SME financing firm Validus improves loss margin, doubles revenue

Photo credit: Validus

Validus, a Singapore-based financing platform, experienced strong tailwinds in its 2022 topline as more SMEs choose alternative lending to fund their business.

The Vertex Ventures-backed company, which offers SME loans and other financial services, nearly doubled its revenue between 2021 and 2022, according to an audited financial statement obtained from Alternatives.pe, which tracks regulatory filings in Singapore.

The firm, which also operates in Indonesia (under the name Batumbu), Vietnam, and Thailand, uses data analytics and AI to provide growth financing solutions to the underserved SME sector via funds from accredited and institutional investors.

Revenue rises as losses level

While the company’s revenue grew to US$10.1 million in 2022, pre-tax losses widened slightly. However, the margin (losses as a percentage of revenue) improved from -255% in 2021 to -132% in 2o22.

Validus expects its revenue will grow by 50% this year, with losses projected to fall by 40%, co-founder and group CEO Nikhilesh Goel tells Tech in Asia. He adds that the platform is on track to hit EBITDA profitability by the fourth quarter of 2024.

The company’s revenue mainly comes from commissions on loans disbursed to borrowers and on interest earned by lenders on the platform. It also directly extends loans on the platform and earns interest income from these loans.

Validus had earlier said that it recorded an 80% increase in its loan book in 2022 compared to the previous year. It has disbursed over US$2.8 billion in loans to SMEs since 2015.

The firm has also made efforts to expand its product offerings beyond loans. Goel says that in 2022, the company launched neobanking products such as business accounts, corporate cards, foreign exchange money transfers, and expense management tools.

Finance costs rise as business model changes

The three biggest expenses for Validus – salaries and employee benefits, other operating expenses, and finance costs – all increased from their 2020 levels.

However, as a percentage of revenue, salaries and employee benefits as well as other operating expenses both declined, from 287% and 151% in 2020, respectively, to 128% and 71% in 2022. This suggests that the company is benefiting from economies of scale as the rate of increase in revenue exceeds the corresponding gain in expenses.

That said, finance costs grew from just 5% of revenue in 2020 to 38% in 2022, as interest rates and costs of borrowing have gone up significantly. This could reduce the firm’s chances of hitting profitability.

This comes as Validus shifts to a hybrid model, moving beyond being a platform that facilitates loans to taking on more balance sheet exposure. Goel notes that the company’s average on balance sheet loan has grown by 60% year on year.

Cash flow positive by end-2024?