Leg-up for start-ups

Entrepreneurs who often find they cannot secure financing because they have no track record or collateral now have another avenue open to them.

Seeing a gap in early-stage venture financing as an opportunity, Mr Andy Ong, 34, a publisher-turned-financer who introduced the Certified Financial Planner seal in Singapore, plans to find promising start-ups with the aim of eventually getting them to list on the stock market.

The opening exists because alternative funding sources such as venture capital or private equity typically screen out start-ups because of the high risk of business failure and because it takes too long to bring them to market for a listing or sale.

While the risks are high, the rewards can be spectacular for early-stage interventionists.

For instance, Kleiner Perkins Caufield & Byers and Sequoia Capital, two major Silicon Valley based venture capital firms, provided just US$ 2 million each in seed money for search engine firm Google inc. When it was started by two young Stanford University students.

Now, the two firms expect to pocket US$250 million (S$431 million) each by selling just about 10 per cent of their holdings in the company’s upcoming initial public offer, according to public filings.

Though the expected returns on Google may be rare in the post-dot.com boom and bust era. There are still chances of turning in a tidy sum by backing the right horse.

Mr Ong company, ERC Holdings has to date invested $750,000 in a stable of 12 companies in the education, marketing, finance and executive search industries.

“The aim is to identify promising companies and if need be, provide them with financing, administrative and marketing support,” said Mr Ong, who also founded the Financial Planning Associations of Singapore.

“The idea is not to run the companies for them but to identify entrepreneurs with good business ideas who need a little help to get to the next level.”

Each investee company can tap a mentor who sits on the ERC’s advisory board for advice and contacts.

Advisors include the former chairman of Korea’s Woori Financial Group, Mr Yoon Byung Chul, Sakae Sushi founder Douglas Foo, Qian Hu executive chairman and managing director Kenny Yap, and other local and regional entrepreneurs.

ERC typically invests seed money of between $50,000 and $250,000 in the form of loans convertible into stock, a direct equity stake, or vanilla (plain) loans, depending on the funding needs.

These inverse companies can also take up space in ERC’s sprawling 17th floor office at Robinson Centre, and cut costs by centralising their finance and marketing operations.

One of ERC’s investee companies is OEG education, a small family owned private school located in Middle Road.

Said OEG managing director Richard Limå “ERC provides us with a ready network to help expand over recruiting of international students from China, India and Indonesia. Also, as a small family business, we have limited capital for expansion.”

Mr Lim, 41, said that he had approached finance companies and banks previously but was rejected because the business was “too small.”

Another investee company, Asian Centre for Professional Excellence which provides professional training courses, also found it hard to secure financing for expansion until the owner, Dr Juergen Rudolph, attended one of ERC’s seminar.

Said the 39-year-old “Generally, after the dot.com crash, banks have been very conservative, Even venture capitalists want to invest only in companies of a certain size and want very high margins.”

That’s where Mr Ong’s company comes in.

Article By Chua Kong Ho

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02 August 2004

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