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Global study shows they are a more important source of funds
than VCs
By THE government should consider tax incentives to encourage 'informal'
investors - not just venture capitalists (VCs) - to fund start-ups, as a
global study shows that such investments are five times more important
than VCs as a source of funds, said Professor Wong Poh Kam at NUS' Centre
for Entrepreneurship. 'There's some misunderstanding by policy makers on the importance of
VCs since only about one in 10,000 businesses are funded by VCs. Most new
businesses have nothing to do with VCs,' he said at a seminar yesterday to
present the Global Entrepreneurship Monitor. The study found that informal investments in start-ups totalled more
than US$300 billion last year in the 37 countries surveyed, compared to
US$60 billion invested by VCs. Informal investors - usually family members
or 'angel' investors - are also likely to have invested smaller sums,
which explains why only one in 10,000 start-ups have VC funding, explained
Prof Wong. Singapore, he noted, is promoting the VC industry such as through its
$1 billion Technopreneur Investment Fund which co-invests with VCs. But it could also consider tax incentives for angel investors, like
those in the UK which allow them to offset losses in one investment
against profits in another investment when filing their taxes, he said.
'We should try to encourage the growth of angel investors,' he said. Overall, in all 37 countries surveyed, VC investment halved from 2000
to 2001, from 0.5 per cent of their combined gross domestic product to 0.2
per cent. 'We expect a further drop this year,' he said. But Singapore still ranks high in VC investment as a percentage of GDP,
coming in fifth in the study after South Korea, Israel, Canada and the US.
Last year, VCs in Singapore invested some $384.4 million in 73 firms. But the study also found that the rating for Singapore's environment
for entrepreneurship has generally declined over the last two years. In Singapore, those most likely to start a business are male, between
25 and 34 years old and educated up to junior college level, Prof Wong
said. 'This is different in Singapore from what is observed worldwide where
the higher the level of education, the higher the entrepreneurship rate,'
he added. The opportunity cost for graduates here to start their business is
higher, with the brightest offered scholarships from the government and
large corporations, he noted. 'We should revisit the debate on how to get
more graduates to be entrepreneurs,' he added. Some 2,005 people were surveyed in Singapore while the NUS team
conducted interviews with 36 entrepreneurs, investors, government policy
makers and venture support professionals. The global study found that Singapore ranked 21st out of the 37
countries for Total Entrepreneurial Activity, which dropped significantly
in most countries in the last year. The 36 industry practitioners interviewed ranked Singapore highly on
its government programmes and physical infrastructure but felt that
primary and secondary schools here do not encourage creativity, self
sufficiency or personal initiative. They added that new and growing firms do not have access to new
research and technology, and that the local culture supports individual
success but discourages entrepreneurial risk-taking. As Jeffrey Goh, a young entrepreneur, recounted: 'After I set up my
second business, my mum came up and said: 'Jeff, when are you going to get
a real job?'.' Copyright © 2002 Singapore Press Holdings Ltd. All rights
reserved. |