Application for Venture Capital Fund Manager (VCFM) Licence
Updated: Oct 9, 2022
Venture Capital in Singapore
Venture capital ("VC") is a subset of PE that includes investments in high-growth, high-risk companies, usually high-tech. VC funds are usually organized as limited partnerships. VC fund managers tend to focus on technology-intensive, early-stage high-risk companies. VC also does not include restructuring or leveraged buyout financing.
VC Market and Demand
The fund management industry in Singapore is growing rapidly.
Singapore is seen as a popular domicile for venture capital funds. Besides being a global leader in ease of doing business (Singapore ranked first for many years in a row), Singapore's stable pro-business environment, efficient legal system and risk-based regulatory policies make it an attractive choice for asset management activities. Furthermore, with favorable income and corporate taxes, no capital gains tax and favorable tax treatment for eligible funds, Singapore is ideally positioned to take advantage of the greater demand for investment solutions arising from continued wealth creation in Asia.
The Impact of VC on the Economy
The importance of VC as an alternative source of capital is clear. Young companies often struggle to get financing from traditional sources, as banks are less likely to lend to small businesses without collateral and a strong track record. VC addresses this "capital gap" by providing promising startups with the funding they need for the next stage of technology and business development. In addition, entrepreneurs have access to professional management skills, guidance and strategic support from experienced venture capitalists.
In addition, VC is widely regarded as a powerful engine that can drive a country forward innovation, job creation, knowledge economy and macroeconomic growth. In the context of Singapore, the VC industry is very important to its economy because the country needs to transform into an innovation-driven, knowledge-based and future-oriented country. As Singapore is constrained by its small geographic size and faces challenging labor constraints, future economic growth cannot be achieved by labor-led growth, but must be based on productivity and innovation. For Singapore to maintain its competitive edge in the global market, the economy must enter the next phase of value creation, in which VC plays a key role in encouraging this progress.
Singapore's VC Regulatory and Legal Framework
As part of a wider effort to facilitate corporate development financing, MAS has a simplified authorization process and regulatory framework for VC fund managers.
Fund Manager Regulation
In order to carry out fund management activities in Singapore, the fund manager (usually organized as a fund management company (“FMC”) must hold a Capital Markets Services (“CMS”) license issued by the Monetary Authority of Singapore, or be exempt from licensing requirements.
There are two types of CMS licenses that MAS can grant to FMCs: (b) Licensed retail FMCs (which can deal with retail investors).
There are two types of CMS licenses that MAS can grant to FMCs:
(a) licensed accredited / institutional FMC (which may serve unlimited accredited and institutional investors); or
(b) licensed retail FMC (can deal with retail investors).
Alternatively, fund managers can apply to MAS for an exemption from licensing requirements and instead register as a registered FMC. To qualify for FMC registration, fund managers can only provide fund management services to no more than 30 accredited investors, and the fund manager's total assets under management (AUM) do not exceed S$250,000.
Alternatively, the fund manager can apply for an exemption from licensing requirements with the MAS, registering instead as a registered FMC. To qualify as a registered FMC, the fund manager can only provide fund management services to no more than 30 qualified investors and the total AUM of the fund manager does not exceed S$250,000.
According to the SFA, "accredited investors" are
(a) investors, including individuals with a net worth of more than S$2 million (the net worth of an individual's primary residence can only contribute up to S$1 million of the S$2 million threshold) or an annual income of not less than S$300,000, and companies that have assets exceeding S$10 million; or
(b) institutional investors (including pension funds, collective investment schemes, banks and statutory bodies).
A VCFM may only manage funds that meet the following criteria:
(i) invest at least 80% of committed capital in securities that are directly issued by an unlisted business venture that has been incorporated for no more than ten years at the time of initial investment;
(ii) invest up to 20% of committed capital in other unlisted business ventures that do not meet sub-criterion (i), i.e. they have been incorporated for more than ten years at the time of the initial investment, and/or the investment is made through acquisitions from other investors in the secondary market;
(iii) must not be continuously available for subscription, and must not be redeemable at the discretion of the investor; and
(iv) are offered only to accredited and/or institutional investors.
Qualifying VC fund managers are not required to have directors and representatives who have at least five years of relevant fund management experience.
Under the regulatory framework for VC fund managers, VC fund managers are exempt from capital requirements and business conduct rules that currently apply to other fund managers. VC fund managers are also exempt from independent valuations, internal audits and the requirement to file audited financial statements with MAS. As a safeguard, VC fund managers must disclose to their clients that they are not subject to the same regulatory requirements as other licensed fund manager.
Who needs apply
Individuals performing key functions in a fund management company, such as portfolio construction and allocation, research and advisory, business development and marketing or client servicing are required to be representatives.
When assessing an application to be a VCFM, MAS takes into account factors such as:
- Fitness and propriety of the applicant, its shareholders and directors.
- Track record and fund management expertise of the applicant and its parent company or major shareholders.
- Ability to meet the minimum financial requirements prescribed under the SFA.
- Strength of internal risk management and compliance systems.
- Business model/ plans and projections and the associated risks.
In addition, your company would need to operate from a dedicated and secure office space that is accessible only by your company’s directors and staff.
Financial and staffing requirements
There is no minimum base capital and other financial resource requirement.
Minimum of 2 full-time Singapore-based employees
If you hire or appoint individuals to conduct a regulated activity under your licence, you have to appoint and identify these individuals as your representatives for that regulated activity.
Applying for licensing or registration
SECTION 1: INFORMATION ON THE COMPANY AND ITS SHAREHOLDERS
Provide business profile for the incorporation of the Company as filed with the Accounting and Corporate Regulatory Authority (“ACRA”) of Singapore.
Provide organisational chart of the Company.
Provide the shareholding chart that shows how the Company is related to each of its shareholder (including natural persons), and to its related entity(s), subsidiary(s) and branch(s) (where applicable). Information on other forms of controlling interests should also be included in the chart. The chart should indicate the percentage of shareholdings or controlling interests held by each person, the date of incorporation and the place of incorporation of each entity.
SECTION 2: INFORMATION ON THE COMPANY'S PROPOSED BUSINESS PLAN
Provide business plan of the Company (i.e. brief description of proposed business model and outline of the activities, and the profile of key principals including major shareholders).
Provide details of fund(s) to be managed or advised: Name of fund, Place of incorporation/domicile, Appointed fund manager, Role of the Company, if not manager to the fund, Investment by sector, Geographical focus, Latest/Targeted AUM (S$)
Set out details of any shareholdings where the individual owns 5% or more of the total number of voting shares in the business or corporation in Singapore or elsewhere: Name of entity, Place of incorporation/establishment, Nature of business, Related entity (Yes/No), Date of acquisition (DD/MM/YYYY), % shareholding in corporation
There is a non-refundable application fee of S$1,000 upon submission of the application.
There will be annual corporate fee of S$4,000 for the licence or registration status.
MAS expects to take not more than 4 months to review and process an application if the business model is straightforward, the applicant meets the relevant admission criteria fully, and the application is complete and clear. For more complex cases, or cases where information is assessed to be incomplete or inaccurate, MAS will need a longer time to review the application.
If you would like to know more about our services, please contact Bestar.