Getting Money for your Business: Post NOC
So you finished the NUS NOC Programme. Armed with passion and an idea that you think addresses a significant problem in the world, how will you bring it to fruition?
There is, in my opinion, three main ingredients to create a pot of gold. The talent, the relationship and the money. In my journey through NOC, I came across people who believe that he or she has all three ingredients. That may hold true but i believe only a very small population of the entire human race fits the bill. I am of the opinion that everyone will benefit more by having co-founders. I find that individuals with some technical backgrounds are most guilty of this thinking.
Yet that discussion is fit for another post. This post is all about chasing the money. Of course, if you are a wealthy individual and have significant financial support from your extended family, this post is unlikely to be relevant for you. Instead, I believe that it is more likely people are chasing you for the money.
There are many posts already on the internet on where to get money, so I focus instead on evaluating them. I came across a good one on TechinAsia, you can read it here. I suggest reading this because i assume basic knowledge of venture funding from this point onwards. And no, it really isn’t that complicated.
The Money flows Slowly when in College
You return to Singapore (or is still in Singapore because you attended NOC Singapore) and want to start. The reality is that you still have at the very least, a semester of classes to attend. You will have to balance studies and your business. Is that an easy thing to do? No, though some extraordinary individuals can.
The nature of your situation makes you ineligible for a number of potential fund opportunities; Venture Capital funding is almost always out because they seek strong commitment. In fact, I once got a blunt reply from a Principal at a VC Firm that; “We do not invest in Students.”
I am also of the opinion that Angel Funding will be unavailable to you. High Net worth individuals usually have the same investment decision procedure as a Venture Firm. However, if you already have a close connection to an angel, this funding option may work. Do note that they are in essence investing in you as an individual as your business idea is not validated at this point in time. Reckless spending will probably sour your relationship and potentially harm your reputation.
The Government can Help if you Want
Consider approaching the Singapore government. Tailored for new start ups at very early stages, there is a Grant known as the ACE Startups Grant. It provides up to SGD 50,000 of funding for first-time Singaporean entrepreneurs. To show commitment, you need to pump in SGD 3 for before they fund you SGD 7. So if you put in SGD 3,000, the government adds in SGD 7,000 to your business. This scheme takes no equity as well.
Of course, this money will be time consuming to get as you will need to craft more detailed business plans, meet more often with government officials and actually have some extra cash to put into your venture. You need to evaluate if you can actually commit to this given your school commitments. You can get more information here.
Consider an Accelerator/Incubator
As the name suggests, these are places that provide all the necessary help that you need to make your business succeed. Typically, you approach them with an idea and a small team and wait for approval to join. If a partner at an accelerator agrees to work with you, you join the program and will be lump together with other start ups that also got in. Collectively, everyone will be known as Batch ‘XXX’, usually a number.
These programmes usually provide some sort of funding. TechinAsia has an article here that lists the amount they provide, ranging from SGD 5,000 to 45,000. The catch is that these programme takes equity and in my opinion, too much. Some programmes provide SGD 25,000 for about 6–7% equity stake. Compare this to USD 118,000 for 7–10% equity that Techstars, a top notch accelerator in US takes, with an equity back guarantee if you think you do not benefit from the programme.
I am of course, not clear on the additional network and help that the respective incubators and accelerators provide. These might tip the scale a little and make a seemingly adequate argument on why as an entrepreneur should accept less money for more equity.
Yet there is a reason why ‘Cash is King’. Bottomline, it supports the monthly rate of money your business uses, known by Venture as your Burn rate. An Amazon Web Service subscription for 3 years is not useful if you cannot pay yourself or your employees.
Accelerators are best for founders with no adequate network and prior know hows in the start up scene. A well connected accelerators with the right links to institutions and important individuals operating in your field will be extremely valuable; more than the amount you first receive. Nevertheless, with so many accelerators in Singapore, I suggest shopping around and talk to founders who previously went through the programme.
On the funding side of things, scrutinise the term sheets. There is a difference between 7% equity stake and 7% convertible note. Your early decisions with the accelerator may haunt you in later rounds of funding or operations.
Accelerators are programmes that last between 3–9 months. You just might be able to fit one into your NUS Curriculum if you plan well.
NUS just may be your Best Option
The best option for almost all NOC students is what NUS offers. NUS provides the Innovation and Entrepreneurship Practicum Grant, worth a total of SGD 10,000. The catch is that you need to put in SGD 1,000 to signal your commitment. The best part is that this is a pre-seed incubator fund that do not take equity from your business. For businesses with a NUS alumni, there is an alumni version called the NUS Alumni Start Up Catalyst with the same terms.
Any help with no equity terms is great financially. Of course, do note that you basically get into the NUS Enterprise ecosystem and will have to constantly update on your progress. In addition, lifestyle businesses, which generally are non-technology related, probably do not qualify. I have a good friend from NUS who wants to get into the coffee business but i doubt the grant will support him.
The NUS incubator is the only University in Singapore which provide a funding option on top of the extra services that will be provided. NTU and SMU have incubator programmes but no mention of financial assistance to start ups.
Get Comfortable with Using Other People’s Money
With all this talk about getting money, perhaps the largest elephant that needs to be addressed is the concept of being comfortable to use someone else’s money. The ‘mentally of saving for rainy day’ and ‘do not spend beyond what you make’ resonates rather strongly in our part of the world. This translates into many early first time entrepreneurs choosing to bootstrap or raising small amounts of money from friends and families, for the fear of taking on too much liability.
Yet this is start up. You are trying to build the next big thing that will make the world fundamentally different. Start ups grow at a rapid pace. This is a high risk venture that unfortunately requires high amounts of money due to high burn rates. What you will get from bootstrapping will not be able to sustain it. While some will use the Mailchimp story to claim otherwise, it should be seen as an outlier than the norm. (Read the story here)
So go forth and raise money. It is an important component of your start up business that unfortunately, i think many do not give enough thought and time to it. Yet if you get it right, you just might get that pot of gold.
