Image credit: gmast3r / 123RF.
Venture lending firm InnoVen Capital announced today it has extended loans to stock image database 123RF and digital media services provider Conversant Solutions.
InnoVen previously secured deals with fitness subscription app KFit and fashion marketplace Pomelo.
Startups keen on venture debt, a new concept in Southeast Asia given the ecosystem’s youth, have multiple options to choose from. InnoVen, which operates out of Mumbai and Singapore, expanded to Southeast Asia last March. It expects to do US$500 million worth of venture debt deals in Asia in the next five years.
Venture debt allows us to keep our equity – it is a cheaper form of financing.
A month later, government agency SPRING Singapore launched a venture debt program with three banks, aiming to finance up to US$355 million by 2018. One of the partner banks, UOB, has been offering venture debt since 2014.
Details on the 123RF and Conversant deals are undisclosed. 123RF has been fully self-funded and is profitable. However, 123RF took up the deal to build a relationship with the venture lending firm and help itself with some operating expenses, founder and CEO Andy Sitt tells Tech in Asia.
“Venture debt allows us to keep our equity – it is a cheaper form of financing,” he says. 123RF has about 1 million paying customers and over 12 million monthly active users.
Conversant is headquartered in Singapore and has offices in Shanghai, Malaysia, and the Philippines. Its customers include telcos like Singtel and Axiata, media companies like Singapore’s Mediacorp, and companies like IBM, Visa, and Canon.
“Venture debt generally applies across all tech industry verticals,” InnoVen Southeast Asia CEO Chin Chao tells Tech in Asia. InnoVen doesn’t limit itself to early-stage companies either, as demonstrated by the deals with 123RF (founded in 2005) and Conversant (founded in 2002). “Both deals exemplify the important role that venture debt plays throughout a company’s lifecycle,” he adds.
123RF has been fully self-funded so far. Photo credit: 123RF.
Another way to finance
InnoVen is a joint venture between Temasek Holdings and UOB and was born when Temasek bought SVB India Finance, a notable venture debt provider in India. The deal, worth US$48 million, was announced in April 2015.
Venture debt is a type of loan that can be used by a company to carry it over a particular threshold between venture capital fundraises or to purchase necessary equipment. It has the advantage of not diluting the company’s ownership, since the financer doesn’t take equity in return for the funds. It’s also not as demanding to the borrowing company in terms of collateral – which bars a lot of startups from qualifying for more traditional business loans.
However, as debt, it needs to be repaid, which means it’s not just easy money for a startup if it doesn’t have a clear view on how to pay the money back.
InnoVen does not require equity in the companies in return for the funds.
As a venture lending firm, InnoVen does not require equity in the companies in return for the money it extends. Rather, returns come through interest and fees on the loans, among other things.
These comprise a fixed return component, while a variable component is based on warrants for the financed company’s stock. In other words, InnoVen has the option of receiving stock in the borrowing company.
The firm doesn’t disclose the kind of returns it expects in these two deals.
InnoVen Capital Group COO and Innoven India CEO Ajay Hattangdi has told Tech in Asia that venture debt is both “extra runway” and an “insurance policy” for companies. It’s not meant to replace equity funding.
See: 16 years after Citibank shot him down, his venture debt firm scores in India and SEA
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