;
• the amount of equity reserved under the ESOP;
• liquidity events; and
• dilutive issuance of new securities.

Board-level matters typically require the consent of a specified number of investor-nominated directors, whereas shareholder-level matters typically require the consent of investors holding a specified percentage of preference shares.

Ultimately, the enforcement of reserved matters is a matter of contract, and it may not be feasible to unwind actions taken without proper consent, especially when such unauthorised actions are effected by subsidiaries in foreign jurisdictions. Investors should consider implementing practical measures to mitigate risk, including adopting robust banking policies requiring multiple signatories for large account withdrawals, to guard against the risk of misappropriation and embezzlement.

Founder Liability

In early-stage financing rounds, founders may be liable on a joint and several basis with the company for breaches of warranties and undertakings provided in the subscription agreement. They may also be required to provide a personal indemnity for such breaches. While this position may be justifiable for an early-stage company with limited assets, founder liability is often omitted in subsequent rounds as the company matures and its recoverable assets increase.

Indemnities

General, and sometimes specific, indemnities are typically included in subscription agreements. Indemnities should be limited, including through a survival period, de minimis thresholds and baskets. Recovery from founders is usually limited to the value of their shares in the company. Early investors should be mindful that draconian indemnity terms with lengthy survival periods will be viewed unfavourably by future investors, who will not want their invested capital to backstop the indemnity rights of their predecessors.

Disclosure Schedules

Disclosure schedules play an important role in qualifying the warranties made in the subscription agreement. General data room disclosure, whereby all documents uploaded to the data room on a given date are deemed disclosed, is typically paired with specific disclosures. In such cases, parties usually negotiate for a “fairly disclosed” concept.

Post-closing Covenants

Deficiencies identified during the diligence and disclosure process may be rectified pre-closing or deferred to post-closing covenants. Requiring matters to be resolved on a post-closing basis may be preferable if the matter is not material and if parties are aligned on closing expediently. 

Enforcement for Breach

For reputational and cost reasons, it is rare for a VC to bring legal action against a company on the basis of a breach of warranties or covenants in the absence of fraud or gross negligence. As a result, investors should ensure that they thoroughly assess the reputation and capabilities of founding teams as well as the internal controls and governance of the company prior to closing.

Government Programmes

The Singapore government provides a number of grants for supporting local founders and start-ups. These include: 

• the Start-up SG Founder Grant, which covers a wide scope of business ideas;
• the Start-up SG Tech Grant, which focuses on new or early-stage start-ups; and
• the Enterprise Development Grant, which focuses on growth and technology adoption. 

Such grants are typically only available to Singapore-incorporated entities that satisfy minimum Singapore citizen/permanent resident ownership requirements.

Seeds Capital, the investment arm of Enterprise Singapore, incentivises equity financings in Singapore-based start-ups by providing co-investments alongside a list of approved VC funds. Deep tech companies are eligible for higher co-investment.

Tax Treatment of Start-up Equity

There is no capital gains tax regime in Singapore, but, at the point of sale or transfer, stamp duty is payable to the Inland Revenue Authority of Singapore (IRAS) at the higher of 0.2% of:

• the consideration received for the sale of such shares; or
• the net asset value (NAV) of the relevant shares.

The IRAS prescribes guidelines on the calculations of NAV of shares for the purposes of stamp duty. Generally, dividends distributed by Singapore private limited companies to their investors are not taxable.

See 4.1 Subsidy Programmes.

Government Initiatives

Institutions such as SGInnovate (a private organisation wholly owned by the government) and EDBI (the corporate VC arm of the Singapore Economic Development Board (EDB)) have funds available for supporting Singapore-based start-ups and start-ups with a Singapore nexus. SGInnovate focuses on developing human capital in the Singapore deep tech ecosystem, by conducting talent programmes and facilitating the sourcing and hiring of deep tech talent through a “Deep Tech Central” platform. In addition, the Ministry of Trade and Industry established the Action Community for Entrepreneurship, which is committed to helping local start-ups fine-tune their business proposals and participate in a suite of incubator and mentorship programmes.

Relocating to Singapore

In 2023, EDB launched the Global Investor Programme (GIP), which accords Singapore permanent resident status to eligible global investors seeking to relocate and deploy their investments from Singapore. Investors may qualify by demonstrating an investment of at least SGD10 million in a new business entity or in the expansion of an existing business operating in Singapore, by investing SGD25 million in a “GIP-select” fund that invests in Singapore-based companies, or by establishing a Singapore-based single family office with assets under management of at least SGD200 million (a minimum of SGD50 million must be transferred into Singapore and deployed in EDB-specified investments).

Programmes for facilitating expansion

Enterprise Singapore is spearheading the Global Innovation Alliance (GIA) comprised of Singapore and overseas partners in the technology and innovation space. As part of the GIA, start-ups may access:

• acceleration programmes for facilitating entry into overseas markets; and
• co-innovation programmes for collaborating on research and development with foreign partners.

Exit on Singapore Exchange (SGX)

Later-stage start-ups seeking exits may find support from SGX’s Strategic Partnership Model, whereby SGX, Singapore’s national stock exchange, charts a bespoke framework for companies moving towards an IPO on SGX. This includes leveraging SGX’s network of investors to:

• supplement and strengthen a company’s existing shareholder base;
• provide support during the IPO process; and
• drive growth post-IPO.

The Singapore government further provides support for later-stage start-ups seeking to list on the SGX through growth equity investments via Anchor Fund @ 65 (a co-investment fund with Temasek) and EDBI’s Growth IPO Fund. These funds also assist their portfolio companies with the listing requirements for an IPO on the SGX.

Incentivising Founders and Key Employees

Founder equity is issued at incorporation, and investors generally expect such equity to be earned out over a number of years through time-based vesting. Other employees are granted options when they commence their services to the company, also subject to time-based vesting. After the company has raised funding, options are typically granted in lieu of shares because under the tax laws of most countries, the appreciation in value of options becomes taxable only at exercise, whereas the increase in value of shares is taxable as the shares vest.

At the time of a financing, re-vesting of all or a portion of vested equity may be required. The amount and duration of a re-vest are terms typically negotiated in a term sheet. Founders and key employees may also negotiate for:

• “single trigger” acceleration, where all or a portion of unvested equity accelerates and becomes vested upon a liquidity event; or
• “double trigger” acceleration, where unvested equity accelerates if a founder/key employee is terminated immediately before or within a period following a liquidity event.

In some cases, founders/key employees may negotiate for partial single or double trigger on a portion of unvested equity. Acceleration features are meant to incentivise employees to work towards a successful exit event, with the assurance that they will not be denied an opportunity to earn out or realise unvested value.

Founders and key employees diluted over time may be rewarded with refresh equity. Such equity may be subject to milestone and KPI vesting terms or to non-traditional time-based vesting schedules. 

Share Options

Options are the most common form of equity awards for start-up employees, and form an important part of an employee’s compensation package. Most grants are subject to a vesting schedule with a “cliff”, whereby a portion vests on the one-year anniversary of the employee’s employment with the company, and the remaining vests monthly or quarterly in equal instalments thereafter. 

Vested options may be exercised for shares. Companies typically require employees who have left the company to exercise options within a 60- to 90-day timeframe, failing which, options lapse and are deemed forfeited. The intention is to ensure that departed employees who are no longer contributing to the business do not benefit from the continued upside.

Strike Price

To exercise an option, the holder typically needs to pay an exercise price or strike price set at the time of the option grant. Employees subject to US tax may only receive options with a strike price at or above fair value, but Singapore and most other countries do not have specific requirements relating to the setting of the strike price. A nil or nominal strike price is not uncommon in Singapore and is highly beneficial for option holders. However, having a meaningful strike price (even if at a discount to fair value) rewards earlier employees and may better align the incentives of later employees. 

Acceleration

In contrast to founders and key management, acceleration of vesting for rank-and-file employees is uncommon. Investors view acceleration terms as being dilutive to their interests at the time of exit, and a potential acquirer will also factor such terms into their ability to retain such employees after an acquisition. If employees are significantly or fully accelerated on their unvested equity, an acquirer may need to offer additional equity to such persons as part of their retention package, resulting in dilution to their stakeholders. 

ESOP Tax Considerations

Singapore does not have a capital gains tax regime. However, individuals who are granted options will be taxed on any gains or profits arising from their participation in an incentive pool as part of their income tax, and Singapore applies a progressive tax rate for individuals. 

Tax is assessed at the point of exercise of options, and is calculated on the spread between the fair value at exercise and the strike price paid. If shares are subject to a selling restriction/moratorium period, the gains are calculated as of the date such restrictions are lifted. Subject to certain criteria, an option holder may apply to have their payment of tax on exercised options deferred for up to five years, but interest must be paid on such a deferral. 

Foreign employees who terminate their employment in Singapore are subject to the “deemed exercise” rule, whereby taxable gains from unexercised options (as well as exercised but restricted options) become immediately due. Such gains are deemed as income derived on the later of one month before the cessation of employment or the date of grant. Under the alternative “tracking option”, employers that satisfy certain criteria with approval from the IRAS may bear the responsibility of:

• keeping track of unexercised options;
• computing and reporting gains from specified income-realisation events; and
• collecting and paying taxes on such gains. 

ESOP Considerations in a Financing Round

Start-ups raising their first priced equity round usually adopt an ESOP prior to or concurrent with the closing. In later rounds, investors will typically require an ESOP top-up in connection with the new raise. Existing shareholders and new investors will expect clarity regarding who bears the burden of the top-up dilution. An ESOP increase associated with a financing will be dilutive to either:

• the existing shareholders only (in which case it is counted entirely against the pre-money fully diluted capitalisation); or
• both the existing shareholders and the new shares issued in connection with the new round (in which case some or all of the increased amount is counted against the post-money fully diluted capitalisation). 

Investors participating in a round should be clear about what their invested capital means in terms of their post-closing fully diluted ownership percentage. From the investors’ perspective, counting the ESOP increase against the post-money is tantamount to a valuation adjustment, as they will be immediately diluted by such increase after closing; thus, for simplicity, the ESOP increase is almost always counted against the pre-money capitalisation and is non-dilutive to newly issued shares.

Option Pool Increases

Determining the appropriate quantum of an ESOP increase is ultimately a commercial decision, but a common benchmark is to increase the ESOP by an amount needed to assure new round investors that the company will have sufficient hiring runway for a reasonable period. In early-stage companies this may simply be until the next expected fundraise (eg, the company’s expected cash runway) while in later-stage companies the amount is usually expected to support a 9- to 12-month hiring runway, after which such investors will be expected to share in the dilution of any additional ESOP increases.

In earlier rounds, start-ups may be expected to allocate a greater percentage towards the available and unissued ESOP, as such start-ups generally cannot offer lucrative cash compensation packages to employees and rely heavily on equity compensation to subsidise, resulting in accelerated depletion of the available ESOP. If a start-up has promised, but has not yet formally issued, a certain number of shares out of its ESOP, it will typically be expected to account for such promised equity as issued and outstanding for the purposes of determining the unallocated and available ESOP.

Exit Rights

Common exit-related provisions include:

• registration rights in connection with a public offering or follow-on offering;
• “change of control” tag-along rights;
• drag-along rights;
• redemption rights; and
• undertakings to use “reasonable” or “best” efforts to enable an investor exit within an agreed period of time.

Registration rights provide certain investors with the right to force a company to undertake a registration process with the relevant securities regulators, to register their shares for sale to the public.

Tag-along rights allow investors to co-sell a proportion of their shares alongside sales by founders and, potentially, other shareholders. Investors typically negotiate for a “change of control” tag-along, whereby they are entitled to sell their entire stake in the company should a sale by founders or other shareholders result in a change of control of the company’s voting power. The intention is to ensure that investors who invested in a start-up governed by collective control among minority shareholders should not be “stranded” if the start-up becomes majority owned by a single shareholder.

Drag-along rights empower the board and shareholders to compel the sale of all or a significant majority of the company’s share capital to a third party. Investors may occasionally seek the ability to unilaterally initiate a drag sale after a set number of years. However, enforcing this provision can be challenging in practice, as it is unlikely a company will execute a successful sale process without the support of management and/or other major investors.

Redemption or buyback rights provide an investor with the right to put their shares to the company after a number of years. The enforceability of such provisions is dependent on the company’s solvency and other statutory limitations. Such rights are uncommon, and early-stage investors seeking such rights should be mindful that later investors will almost always negotiate for similar rights on par with, or senior to, their rights of redemption, which may have a counterproductive effect.

Investors commonly require a company to use reasonable or best efforts to facilitate an exit (whether through a trade sale or secondary sale) within a number of years. It remains to be seen whether and how such rights will be enforced in practice. The general consensus is that such efforts are limited to entertaining exit opportunities in good faith and providing support in the due diligence of the company’s business by an interested third-party buyer, but stop short of devoting substantial company resources or hiring a financial adviser to run a sale process. However, investors may sometimes specifically require that the company hire a financial adviser at the company’s expense to run a formal sale process upon the expiry of the exit term.

Exit Triggers

Events triggering exits typically include:

• any sale of shares that results in a change of control of the company;
• asset sales where the company disposes of all or a substantial amount of its undertakings and assets; and
• public listings.

Investors may require that, if the company exits via a public listing, the listing must satisfy certain criteria (a “Qualified IPO”). Common requirements include:

• that the listing be firmly underwritten and launched on a reputable securities exchange with meaningful trading liquidity;
• that the gross cash proceeds from the listing exceed an agreed dollar amount; and
• that the listing be priced at a certain valuation or implied market capitalisation.

IPO exits for Singapore start-ups have been sparse, particularly on established global exchanges such as the NASDAQ, NYSE and HKSE. Considerations that drive the timeline for an IPO include:

• the profitability and creditworthiness of the company;
• market conditions;
• retail investors’ awareness of the company; and
• the company’s growth potential. 

Restrictions on Secondary Sales

Most companies do not place significant restrictions on the transfer of shares by investors, as such investors generally expect their equity in the company to be freely transferable. However, it is not uncommon for certain companies to disallow transfer of shares by investors to their direct competitors. In such cases, companies and investors may agree to a narrow definition of “competitor” which may include a specified list, updated on a periodic basis. 

Employee Liquidity

To facilitate employee liquidity, companies occasionally implement employee liquidity programmes. Such programmes may be structured as a company buyback programme funded by a third-party investor in a new financing round. In such cases, the company allocates a portion of the new funding round proceeds to redeem shares from employees who wish to sell. 

Alternatively, companies may facilitate the sale of employee shares through a third-party-sponsored tender offer. Under such arrangements, eligible employees are offered the opportunity to sell their shares in the tender offer, subject to limitations placed by the company on the number of shares tendered by such employees. The company then selects certain buyers to submit a tender offer, and acts as the transfer agent for such shares.

The Singapore Securities and Futures Act 2001 (SFA) provides that all offers of securities by a Singapore company are subject to prospectus requirements, unless such offer falls within a list of exemptions. Common exemptions include the following.

Institutional and Accredited Investors

Subject to conditions set out in Sections 274 and 275 of the SFA, offers of securities to “institutional investors” and “accredited investors” (as defined in the SFA) will be exempt from prospectus requirements. As an anti-avoidance mechanism to prevent the circumvention of prospectus requirements, shares allotted and issued under such exemptions are not permitted to be sold (save to other persons specified in Sections 274 and 275 of the SFA) within the first six months of such shares being acquired.

Private Placements

Subject to conditions set out in Section 272B of the SFA, offers of securities to no more than 50 offerees within a 12-month period will be exempt from prospectus requirements. The 50-person limit is based on investors that are offered securities, and not on the number who ultimately invest.

Small Offers

Subject to conditions set out in Section 272A of the SFA, “personal” offers of securities of up to SGD5 million within a 12-month period will be exempt from prospectus requirements. “Personal” offers may only be accepted by the offeree in question and can only be made to persons that are likely to be interested in the offer based on past contact or connections.

ESOPs

Section 273(1)(i) and (4) of the SFA provide that offers of securities under employee share schemes to “qualifying persons” will be exempt from prospectus requirements. These “qualifying persons” are directors, employees (including former employees), consultants, advisers, and, in the case of directors and employees, their immediate family members.

In addition to complying with the SFA, Singapore-based start-ups should be mindful of compliance with the securities laws of the jurisdictions in which their prospective investors reside.

Foreign Direct Investment Considerations

Singapore is generally regarded as a friendly jurisdiction for foreign direct investment, but, like many countries, foreign investments are subject to strict anti-bribery, anti-money laundering and counter-terrorism financing regulations. Further, in a subset of regulated sectors (such as financial services, media, telecommunications and utilities), foreign investment may require regulatory approval and may, in some cases, be subject to foreign ownership limitations.

Singapore’s Significant Investments Review Act came into force on 28 March 2024, whereby investors in designated entities identified as critical to Singapore’s national security interests are required to:

• obtain approvals from the Minister for Trade and Industry (MTI) before acquiring “controller” stakes in such entities; and
• notify the MTI upon becoming a 5% controller of such entities. 

The list of designated entities, which is subject to change from time to time, was released on 31 May 2024 and updated on 21 November 2024. The list is narrowly tailored and comprises only ten corporations as of March 2025. As a result, it is unlikely to have any meaningful impact on most VC investments.