Temasek and DBS Bank will jointly launch a $500-million growth-stage debt financing platform aimed at serving technology companies in China, India and Southeast Asia, the two firms said in a press statement.
The Singapore-based platform will be called EvolutionX Debt Capital or EvolutionX and will invest in tech-enabled companies from a range of sectors including financial services, consumer, healthcare, education and industrial development.
EvolutionX serves as a “natural extension and segue” to existing early-stage debt products offered by Temasek and DBS Bank, the statement added. Temasek currently offers venture debt to early-stage tech startups via InnoVen Capital, a subsidiary of Temasek-backed asset management group Seviora Holdings.
“The investment in EvolutionX provides an opportunity for us to play an integral role in nurturing and financing the growth of Asia’s future unicorns while forging partnerships and ecosystem opportunities with these high-growth technology-enabled companies,” said Tan Su Shan, Group Head of Institutional Banking, DBS.
“Temasek believes in the purposeful use of our capital to create and catalyse solutions for gaps we see today, to stimulate innovation and growth for long-term, sustainable value. We’re pleased to partner with DBS to provide a meaningful alternative for technology-focused growth companies in Asia that may face debt funding needs between the venture debt and late-stage debt financing phases,” said Temasek’s chief investment strategist Rohit Sipahimalani.
The platform will be led by joint interim CEOs Amit Sinha, Group Head of Telecoms, Media and Technology, Institutional Banking Group at DBS; and Aftab Mathur, Director, Investment (Innovation) at Temasek. A full-time CEO will be appointed in the next few months.
In Southeast Asia, venture debt remains a young but rapidly growing investment class, as more tech startups look to extend their runways or turn to non-dilutive ways of raising capital.
According to PwC, the potential venture debt opportunity in Southeast Asia was pegged at between $490 million and $980 million annually, based on the region’s three-year average of venture funding ($9.8 billion per year), and a 5-10% share of the total pie.
There’s still plenty of room for growth as well.
A study by Kruze Consulting showed that venture debt comprises just 1-3% of overall venture funding in Southeast Asia, compared to 10% in the US. This has led to a number of newly-formed venture debt firms in Southeast Asia, all looking to capture these growing needs by tech firms for this niche product. Some names include InnoVen Capital, Genesis Alternative Ventures, Alteria Capital and Abound Capital.
The Singapore government has also followed up with its own venture debt offerings this year, further validating this asset class. In February, it 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.