Startups in Southeast Asia are beginning to favour venture debt as they seek to extend their runways or obtain financing without diluting shareholder equity.
The potential venture debt opportunity in the region is pegged at between $490 million and $980 million annually, according to PwC projections. The estimates are based on SE Asia’s three-year average of venture funding ($9.8 billion per year) and a 5-10% share of the total pie.
In SE Asia, venture debt is still a relatively young asset class but is steadily getting recognition. According to a study by Kruze Consulting, venture debt comprised just 1-3% of overall venture funding in Southeast Asia, compared with 10% in the US, in 2019.
Recognising the importance of venture debt, the Singapore government in February extended and enhanced its Enterprise Financing Scheme – Venture Debt programme to support the growth of later-stage enterprises. The government raised the maximum loan quantum from S$5 million to S$8 million for new applications from 1 April 2021.
Experts see Southeast Asia’s startup ecosystem following in the footsteps of India, where businesses have actively tapped venture debt to finance their growth and expansion over the last decade. In 2020, venture debt financing was estimated at approximately 8% of total venture funding, or worth approximately $800 million, in India, up from between 4% and 5% in previous years.
As a result of this growth, India’s venture debt funds have attracted greater interest as investors seek to hedge themselves against riskier pure equity bets on startups. The total amount raised by venture debt funds from private equity and venture capital debt funds jumped from $62 million in FY 2019-20 to $85 million in FY 2020-21, according to data from Venture Intelligence.
Recent venture debt fund closes in India and SE Asia
In April, Genesis Alternative Ventures, a Singapore-based venture debt firm, closed its debut fund at $80 million, exceeding its target of $50 million. The fund, Genesis Alternative Ventures Fund I, was anchored by Singapore’s Sassoon family.
In December, Alteria Capital announced plans to close its second venture debt fund by the first half of this year, eyeing a ₹1,000 crore ($134 million) corpus with a green-shoe option of ₹750 crore ($101 million).