Private equity (PE) and venture capital (VC) are two major subsets of a way larger, complex part of the financial landscape referred to as the private markets. Because the private markets control almost a quarter of the Singapore economy by amount of capital ,it’s important that anyone in any business capacity—from sales to operations—understands what they are and how they work.
PE and VC firms both raise pools of capital from accredited investors, and they both do so in order to invest in privately owned companies. Their goals are the same: to enhance the worth of the businesses they invest in and then sell them—or their equity stake (aka ownership) in them—for a profit.
PE and VC primarily differ from each other in the following ways:
- The types of companies they invest in
- The levels of capital invested
- The amount of equity they obtain through their investments
- When they get involved during a company’s lifecycle
Singapore Venture capital & Private equity Association promotes venture capital development and private equity in Singapore through business workshops, events and membership programs.Also, apart from private sources of funding, the Singapore government actively encourages the set-up of incubators and investments into startups through a variety of programmes. Initiatives led by governmental bodies such as SPRING Singapore and the National Research Foundation (NRF) seek to support local startups by leveraging the expertise of third-party investors and encouraging investments through co-investment schemes. Furthermore, the government allocates resources for venture investing through the Economic Development Board’s investment arm and Singapore’s two sovereign wealth funds, the Government Investment Corporation of Singapore and Temasek Holdings.
Private equity investment firms often take a majority stake—50% ownership or more—in mature companies operating in traditional industries. PE firms usually invest in established businesses that are deteriorating because of inefficiencies. By contrast, venture capital investment firms fund and mentor startups. These young, often tech-focused companies are growing rapidly and VC firms will provide funding in exchange for a minority stake of equity—less than 50% ownership—in those businesses.
How does venture capital work?
To raise the funds needed to invest in companies, VC firms open a fund and invite commitments from limited partners. Using this process, they’re able to draw from a pool of money that they invest into promising private companies with high growth potential. As companies grow, they go through different stages of the venture capital ecosystem. VC firms usually focus on one or two VC funding stages, which impacts how they invest.
The venture capital industry in Singapore is comparatively new and small compared to the US and Europe. Nevertheless, there are actually more than 100 venture capital firms in Singapore ranging from independent limited partnership venture capital firms to corporate-backed venture capital firms.
How does private equity work?
Similarly, PE investors also raise pools of capital from limited partners to form a fund—also known as a private equity fund—and invest that capital into promising, privately owned companies. However, the companies PE firms want to invest in usually look different from the startups VC firms get involved with.
For starters, private equity investors might invest in a company that’s stagnant, or potentially distressed, but still has growth possibilities. Although the structure of private equity investments can vary, the most common deal type is a leveraged buyout (LBO).
In Singapore, however, there are micro loan programmes instituted by the Singapore government under the auspices of Spring Singapore and IE Singapore that facilitate your taking of small loans from participating financial institutions like UOB, OCBC, DBS, Standard Chartered Bank.
How Bluebox can Help?
Our integrated team of specialists helps you focus on the key enquiries to develop and implement capital structuring transactions and raise capital in alignment with your goals.
Our single-source solution includes Detailed investment analytics reporting with performance tracking, attribution analysis, and exposure reporting allows you to access and monitor the performance of your investment with ease.
At Bluebox, we recognize that private equity is not just about the transaction but also about a continuous cycle of fundraising & portfolio management.
- We are able to provide investors and fund managers secure access to information anytime and from any device
- We provide industry-leading reporting to investors and managers
- Dedicated client-focused solutions tailored to your business in a competitive price.
PE and Venture capital funds increasingly need a wider range of skills beyond what is necessary purely for deals. Come talk to us about how our experience, deep sector expertise and in-country knowledge can make a difference to your business.