Temasek-backed venture debt fund tokenises on ADDX

Singapore-headquartered electronic securities platform, ADDX, has fractionalised a Southeast Asia-focussed venture debt finance. Availability on the blockchain-enabled exchange democratises entry to the strategy, by reducing the fund’s minimum subscription size from $5 mil, to just $20, 500.

The investment vehicle, Innoven SEA Fund I, is managed by Innoven Funds, a joint venture (JV) between Temasek part, Seviora, and Singapore-headquartered United Overseas Financial institution (UOB).

Anchored simply by an aggregate $50 million commitment from your JV, the fund is one of 3 country-specific strategies maintained by the general partner (GP), Paul Ong, partner at Innoven Capital, told FinanceAsia . The others focus on India plus China , respectively.

He explained that the fund provides endeavor debt funding in order to high-growth start-ups and technology companies headquartered in Southeast Asian countries. In terms of investment focuses on, the GP evaluates deals with a cumulative value of close to $150 million, and Ong expects the account to make between fifteen to 25 opportunities in total, with focus on commitment sizes varying between $1-10million for each investment. Committed investors include strategics plus institutionals, he verified.

Venture debt is a type of debt financing for companies that are still dependent on venture capital funding to grow, the particular announcement explained. Mortgage sizes can go up in order to 30 percent of an collateral round or cash in bank, and they are supplied based on factors including the strength of the start-up’s shareholders, the quality of its management team, along with the firm’s competitive advantage.

Notably, venture financial debt is less dilutive than equity financing, as it does not need owners to give up a portion of their respective stakes.

For those companies seeking to defer their following equity fundraise designed for reasons including time and market conditions, venture debt could be used as a tool to raise extra funds and extend cash runways between fundraising rounds, ADDX TOP DOG, Oi-Yee Choo, informed FA .

To date, the particular fund has committed to companies operating throughout Indonesia, Malaysia, Thailand and Singapore; plus across industries including e-commerce, fintech, tech-enabled consumer, automotive and logistics, she verified.

“The fund invests in these companies via debt instruments, predicated on the amount of equity capital that they have raised and the strength of the venture capital investors. Via these debt equipment, the fund generates a steady fixed income return, but also obtains equity warrants within companies, which offer additional upside to the general return, ” the girl said.

Choo added that the underlying purchases in a venture financial debt fund are generally firmly structured loans which are to be repaid inside one to three years.

Start-up sweet spot

Based on the release, venture financial debt deals account for around 25 percent of investment capital funding in the US, yet this figure currently sits at less than 5 percent in Southeast Asia. However , both Choo and Ong see the Asian opportunity debt space to be poised to grow.

“In general, increasing interest rates and economic uncertainty have led to a sell-off in public markets, decreasing equity value and a pullback within venture capital funding internationally this year. In Singapore, venture capital funding fell 30 percent in the first half of 2022, compared with the same period last year, ” Choo noted.

“That said, with the start-up scene in the region gaining pace , there is room to get exponential growth on the next 12 to eighteen months. ”

“The outlook for 2023 is positive just for Southeast Asia. The decline in collateral financing has put pressure on start-ups, who are contending with shortening runways plus widening funding spaces. This makes debt financing more attractive, ” she explained.

Ong concurred, adding that will given the current macroeconomic conditions, in the close to term, the benefit of venture debt may continue to draw curiosity. He told FA that Innoven Capital has seen heightened interest in fixed income and private credit this year, great team believes this particular trend will keep on into 2023.

“On the investor front side, in a risk-off environment, and with a global slow down in initial general public offerings for the short to medium phrase, venture debt could become the sweet place between growth and income, ” Choo concluded.
 

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