This interview originally appeared in the DealStreetAsia DATA VANTAGE report SE Asia VC Funds: H2 2024 Review.
As equity funding in Southeast Asia continued its downward spiral in 2024, debt financing rose to prominence.
The region’s startups clinched 54 debt deals last year, a six-year high. These deals were worth a combined $1.85 billion, which is a 150% year-on-year leap, according to the report SE Asia VC Funds: H2 2024 Review by DealStreetAsia DATA VANTAGE.
Singapore-based Atome sealed the largest debt deal in 2024, raising $300 million—a $200 million syndicated credit facility led and arranged by HSBC, with additional support from DBS Bank, SMBC Singapore, and Baiduri Bank of Brunei, in November; and a $100 million term facility secured from EvolutionX Debt Capital, a growth-stage debt financing firm launched by Temasek and DBS; and other investors in June.
This was followed by Princeton Digital Group, a Singapore-based data centre operator, that secured its first $280 million green loan to finance a data centre campus in Malaysia.
“We are witnessing a growing demand for venture debt across Southeast Asia, and we anticipate this trend will persist,” said Jeremy Loh, Co-founder & Managing Partner at Singapore-based Genesis Alternative Ventures.
Genesis, which extends debt to revenue-generating, high-growth companies backed by venture capital funds, had closed its second Southeast Asia-focused venture debt fund in September 2024 at $125 million, which was slightly short of its $150 million target. Genesis had raised $90 million for its Fund I in 2019.
“We believe Fund II is a right-sized fund vehicle for the current environment and a step up from our first fund. With a target of $120-150 million, the fund has hit its mark in a weak fundraising environment,” explained Loh.
Around 80% of the backers of the new fund were investors from Fund I, including Aozora Bank, Korea Development Bank, Mizuho Leasing, Sassoon Investment Corporation and Silverhorn. New investors included Japanese megabank Mizuho Bank, and OurCrowd, an online global investing platform.
“Venture equity and venture debt form a symbiotic relationship that can support the entire growth journey of innovative companies. Venture equity lays the foundation, venture debt accelerates growth, and growth debt sustains momentum,” according to Loh.
Venture debt’s appeal grew in Southeast Asia last year as startups sought non-dilutive financing options in the face of a weak equity fundraising environment.
Regional startups secured just 116 equity funding rounds in Q4 2024—the lowest quarterly deal volume in over six years—and raised a modest $1.2 billion. This weak performance capped a tough year for the region, with total 2024 deal volume slipping 10.3% year-on-year to 633 deals and deal value plunging 41.7% to $4.56 billion, according to the DATA VANTAGE report.
The report paints a sobering picture of 2024’s funding climate as startups raised only 54.6% of the capital secured in 2020—the first year of the pandemic, and just 19.5% of the record-breaking haul in 2021, the region’s high-water mark for venture funding.
“As the equity winter continues, risk mitigation mechanisms that ensure financial discipline and sustainable growth for each company have become a priority,” said Loh.
Edited excerpts of the interview:
With venture debt adoption on the rise in Southeast Asia, how do you see the market evolving over the next 3-5 years? Do you anticipate a shift in borrower profiles or deal structures?
We are witnessing a growing demand for venture debt across Southeast Asia, and we anticipate this trend will persist. As the tech and venture ecosystem evolves and becomes more sophisticated, we observe notable shifts in borrower profiles and deal structures. For instance, there is an increasing demand for debt financing aimed at financing acquisitions, where similar-profile startups seek to merge or where financially stronger acquirers aim to achieve inorganic growth.
“There is an increasing demand for debt financing aimed at financing acquisitions.”
How do you expect the balance between venture debt and equity financing to change in the region? Will debt financing play a more prominent role in later-stage growth funding, or will it remain complementary to equity rounds?
Venture equity and venture debt form a symbiotic relationship that can support the entire growth journey of innovative companies. Venture equity lays the foundation, venture debt accelerates growth, and growth debt sustains momentum. By leveraging these financial instruments strategically, entrepreneurs can navigate the complexities of the funding landscape and position their companies for long-term success.
“Venture equity lays the foundation, venture debt accelerates growth, and growth debt sustains momentum.”
As companies continue to scale and reach later stages of development, venture debt can transition into growth debt financing. Growth debt provides larger loan amounts and more tailored terms to support expansion, acquisitions, or other strategic initiatives. It allows companies to leverage their existing assets and cash flows to fuel further growth without diluting ownership or sacrificing control.
Genesis recently closed its second Southeast Asia-focused venture debt fund at $125 million, slightly below the $150 million target. What were the key challenges encountered during the fundraising process, and how did investor sentiment compare to Fund I?
We believe Fund II is a right-sized fund vehicle for the current environment and a step up from our first fund. With a target of $120-150 million, the fund has hit its mark in a weak fundraising environment. This is especially important as we continue to have the majority support from returning investors from our first fund and bringing on new institutional investors like Mizuho Bank and US-based investing platform OurCrowd.
Did you adjust your fund structure or terms to address LP concerns in the current fundraising climate? Are LPs seeking specific risk-mitigation mechanisms given the ongoing market uncertainties?
Our fund structure remains unchanged, however, we have integrated lessons from previous portfolio companies to adapt to the evolving startup environment. As the equity winter continues, risk mitigation mechanisms that ensure financial discipline and sustainable growth for each company have become a priority.
“As the equity winter continues, risk mitigation mechanisms… have become a priority.”
Genesis has already deployed over $20 million from Fund II across Singapore, Indonesia, Malaysia, and the Philippines. Which sectors or business models are you prioritising for further investments, and why?
We maintain a flexible investment approach to sector selection, but actively seek out businesses that prioritise achieving profitability through a technology-enabled business model, rather than focusing solely on expanding market share.
Genesis has financed 25 companies, including unicorns Matterport and Akulaku. What lessons have you learned from these high-profile deals that are shaping your approach in Fund II?
Every deal, irrespective of the size and stage of company growth, will necessitate a balanced assessment of the investment risk and return profile. The presence of experienced venture backers coupled with a disciplined management team capable of swift execution and pivoting to maintain the company and trajectory can be a successful strategy.
What are the key factors you look at when structuring venture debt deals, particularly in a market where revenue-generating startups may still struggle with profitability?
Our assessment criteria include an analysis of the viability of the business model, with a focus on healthy margins and financial health. Both present and future cash, as well as equity raise, are important considerations. Our assessment criteria include an analysis of the viability of the business model, financial health and potential for future growth, while ensuring that covenants and conditions are included to require the startup to maintain certain financial metrics and operational milestones.
With alleged fraud in a major agritech startup and widespread layoffs across the ecosystem, how do you ensure strong governance within your portfolio? Will these challenges influence your due-diligence process or investment thesis for certain verticals in the region?
By working closely with the portfolio companies and meticulously tracking their financial metrics. Of equal importance is structuring covenants and conditions that will ensure the company maintains financial discipline while executing growth.
