Nurturing Singapore's SMEs with the 'right' capital

Small-and-medium enterprises (SMEs) are the engine of our economy. Today, SMEs represent 99 percent of Singaporean companies, contribute more than 50 percent of the nation’s annual GDP, and employ about 70 percent of our workforce.

They are also an increasingly important driver of innovation and creativity in Singapore. This is most evident in emerging sectors such as information technology and biotechnology, where SMEs have taken the lead in exploiting new technologies and responding to rapidly evolving market needs.

While our SMEs have the potential to become the juggernauts of tomorrow, their growth is often challenged by many obstacles. It is not uncommon for SMEs to be trapped in a vicious cycle of survival-and-maintenance due to funding issues, a tight labour market, and rising business costs.

Access to funding is critical in determining whether an SME will be able to continue on its growth trajectory. Without capital, it is difficult to imagine how they can keep innovating and expanding. This creates urgency for efficient access to capital, which may explain why SMEs are often in a rush to list on the public markets.

A public listing may appear to be an attractive means of resolving funding needs. Unfortunately, when a business is still small and its operations not mature, it may not be resilient or robust enough to meet the rigour and demands of the public market.

The compliance obligations, costs, and management time required may not be best suited for businesses at this stage. These businesses will almost certainly do better if they were to channel their limited resources and capabilities in growing the business.

While SMEs need access to capital in order to fuel their growth, it is perhaps even more important that such capital is derived from sources that best complement their current phase of development. To that end, SGX has in place various initiatives to provide SMEs with efficient access to the 'right' capital.

These are targeted at providing early-stage SMEs with access to 'smart money' – money from experienced investors who bring with them expertise and connections to customers and markets. Indeed, it is widely recognised that 'smart money' is vital in accelerating the growth of early-stage SMEs to become bigger, better, and more innovative enterprises.

Take for example CapBridge, a platform dedicated to assisting high-growth, early-stage SMEs in raising capital more efficiently and effectively. On average, entrepreneurs today go through about 300 meetings with potential investors before attaining sufficient funds for their business. The CapBridge platform seeks to address such inefficiencies by matching SMEs with investors of the desired profile.

Beyond supporting CapBridge, the SGX has also partnered with industry groups, government agencies, and other crowdfunding platforms to provide SMEs and start-ups with more efficient, cost-effective, and sustainable access to capital at every stage of their growth.

In particular, a recently announced collaboration with SPRING Singapore aims to help SMEs enhance their financial management capabilities for sustainable business growth. SMEs that are keen to upgrade their capabilities in areas such as financial reporting and investor relations are encouraged to tap on SPRING's Capability Development Grant (CDG) to defray up to 70 percent of their qualifying project costs.

With the right support and 'smart money' behind them, SMEs can realise their full potential and eventually become sizeable enough to tap the public markets for capital. Numerous companies have done so using SGX Catalist, a sponsored regime suitable for both local and international growth companies.

Since its inception in 2008, 96 companies have successfully listed on Catalist, which translates to roughly one new Catalist listing every month. Once listed, the platform can also be used for secondary fundraising – In 2014 alone, about one-fifth of Catalist companies raised a total exceeding S$550 million via secondary fundraising efforts. Furthermore, 17 Catalist-listed companies to date have successfully transferred to SGX's Mainboard.

Key developments such as the integration of ASEAN markets and a rising middle class are creating significant opportunities for SMEs. The middle class in this region is estimated to balloon to 1.75 billion people by 2020 – a more than three-fold increase in just 10 years. It is therefore vital that SMEs position themselves to leverage these shifting dynamics, and tackle challenges obstructing their ability to do so.

The bedrock of Singapore's economy is not just multi-national corporations, but also SMEs which can someday become MNCs in their own right. By tapping on more efficient means of capital-raising and the various initiatives available to support their growth, SMEs will be better placed to develop, and entrepreneurs empowered to increasingly contribute to the economy.