Venture capital (VC) trends are evolving and exploding in Southeast Asia, where the digital economy has been experiencing a considerable transformation since 2010. One such trend emerging is venture debt. This method of raising capital through a loan from an investor is popular with many companies, particularly those that  cannot access a loan through a traditional financing option.   

Whether a startup is hoping to expand its products or services or pivot in order to stay in business, venture debt offers a viable solution for many enterprises during the pandemic-induced economic crisis. By borrowing against an asset the company already owns, they can release some equity into the company to ease cash flow worries or expand into other, potentially more lucrative, markets.

We explore the funding ecosystem during COVID-19

Investors are willing to fund emerging products and technologies with the potential to scale the eCommerce, health, educational and financial markets. Although Southeast Asia venture debt has high risks, it also has high rewards, depending on how successful the portfolio of startups becomes. Small and medium startups promise a more dynamic market and efficient virtual products, the sweet spot for venture capital funders. Through venture debt lending or productive financing, many VCs are reaching out and assisting smaller startups as they commence their journeys, giving them the capital required to produce their product or deliver their service.

ASEAN VCs financing startups

Alpha JWC Ventures, founded in 2015 by Chandra Tjan, Jefrey Joe and Will Ongkowidjaja, is one such example. It raised its first fund of $50 million USD in 2016 and invested in 23 fintech, SaaS and other big data companies across Indonesia, of which only one failed. After less than three years, Alpha’s first fund reached 2.6x more in net asset value and launched its second fund of $100 million USD in 2018, adding seven new startups to its portfolio. Though it focuses mostly on media and advertisement, it has also invested in Vietnamese company and recently in edtech startup Zenius

All the while, Alpha and other venture capital firms such as Vertex Ventures are expanding their venture debt investments while also attracting significant partnerships with VCs from China, Japan and the U.S.

Venture debt trends

Since 2020, global changes have inspired VCs to invest in innovative startups, especially those focusing on the healthtech, fintech, eCommerce and edtech sectors. After the COVID-19 crisis forced schools and businesses to shut down, VCs are hunting for startups that have implemented a massive revolution in the way they operate. In Southeast Asia, many investors see a new growth force in the tech market. Indonesia, Singapore and Vietnam have the most attractive and promising startup landscapes for venture debt firms seeking to enhance their portfolios. 

Several Southeast Asia VCs had raised their funds just before the global health crisis. However, with the setbacks that the pandemic brought, these funders demand more proof of product reliability to fit today’s digital competitive market, accurate spending plans, cash needs and staff utility that prove its responsibility and commitment towards its founders, investors and clients.

Startups face stiff competition

It appears that the competition will be more challenging for startups. Many tech companies will need to examine and question every aspect of their business to attract funding. Startups will need to look at their sales forecasts, marketing and capital spending, and their options for fundraising through VC debt funding. Yet, those operating in the fintech, edtech and eCommerce sectors are likely to blossom in the region. 

With new consumption patterns emerging in Southeast Asia, startups face more pressure to secure their competitiveness in today’s tech markets. Amit Anand, a founding partner of Jungle Ventures, is optimistic about the European investors’ growing interest in Southeast Asia startups. Nevertheless, other venture capital firms shy away from backing new startups and instead seek tech stars in their series B phase that already have a proven plan and are capital-backed. 

After the pandemic outbreak, many businesses in traditional markets have been seriously affected due to lockdowns and reduced spending. In contrast, those that focus on the digital economy and technology-related sectors have experienced significant growth as people sought solutions that they could access from their home’s safety. As VC trends are continually evolving, venture funders look forward to investing in potential tech startups. These changes have helped Southeast Asia venture debt firms to become a strong arm in productive financing, keeping the market afloat and ensuring enterprises survive while still being competitive. 

As the markets change, and shifts in consumer behaviour continue to impact many startups in the region, investors and venture capital firms have also reconsidered their approach. During these critical times, they have been called upon to provide financial backup to the regional damaged economy and support the new tech enterprises, often doing so by providing access to capital and expansion funds through venture debt loans.