Singapore’s startups will have significantly better odds of staying afloat with the government shouldering 75 per cent of their local employees’ wage costs over the next month, venture investors said on Monday.
The boost in support for businesses was announced by Singapore Deputy Prime Minister and Minister of Finance Heng Swee Keat as the country prepares for its most stringent social distancing restrictions so far to try to curb the spread of the COVID-19 pandemic. Beginning for a month on Tuesday, non-essential workplaces will be shuttered while dining-in will be prohibited at food establishments in Singapore.
Heng also said that the government will enhance relief for self-employed persons, which include private-hire drivers and freelance workers, including widening the eligibility criteria. Monday’s measures — mostly limited enhancements to already-announced plans to mitigate the tighter restrictions — will bring Singapore’s pandemic-related fiscal spending to S$59.9 billion ($41.8 billion), or 12 per cent of the GDP.
Quest Ventures partner Jeffrey Seah described the wage relief as a huge lifeline for startups in Singapore. Startups typically raise money for 12 to 30 months’ runway, he explained. Well-run companies might see that runway halved under current conditions, while the more average ones might see it cut to less than six months.
But the well-managed startups can potentially extend their runway by up to 12 months at this moment by cutting costs and finding more capital, while those that are over-valued and facing collection issues will struggle to get additional funding, Seah said.
Saving three-quarters of wages is, therefore, significant.
“It allows startups to conserve cash, not just to keep their staff, but to direct them to capability building work to return stronger-moated to the market when COVID-19 is finally managed,” Seah said.
“This is life-saving for all the startups domiciled and staffed in Singapore. It is a deliberate and resolute demonstration of the Singapore government’s determination to preserve the (commercial and) startup hub that is Singapore.”
Through a team statement, seed-stage specialist Cocoon Capital said that it normally requires that startups make their seed funds last for 18 months.
“This gives them sufficient time to experiment and develop product-market fit so that they are ready for a Series A,” Cocoon said.
The firm currently expects the recession from the pandemic to last for at least 12 months, which would make this a far worse crisis than the 2008 financial meltdown. Cocoon has, therefore, advised its portfolio companies that are currently fundraising to extend their runway to at least 24 months with the same amount of funding, while those that have already received capital to try to make those funds last until the second quarter of 2021 by cutting costs or seeking smaller bridge rounds.
“The additional support will go a long way towards helping local startups as salaries account for a large part of their cash burn,” Cocoon said. “Many startups already run a very lean ship and the extra support will help them keep everyone employed.”
Even with the additional support, many startups will have their work cut out trying to make it through the pandemic.
Cocoon is asking its startups to assume no further revenue in 2020, to cut pay across the board and to find ways to reduce fixed costs. Companies also need to assess their ability to collect from customers.
“We ask companies to do a cash flow sensitivity analysis understanding that customers might potentially default or delay invoice payments,” Cocoon said. “To build goodwill with customers, we encourage companies to offer discounts and payment flexibility. The current customers will be crucial for helping companies pull through this crisis and in the time that follows.”