Singapore’s Abound Capital is currently in the market to raise funding for its maiden venture debt vehicle as it gears up to invest in early-stage startups, said two sources privy to the matter.
The firm, established last year during the peak of the pandemic, got the fund management licence from Monetary Authority of Singapore earlier this year.
The development signals the growing importance of venture debt funding as a strong asset class as startup promoters scout for ways to keep their equity intact while raising capital.
When contacted, Jared Baragar, co-founder and partner at Abound Capital declined to comment on the development. However, sources said that the firm is in talks to raise a corpus as high as an eight-digit number that could make it amongst the top three venture debt players in Southeast Asia.
Abound Capital, founded by JinA Bae and Baragar, plans to invest in Series A rounds of startups across diverse sectors and clock deals in categories where firms such as Genesis Ventures and InnoVen Capital typically operate.
Before co-founding Abound, Baragar was the chief strategy officer of online SME lender Taralite, wherein he negotiated the company’s acquisition by OVO, Grab’s e-money arm in Indonesia. Meanwhile, Bae served as the head of corporate venture at Hanwha Asset Management, part of Korean conglomerate Hanwha Group.
Venture debt gains ground
More and more venture debt funds are mushrooming in Southeast Asia as they gear up to get a slice of the burgeoning startup ecosystem in the region. Venture debt refers to a term loan with a life of 24-48 months, with an average term of 36 months. Its interest rates vary from 14-15 per cent per annum.
“Venture debt is a financing arrangement that is complementary to venture capital. Its main advantage over traditional venture capital is that it is non-dilutive. Although the venture debt market is so far underserved, we are advising a number of new entrants to the market,” said Joel Shen, partner at global law firm Withers.
Recently, Singapore-based private lender Genesis Alternative Ventures, set up by ex DBS venture debt team, made headlines for closing its $80 million debt fund, exceeding its earlier $50 million target.
Prior to that, Indonesia-headquartered InnoVen Capital, that provides debt to startups across India, China and Southeast Asia, raised $200 million from Singapore state-owned investment firm Temasek and United Overseas Bank.
And, it is not venture debt funding alone that’s gaining steam in Southeast Asia. Those offering different forms of non-equity options are also being embraced by startups who are finding it difficult to access debt from banks due to risks of early-stage businesses, bank requirements of collateral, and lack of credit history, among others.
“The startup landscape in Southeast Asia is maturing and business owners have become more sophisticated in their use of capital, creating more demand for non-dilutive capital beyond venture capital and bank lending, says Shaw Yean Lim, CEO at Hustle Flywheel, a platform established in 2019 to provide revenue-based financing to early-stage businesses. “We believe that startups should have a non-dilutive capital option to grow their businesses,” she added.
Last year, Singapore-headquartered mobility group Goldbell launched Polaris under its financing arm, to offer funding through innovation in debt structure to help startups weather disruption in the economy caused by the COVID-19 crisis.
Polaris offers flexible financing solutions that are different from venture debts, categorized as fixed-term loans. It has invested in 15 startups so far since its inception in 2020.
“Our venture debt solutions include revenue-based financing; supply chain financing; buy now, pay later and inventory financing model,” says Alex Chua, chief executive officer at Goldbell Financial Services.
Alternate financing seldom comprises equity dilution by founders and promoters, and hence acts as a protection for cash-hungry startups. Besides, they are cheaper modes of fundraising than equity.
Indies Capital, an alternate asset management firm, which is known for making mid-sized equity investments, has also started offering alternate structured equity financing similar to venture debt over the past one year, with transactions being routed through Indies Special Opportunities Fund 3.
“We offer structured equity solutions to companies at mid to late stage as an alternative to pure equity financing by providing loan product with equity upside sharing,” said Harold Ong, partner at Indies Capital Partners .
The firm typically targets companies at growth stage, with its investment size spanning from $10 to $50 million per transaction. Indies has clocked three debt deals in the past one year that includes the one in e-commerce enabler Acommerce.