Behind the growth of venture debt in SEA

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Hello reader,

Years ago, I remember reading about how people take on debt due to certain circumstances or responsibilities, and that “being in debt” is not always a bad thing.

It’s a stark difference from how debt was depicted when I was growing up. In anti-gambling ads, debt was often portrayed as a problem that came with addiction. In TV shows, there were characters who couldn’t manage their finances well and had to borrow or ask friends and relatives for money.

But realistically, being in debt is rather inevitable when you get a house or a car (unless you’re financed by the Bank of Mom and Dad). And in the startup world, there are also many other legitimate reasons to take out a loan: It’s a good way to conserve capital and can be useful for long-term investments.

In today’s story, it appears that many Southeast Asian founders are getting on board with a specific kind of loan as the funding winter marches on: venture debt. What is it? And is such a debt a good or bad thing? Read on to find out.

Today we look at:

• Why SEA founders are taking a shine to venture debt
• An Indian electric-vehicle battery manufacturer’s latest fundraise
• Other newsy highlights such as Swiggy eyeing a bigger IPO size and Ant Group holding a new round of dividend payments

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Debt: dastardly or delightful?

Image credit: Timmy Loen

One of the more obvious benefits of venture debt is that startup founders can generally avoid giving up too much equity while securing capital either to extend the firm’s runway or bankroll business initiatives between funding rounds. Its appeal has become more apparent amid the tech winter, but just like the Transformers, sometimes there’s more to something than meets the eye.

• To protect the world from devastation: Make it double – the percentage of founders in Southeast Asia who prefer venture debt, that is. While venture debt is common in mature markets, it is still gaining ground in the region. A report from InnoVen Capital found that in 2023, 46% of surveyed founders preferred venture debt, up from 23% in 2022.
• Losing shine: Some industry experts attribute this increased interest in venture debt to VCs’ changing investment behavior. They’re becoming more picky, and many startups no longer meet today’s standards for VC investments without adjusting valuations, among other criteria.
• Big boy banks: Loans provided by banks are often a more attractive option than venture debt. But banks can be even stricter than VCs when evaluating loan applications – small, scrappy startups may not really fit the bill.

Read more: SEA founders warm up to venture debt as tech winter lingers

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