Venture Debt Programs Prevalent in Asia
Feb 07, 2017

Business-to-business FinTech investments are growing at a rate of knots in Asia. Just recently we have seen a plethora of online procurement (eProcurement) and multinational payments transfers taking place. Of course, there are many examples of such activity including BuyerQuest which recently received a $4 million investment from Bridge Bank. BuyerQuest is based out of the US and it is a procure-to-pay online platform. It is tasked with linking procurement-type activities with companies. This was a major milestone in this new form of venture debt financing and it was announced on Wednesday, 1 February 2017.

Another impressive electronic procurement company is known as Tradeshift. This company’s services went active on Monday, 30 January 2017, and it is collaborating with other entities to create source-to-pay solutions for companies in Asia. The company that invested in Tradeshift is Wipro Ventures, but no details of the actual amounts have been publicized. Despite these major programs, there are other massive venture capital funding initiatives taking place. One such example is Tricentis. It managed to raise $165 million from venture capitalists as it hopes to compete with the likes of Hewlett-Packard Enterprise and Microsoft. The money came from Insight Venture Partners in a Series B funding initiative.

The challenge for many startups across Asia is how to raise the necessary capital without giving away too much equity of the company. This is a problem that is shared with companies around the world. Southeast Asia is a hotbed of activity for early-stage investment. The problem is everyone wants additional capital, but they refuse to give up too much of their stake in their own startup. One of the major advantages of using venture debt is that you don’t need to place a valuation on your company to receive the funding. You borrow a lump sum of cash and it gets paid back at some future point. Of course, there is interest that needs to repaid on the money. But not just any company can receive venture debt – it’s typically limited to companies that have already secured a single round of financing in the past. In other words, there has to be a benchmark of unofficial credit worthiness before any funds will be available in the form of venture debt.

The Asian Tigers Roar with Venture Lending Initiatives

Companies tend to prefer venture debt as it allows them the opportunity to retain their equity, and it proves to be a more affordable form of financing. Recently, a government agency known as SPRING in Singapore announced a venture debt program along with 3 banks. One of the banks, UOB has been engaged in venture debt offerings since 2014. The ambitious undertaking with these banks is expected to raise upwards of $355 million by the end of 2018. One of the companies which is banking on venture debt is 123RF. It sports 12 million MAUs (monthly active users) and 1 million paying customers. Venture debt is hugely popular in Asia, particularly in the Philippines, Shanghai, Singapore and Malaysia. It is prevalent at all verticals of the tech industry, according to InnoVen Southeast Asia.

Venture debt programs have widespread applications throughout a company’s lifecycle stages. At its core, venture debt is a loan that companies can use to provide the necessary ‘financial firepower’ to cross a threshold with fundraisers. It allows companies to purchase hardware, software, headhunt the right human capital etc. Venture debt programs also have the added advantage of not diluting ownership of the company, since the money must be repaid. No equity is taken in exchange for the venture capital that is provided to the company. Many startups across Asia, and around the world are limited as to how much they can borrow from traditional banks and financial institutions. With venture debt, there is less emphasis on collateral. This does not mean venture debt is a free pass to free cash. It isn’t – the money needs to be repaid at a point in time, but less guidelines are in place as to when the money will be repaid or how the money must be repaid.