Genesis

Over the past two years, we have seen how the global pandemic adversely affected companies across a wide range of sectors from the implementation of lockdowns and travel restrictions, to an increase in the visibility and transparency of supply chains. Despite being a difficult year for numerous businesses, many startups, especially in the Southeast Asia region have powered through.

While the global pandemic will eventually recede, the impact of business decisions made during these pressing times will go a long way. Startups that raise capital and have a spare dime for rainy days like these will have an edge.

Cash Burn J-Curve

One of the most persistent challenges for startups is to sufficiently capitalize the business from the inception of the company until profitability. US startups have had the good fortune of leveraging on venture debt for several decades. Despite a very challenging Covid year in 2020, startups in the US received debt financing valued at more than $25 billion^[1], the third consecutive year for the market to surpass $20 billion in venture loans.

Most startups traditionally utilize equity as their source of capital and go on to raise billions of dollars to fund the J-curve growth of their business. The J-curve is commonly used to illustrate the tendency of a startup company to produce negative net income initially, and then deliver accelerated positive results as the company matures. The negative net income area above the “J” represents the total cash needed to achieve profitability and the typical startup company will take at least six years before becoming profitable.

Fig. 1 – J Curve

Source: https://pitchbook.com/news/reports/q1-2021-pitchbook-analyst-note-venture-debt-a-maturing-market-in-vc

Blend of Venture Equity and Debt Capital Markets

As venture debt has emerged in Southeast Asia, an increasing number of companies have deployed debt financing to complement equity rounds. To date, there are about 80 – 100 Southeast Asia companies that have already benefited from venture debt.

Genesis Alternative Ventures is a Singapore-based venture debt fund that invests debt capital into promising early-growth startups that are expanding their business presence across Southeast Asia. We will feature 2 Genesis portfolio companies – Horangi Cyber Security and GoWork and share their venture debt journeys.

Example 1. Horangi

Founded in 2016, Horangi is a cybersecurity company that provides security support for enterprises in Asia against cyberattacks through its suite of products and professional advisory services.

Venture debt became a useful, less-dilutive tool for Horangi as it enhanced its cloud security products, increased its talent pool and acquired customers through sales and marketing activities as part of their growth and expansion plans. “As a startup with a short operating history, it is almost impossible to get normal bank loans, which is where venture debt fills in the gap.” Horangi was also looking for partners who could add substantial value to their business and “partnering with strategic investors like Genesis will help propel our next growth stage,” said Paul Hadjy, CEO and Co-founder, Horangi.

“As Horangi scales its business, choosing a venture lender who is committed and understands the business is critical. It’s not only about access to capital, but also the flexibility and the invaluable network that Genesis brings along.” – Dr. Jeremy Loh, Managing Partner of Genesis Alternative Ventures.

Example 2: GoWork

Founded in 2016, GoWork is a leading premier co-working space operator in Indonesia.

“Co-working is not a category anymore, it’s just how people work. It’s a matter of time when every office building or mall in Jakarta will need a space.” For GoWork to double down on its focus on Jarkarta and reach over 100,000 sqm by 2020, the company took on venture debt to fund its working capital. “We wanted to have diversification in our capital structure without incurring dilution,” said Vanessa Hendriadi, CEO & Co-founder, GoWork.

Not only does venture debt help with working capital needs, but entrepreneurs are also seeking “more efficient capital and putting in place additional capital buffers”. – Martin Tang, Co-founder of Genesis Alternative Ventures.

Venture Debt Moving Forward

Venture debt offers an additional channel of financing for entrepreneurs who want to leverage debt financing to balance the cost of capital. Venture debt is set to play a bigger role as more startups are growing amid a global pandemic and are looking for ways to raise additional capital without significant dilution to their equity stakes.

To find out more about venture debt, access the Southeast Asia Venture Debt Industry Report 2021 co-authored by Genesis Alternative Ventures and PwC Singapore here.

^[1] https://pitchbook.com/news/reports/q1-2021-pitchbook-analyst-note-venture-debt-a-maturing-market-in-vc

Founded in 2015, Deliveree is a full service on-demand ground logistics marketplace platform powered by sophisticated mobile and web app technology that allows businesses to book and manage ground transportation of goods, cargo and merchandise. At the moment, Deliveree has about 90,000 active drivers.

Recent News: Deliveree Logistics has raised a total of $38.8M in funding from 7 investors, including Genesis Alternative Ventures.

Deliveree also aims to generate better income through its Driver Partner Benefits Program by lowering the costs of maintaining their vehicles which supports United Nations’ Sustainable Development Goals (Decent Work & Economic Growth, Goal 8). Employee data suggests that active drivers have seen a good improvement in earnings and corresponding standard of living.

“Deliveree is helping me save to start a family.” – Ari Susiyanto, Deliveree Driver Partner	“Deliveree has more than doubled my earnings. Now I can make more choices.” – Tarsan, Deliveree Driver Partner	“I struggle less with money each month since working with Deliveree.” – Pattana Juntakarn, Deliveree Driver Partner
Income Improvement 207%	Income Improvement 261%	Income Improvement 168%
Greater Jakarta, Indonesia	Greater Jakarta, Indonesia	Ladprao, Bangkok, Thailand

“Venture debt is a great financing option. It blends perfectly with the equity round and can help maximize a company’s valuation,” said Gagan Singh, Chief Financial Officer, Deliveree.

“We have a great working relationship with Deliveree and we are impressed with their commitment to improving the lives of their driver partners. Genesis will continue to support companies with impact objectives that are looking to scale Southeast Asia.” – Eddy Ng, Head of Investments & Portfolio of Genesis Alternative Ventures.

Founded in 2016, Flow is a credit management company that is transforming the business of unsecured consumer finance through AI technologies and ethical practices in Asia. Flow is constantly looking out for opportunities to promote responsible collection and financial inclusion to empower consumers in underserved economies.

Recent news: Earlier this year in March, Flow became a member of Asosiasi FinTech Pendanaan Bersama Indonesia (AFPI). With this alliance, Flow will be in a stronger position to transform the credit ecosystem in Indonesia through literacy movements and ethical collection.

Flow supports United Nations’ Sustainable Development Goals (Industry, Innovation & Infrastructure, Goal 9). In the last year alone, Flow has created 362 full time and part time jobs per portfolio company. From which, 50% of these job positions are filled by women. Flow has also helped more than 150,000 borrowers.

According to Flow, the problem of debt bondage can become a time bomb, especially during a pandemic. To combat this, Flow recently organised a Financial Literacy Webinar titled “Financial Literacy & The Responsibility of Financial Institutions” to provide financial literacy education for the wider community in Indonesia.

On top of that, Flow will be launching a new function, FlowCares. Through FlowCares, borrowers will be able to access a self-service portal powered by AI which allows the borrower to bypass uncomfortable conversations with another human being on the subject of loan repayments.

“We have evaluated the Fintech value chain and were very impressed with Flow’s commitment to transform the decades-old debt collection business using AI and ethical practices. Genesis is a returns-first, scaled impact venture lender who wants to back growth-stage companies with impact objectives such as financial inclusion, sustainable food production, small business digitisation and gender diversity, that are looking to scale across Southeast Asia.” – Dr. Jeremy Loh, Managing Partner of Genesis Alternative Ventures.

“This funding from Genesis is another major milestone for Flow and for our debt portfolio purchase business in particular. In keeping with our mission, we can reach out to further support consumers in overcoming financial difficulties,” said Tomasz, CEO & Co-founder, Flow.

Catch Arun Pai, Chief Sales and Strategy Officer from Flow at the Genesis Forum where he and other industry leaders discuss “Accelerating Financial Inclusion Across Southeast Asia Through Fintech”.

“At the time I was trying to determine what kind of business and life I wanted to commit my time to. I was trying to find my calling.” Shortly after Peggy quit her job in finance, she founded Lynk Global in 2015, a platform where businesses can gain access to a pool of mentors and experts. Lynk Global’s network now has more than 840,000 knowledge partners and has pioneered the idea of selling knowledge as a service on a global scale.

“Genesis is in the ecosystem talking to a lot of venture capital firms. It’s a good way for Lynk to be more recognised and it drives our brand awareness,” said Peggy Choi, CEO & Co-founder, Lynk.

Recent news: Lynk, an AI-driven knowledge-as-a-service platform, and UBS, the world’s leading global wealth manager and a provider of financial services, are collaborating to help UBS’s institutional clients globally to enhance the integration of expert access into their investment process. This collaboration comes on the heels of Lynk’s $24M funding round led by Brewer Lane Ventures and MassMutual Ventures, bringing the company’s total funding to $30M.

Impact & ESG

While women and people of colour are often underrepresented in tech, diversity is in the company’s DNA. According to an interview with Bloomberg, Peggy mentioned the following:

Lynk’s Diversity Metrics:

51%:49% female to male ratio
20+ nationalities, across 8 offices
Team speaking over 20 languages

Source: https://lynk.global/in-the-news/lynk-founder-ceo-interview-on-bloomberg-tv

Lynk also focuses on building a diverse database through initiatives and campaigns such as Lynk Elite Expert Women (a female leaders focused campaign to recruit more expert women to its network with aims of ensuring more gender-balanced insights), Malala Fund Education Champion Network (Lynk donates to the charity every time a female expert joins its network and Redress & The R Collective (Lynk commits to limiting waste and operate out of co-working spaces promoting shared use of company resources) which supports United Nations’ Sustainable Development Goals (Quality Education, Goal 4), (Gender Equality, Goal 5) and (Responsible Consumption & Production, Goal 12).

“Not only is Lynk leading the way in democratizing access to knowledge, they also have a strong impact commitment. Genesis is proud to support Lynk and we look forward to its future growth.” – Martin Tang, Co-Founder of Genesis Alternative Ventures.

Founded in 2016, TaniHub has more than 45,000 farmers and 350,000 buyers in its network. Farmers are able to earn more for their crops due to the streamlined distribution channels where there are fewer middlemen between farms and the restaurants, grocery stores, vendors and other businesses that buy their products. It does this through three units: TaniHub, TaniSupply and TaniFund.

Recent news: TaniHub Group, an Indonesian startup that offers a technology-driven platform to better match supply and demand in the Indonesian agricultural and fresh produce sector recently raised a $65.5 million Series B.

During Pamitra’s time with the local farmers in Indonesia, he repeatedly heard complaints about how difficult it was to sell produce. “I never thought of myself as an entrepreneur. At the time, I just wanted to help the farmers get access to the markets.” If he could help farmers get their products to market more efficiently and reduce price disparity between farmer and buyer, they could increase their earnings and improve their lives.

Being a capital-intensive business, TaniHub raised debt from Genesis as they needed warehouses to wash, sort and pack the harvests before delivering to the buyers. If they were to raise equity, “the founders will get diluted significantly,” said Pamitra Wineka, CEO & President, TaniHub.

Impact & ESG

TaniHub aims to improve farmers’ access to credit, increase incomes of farmers, practice demand-supply matching which leads to waste reduction and engage in sustainable agricultural practices which supports United Nations’ Sustainable Development Goals (No Poverty, Goal 1), (Decent Work & Economic Growth, Goal 8), (Responsible Consumption and Production, Goal 12) and (Climate Action, Goal 13).

“We are delighted with the robust quality of our portfolio companies, especially since a growing number of them are making a positive impact to society and the environment, underscoring Genesis’ profit-for-purpose commitment.” – Ben J Benjamin, Co-Founder of Genesis Alternative Ventures.

“When we met with the Genesis team, we really liked their vision. They are social impact driven which is the soul of our business,” said Pamitra. TaniHub’s data indicates that the farmers have seen a major improvement in terms of standard of living.

More than 30,000 smallholder farmers have been onboarded into the TaniHub ecosystem
Farmers in TaniHub’s platform have recorded at least a 20% increase in their income
Farmers who have participated in TaniFund have generated an additional 50% in income

Source: https://about.tanihub.com/blog/read/tanihub-group-raih-pendanaan-seri-a-plus-sebesar-us17-juta-untuk-menjangkau-100000-petani-pada-2021

Watch Pamitra Wineka at the Genesis Forum where he and other industry leaders discuss “Ketahanan”: The Resilience of These Indonesia Start-ups.

Founded in 2013, Trusting Social delivers AI-led products to leading banks and finance companies, enabling them to provide credit to under-served consumers at scale. Today, Trusting Social’s credit insights cover more than a billion consumers and are used by more than 130 financial institutions across Vietnam, Indonesia, India and the Philippines.

Recent News: Headquartered in Singapore and operating across Vietnam, Indonesia, India and the Philippines, AI Fintech Trusting Social announced an undisclosed venture debt financing with Genesis Alternative Ventures.

“We have enjoyed a great partnership with Genesis. Venture debt solution allowed us to raise growth capital without high dilution. They have also been very supportive of our business through introductions to potential clients and partners,” said Jaideep Lakshminarayanan, CFO, Trusting Social.

“We are excited to be supporting Trusting Social’s growth as they increase their breadth of product offering, helping banks and financial institutions to increase their reach to the under-served consumers.” said Eddy Ng, Head of Investments and Portfolio at Genesis.

Impact & ESG

On top of providing AI-led products, Trusting Social is on a mission to fill that gap by providing credit scoring and improving access to financial services for such consumers which supports United Nations’ Sustainable Development Goal (Industry, Innovation & Infrastructure, Goal 9).

“Our ambition is to enable financial inclusion on an unprecedented scale, and Genesis will be helping us frame our reporting for this purpose.” – Nguyen Nguyen, Founder & CEO, Trusting Social.

Trusting Social’s data indicates that there are more than 1 billion borrowers scored in Asia with about 1 million customers enabled every month.

Catch Jaideep at the Genesis Forum where he and other industry leaders discuss “Accelerating Financial Inclusion Across Southeast Asia Through Fintech”.

Learn-how-companies-benefit-from-venture-debt-to-complement-their-equity-fundraises-at-early-stages-of-growth..webp

Watch this video to learn how companies benefit from venture debt to complement their equity fundraises at early stages of growth.

In this video, the following founders from Genesis’ portfolio companies share why they chose venture debt and how they benefited from it:

Tanihub’s agritech business is a capital intensive one that needed a significant amount of investment. They leveraged venture debt to minimise equity dilution.
Proptech Gowork approached venture debt with the aim of diversifying their capital structure to minimise dilution. They also benefited from Genesis’ business guidance along the way and introductions to prospective clients and investors for subsequent fundraising.
With Genesis’ strong relationship with many Venture Capital firms in the ecosystem, Lynk Global found it a good way to gain more recognition.

In this Masterclass to the NUS MBA Finance Club, Dr Jeremy Loh demystifies venture capital financing with a deep dive into the venture debt landscape:

A venture fund is made up of general partners (GP) who handle the investments while limited partners (LP) provide money to the fund.
Risk appetite of venture capitalists
How a fund operates
Capital structure of a VC-backed venture
How venture debt works
Opportunities in the venture debt market within Southeast Asia.
As a “profit-with-purpose” venture leader, Genesis selectively invests in companies that bring impact to their communities and society.
Internship opportunities at Genesis and career path.

First, FAANG (Facebook, Apple, Amazon, Netflix, Google) in the US. Then BATX (Baidu, Alibaba, Tencent, Xiaomi and now possibly ByteDance) in China. And now GSG (Grab, Sea and GoTo) in Southeast Asia.

These colossal technology companies generally followed similar growth patterns. First, they became dominant in their original businesses, such as e-commerce for Amazon and internet search for Google. Then they grew their tentacles, making acquisitions in new sectors to add revenue streams and outflank competitors. Take Amazon as an example. Once an online bookstore, Amazon quickly grew to become an “everything store.” But the company moved beyond its e-commerce roots, due, in part, to acquisitions. To enter the grocery arena,

Amazon acquired Whole Foods Market and its distribution channels and retail locations in one $13.7 billion-dollar gulp. Amazon wanted to be a bigger player in the “Internet of Things,” so it swallowed up several home security companies including the $1 billion acquisition of doorbell-camera startup Ring. And as Amazon dived into the autonomous vehicle industry, it chose start-ups in that space, too. Amazon acquired 13 cloud computing companies between 2012 and 2020 to form what is today known as Amazon Web Services (AWS). AWS today represents 59% of Amazon’s operating income.

Apple could possibly be the pioneer of this Big Tech growth pattern with their first acquisition as early as 1988. In the span of the last 10 years, Apple has completed nearly 100 acquisitions, the most prominent ones were aimed at competing with Google Maps and more recently the $3 billion acquisition of Beats Electronics as a bet big on the future of headphones.

With a combined $1 trillion market cap, China’s BATX has a formidable influence over the Chinese digital economy. BATX has gone on a buying spree with 14 billion-dollar acquisitions. Alibaba led the pack with its $20 billion acquisition of logistics giant Cainiao and also spread its business reach tangentially by acquiring Ele.me (food), Koubei (lifestyle) and merging these two entities to take on rival Tencent’s Meituan. Chinese Big Tech has long seen Southeast Asia as a natural geography for expansion outside of their competitive home ground and tends to take a more aggressive buy-and-build strategy. This sometimes comes with dominant stakes in target startups, as in the case of Alibaba in Lazada, and Tencent in Shopee-owner Sea. In 2020, Southeast Asia tech companies saw heightened interest from US Big Tech.Facebook now owns a 2.4% stake in Gojek’s GoPay fintech arm, while PayPal owns 0.6% of GoPay. The move is expected to help Facebook and WhatsApp, which have more than 100 million users in Indonesia.

Many of them are now looking at Southeast Asian tech firms and expect a strong pipeline of deals in series B- and C-stage startups. The spike in the number of late-stage investors, secondary buyers, and special purpose acquisition companies (SPACs) has led to a positive outlook on the exit landscape for investors in Southeast Asian startups in the coming years.

A few more such deals are also in the works. Indonesia’s Tiket.com is exploring a SPAC listing while its local rival Traveloka is in advanced talks to go public through merging with Bridgetown Holdings, a blank-check firm backed by billionaires Richard Li and Peter Thiel. Even though the pandemic slowed the pace of exits in 2020, the rise of SPACs has piqued the interest of institutional investors.

In June 2021, Indonesia saw two of its unicorns, GoJek and Tokopedia (that contribute a combined 2% of Indonesia’s $1 trillion GDP) complete an unimaginable merger of a ride-hailing and eCommerce business over a Zoom call. The resulting GoTo Group has been hailed as an equivalent marriage of Amazon, Uber, Paypal, and Stripe. GoTo is planning a pre-IPO fundraiser before a purported dual public listing, likely in Jakarta and the US. Prior to the merger, GoJek also made some big bets acquiring mobile point-of-sales Moka for $130 million while Tokopedia bought wedding services marketplace Bridestory and child activities marketplace Parentstory for an undisclosed amount. We hope to see more active M&A in the works as GoTo stamps its authority to dominate its Indonesian market leader position and spread its business across Southeast Asia.

The Land Of The Unicorns

The tech ecosystem in Southeast Asia is maturing at an accelerating pace. There were only 7 Southeast Asia tech unicorns in 2016 and as of June 2021, Thailand-based eCommerce logistics Flash Group and newcomer Carro joined the 19-strong unicorn club.

M&A activity is expected to increase based on a recent report launched by INSEAD and Golden Gate Ventures which cited that startups in Southeast Asia would actively pursue M&A in the ensuing 12 months.

Reputed global VCs like A16z, Hedosophia, Valar along with Tiger Global are now busy looking for the next Sea, Grab, or Gojek in Southeast Asia. With deeper pockets to dip into, the emerging Big Tech companies will invest and acquire to expand their business empire. Looking back, 2019 was a good year for tech M&A in Southeast Asia. The region clocked in 60 deals, including Bigo ($1.45 billion), Wavecell ($125 million), Coins.ph ($72 million), and Red Dot Payment ($65 million).

Unicorns of Southeast Asia

This does not take into account the acquisition activities undertaken by other companies like Intuit QuickBooks which bought TradeGecko for a reported $80 million in 2020. And one of Genesis’ portfolio companies GoWork is currently undergoing final diligence which could see a merger with one of Europe’s leading flexible workspace and service office providers.

Singapore-based TPG-Backed PropertyGuru is also eyeing a $2 Billion Thiel SPAC listing and already on an acquisition spree to acquire all shares in Australia’s REA Group operating entities in Malaysia and Thailand, which include iProperty.com.my and Brickz.my in Malaysia; and thinkofliving.com and Prakard.com in Thailand.

We are entering an exciting era for technology and venture across Southeast Asia. With these M&A and SPAC opportunities, downstream benefits would be the emergence of more serial entrepreneurs with a demonstrated track record of starting, operating, and exiting a startup. The founders of successful companies would have new liquidity to invest in the ecosystem, either aggressively or as angel investors investing in early-stage businesses. And we may see a blossoming of the startup engine as ex-employees of these exits are likely to set up their own startups. So, Southeast Asia as the Silicon Valley of the East? Watch this space.

References

How Big Tech got so big: Hundreds of acquisitions [link]
Visualizing Chinese Tech Giants’ Billion-Dollar Acquisitions [link]
How these millennial tech founders pulled off Indonesia’s biggest-ever business deal [link]
M&A deals to drive increase in exit events in next 2 years for SEA startups [link]
Gojek and Tokopedia’s holding group GoTo plans fundraising ahead of blockbuster IPO [link]
The rise and rise of Southeast Asia’s tech M&A [link]
How SE Asia finally caught the eye of A16z and other western tech VCs [link]
Southeast Asia Exit Landscape: A New Frontier [link]

Venture-Debt-004-Ben-J-Benjamin-and-Prof.-Claudia.webp

Ben J Benjamin shares with Prof Claudia Zeisberger, Professor of Entrepreneurship & Family Enterprise at INSEAD about the type of start-ups venture debt funds like Genesis prefer to invest in – funding stage, industry, business model and geographical location.

Follow Claudia Zeisberger for other insightful discussions:

LinkedIn: https://www.linkedin.com/in/claudiazeisberger

Website: https://claudiazeisberger.com/

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The Value of Venture Debt to Startups

Deliveree Logistics has raised a total of $38.8M in funding from 7 investors, including Genesis Alternative Ventures.

Earlier this year in March, Flow became a member of Asosiasi FinTech Pendanaan Bersama Indonesia (AFPI)

Lynk, an AI-driven knowledge-as-a-service platform, and UBS, the world’s leading global wealth manager and a provider of financial services

TaniHub Group, an Indonesian startup that offers a technology-driven platform to better match supply and demand in the Indonesian agricultural

Trusting Social delivers AI-led products to leading banks and finance companies, enabling them to provide credit to under-served consumers at scale.

Learn how companies benefit from venture debt to complement their equity fundraises at early stages of growth.

Venture Debt Masterclass with Managing Partner, Dr. Jeremy Loh and NUS MBA Finance Club

Rise of Southeast Asia’s Very Own Big Tech

What Founders should know to make an educated decision featuring Ben J Benjamin (Co-founder of Genesis Alternative Ventures) and Claudia Zeisberger (Professor of Entrepreneurship at INSEAD)