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SPRING Singapore has launched a new tax scheme to encourage angel investments in Singapore start-ups.

The launch of the new Angel Investors Tax Deduction Scheme by SPRING Singapore spells good news for Singapore start-ups who may no longer have to struggle for financing their business ventures. Under the scheme, approved angel investors who make equity investments of at least S$100,000 in eligible start-ups in a given year will qualify for a 50% tax deduction of the investment on their incomes at the end of a two-year holding period, subject to a cap of S$500,000 of investments in each year of assessment. The scheme is valid for investments made from 1 March 2010 to 31 March 2015. The angel investor must a) make the investment at an individual level, b) demonstrate the ability to nurture investee companies, and c) take up a board seat / advisory role in the start-up for the entire holding period.

The tax scheme is set to boost angel investment activity in Singapore and nurture more innovative Singapore start-ups. With the new scheme in place, SPRING Singapore hopes to bring in angel investments to the tune of S$600million by 2015.

Raising private equity is a challenge for most start-ups. Traditional sources of finance such as co-founders, family and friends are limited and banks or finance companies are unlikely to provide start-up funding as they usually provide loans only on a secured basis. That leaves start-ups with venture capitalists and angel investors. Since most venture capitalists in Singapore tend to invest only in high growth, late-stage start-ups, angel investors are the primary source of funding for early-stage start-ups. Business angels not only offer seed funding but also help nurture and groom start-ups by mentoring them, providing access to valuable connections, bringing in networking opportunities, etc. According to Mr. Tan Kai Hoe, Deputy Chief Executive, SPRING Singapore,

“Many start-ups begin with lean operations and find it difficult to engage business talent to help them develop the right strategies or connect to the right markets. Angel investors play a critical role in bridging this gap by bringing along their business skills, industry expertise, and business contacts that are invaluable to help in the start-ups’ growth.”

The rise of Asia is likely to spur the growth of business angels and Singapore start-ups can potentially benefit from them. According to the 2010 Merrill Lynch-Capgemini World Wealth Report, China and India are home to the world’s fastest growing group of millionaires. It is said that most of India’s and China’s wealthy individuals are entrepreneurs who have a high-risk appetite for alternative investments. In the aftermath of the economic crisis, more wealthy individuals are investing in private businesses where they have a better chance of returns rather than investing in public markets. By encouraging more angel investors to invest in Singapore’s numerous start-ups, the government fosters a pro-enterprise environment helping start-ups to grow and take their business to the next level. Thanks to the new angel investors tax incentive scheme, entrepreneurs who choose to incorporate a Singapore company will soon have more business angels to turn to for their early-stage funding requirements.

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