In Southeast Asia, venture debt is fast emerging as an alternative and complementary source of financing for high-growth technology companies that traditionally only raised equity as a source of capital.
At its core, venture debt is entrepreneur-friendly as it helps founders and cash-hungry startups avoid over-diluting shareholder equity at early stages of a company’s growth. Used appropriately, venture debt can also extend the cash runway between fundraising rounds, sometimes helping companies achieve performance targets set by equity investors (or avoid dreaded valuation down-rounds). Another benefit of venture debt is that, in appropriate instances, it is able to support companies facing unexpected market turbulence or short-term capital traps.
While already an established alternative financing source in the US, Europe, Israel and India, venture debt has only recently emerged in Southeast Asia as a mainstream financing option for high growth tech companies. In 2015, the Singapore Government identified venture debt financing as a key driver to boost the local start-up ecosystem. Singapore launched a S$500 million venture debt programme to encourage qualified lenders to provide venture debt to technology start-ups. In recent years, there has been a marked increase in venture debt activity in the region.
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