Decacorn Capital, a Singapore-based cross-border tech VC firm, announced today it has invested in Qupital, a China-based fintech startup. Decacorn joined Qupital’s Series A+ funding round, alongside existing investors Alibaba Entrepreneurs Fund, MindWorks Ventures and Chinese fintech conglomerate CreditEase.

The funding news comes off the back of a US$15 million Series A round in 2019.

As shared exclusively with e27, Qupital plans to utilise the new funds to bankroll its expansion beyond Hong Kong, Shanghai and Shenzhen to other key e-commerce hubs in China, namely, Beijing, Guangzhou, Yiwu and Hangzhou.

Founded in 2016, Qupital is a B2B fintech platform that harnesses big data, blending fintech with e-commerce by using its proprietary credit assessment model to provide short term working capital to Chinese e-commerce merchants selling on Amazon, eBay and Lazada amongst others.

As per a 2019 TechCrunch report, Qupital had processed 8,000 trades, totalling HK$2 billion (US$258 million) in value.

Also Read: How fintech is making credit more accessible for Southeast Asian SMEs

“Besides the razor-sharp and well-demonstrated execution capability of the Co-founders Andy and Winston, it is Qupital’s unique big data analytics capability where we see the real moat,” said Debneel Mukherjee, Founder and Managing Partner at Decacorn Capital.

“We believe Qupital is at its inflexion point, ready to scale rapidly fuelling the working capital needs for the online exporters fulfilling the massive upsurge in global digital online shopping trend,” he added.

“As Qupital is looking to expand our reach in Asia, Decacorn’s strong ties to the local ecosystem coupled with cross-border experience across the US, Europe and Israel, provides us with the resources and connections that we value,” said Andy Chan and Winston Wong, Co-founders of Qupital.

Decacorn Capital’s most recent investments included GridIO, BioCatch and Sixgill.

The firm has invested across different verticals and geographies, from Israel to USA and Estonia besides its home turf in Singapore and in cybersecurity, Artificial Intelligence and big data analytics.

It is also known as an investor in Snap Inc and had exited through the startup’s IPO.

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Peak into the private members club in any city and you will find a room full of lawyers and financiers drinking fine port. Little investment business is done, however. Investors want to place their money in fast-growing startups, not stodgy, conservative law firms. But that’s all changing. With the rise of legal tech startups, investors are hungry for deals in the high growth legaltech sector. 

The smart money pumped US$1.2 billion into legaltech startups in 2019. All of a sudden stodgy law firms are calling themselves legaltechs. But not all law firms with their newfangled tech solutions meet the definition of a legaltech.

Legaltechs leverage technology to deliver more efficient and lower-cost legal services to lawyers, businesses, and consumers. Their goal is to make legal services accessible to everyone.  

The legal and judiciary systems have well-earned their reputations as stodgy. They have traditionally been complex and expensive to use. Facing these barriers, many businesses and individuals have not had fair access to the legal system. Large enterprises pay through the wallet for legal services, while smaller businesses often have no legal recourse if a business partner fails to fulfill their half of the contract. 

If you cannot beat them, join them

The legaltech movement is quickly dis0intermediating traditional law firms. Businesses and individuals have been turning to alternative legal services (ALSPs) to reduce costs. These services perform document drafting, contract management, regulatory compliance, investigations support, and other legal services. Through technological efficiencies, they strip time and costs from legal services. 

Law firms are facing the stark reality that clients now have an alternative to their high billable hours. To compete they, too, are migrating to alternative legaltech services delivery models. As law firms become a major consumer of legaltech, investors are placing the largest slice of their money in legaltech solutions for law firms. 

Also Read: Indonesian legaltech startup Justika raises pre-Series A funding by top law firm

Private equity firms have made the bulk of their investments in contract management and document management startups — among the top three technology adoption priorities of law firms, following eSignatures. 

One-stop legal outsourcing shops

One-stop shops for legaltech solutions have attracted the most money. Clio, a cloud-based legal services portal for lawyers, raised a whopping US$250 million from investors. Over 150,000 lawyers use the software to automate and organise legal documents, handle billing, and manage client referrals. Legal enterprise software firm Onit took in the second-highest investment round of US$200 million last year. 

Remote law services 

As more people transition to remote work in response to COVID-19 confinements, sole lawyer practices are accelerating their adoption of legaltech solutions. The trend towards remote work is pushing lawyers to deliver their services in more cost-efficient ways. In this segment, investors are investing in legal contact management software (Liftify US$50,000), cloud contract management solutions, (Icertis US$115,000), and electronic signatures (Fadada US$55,000).  

DIY law

Individuals are the third largest consumers of legaltech. LegalZoom has emerged as the largest provider of ready-made legal templates for business services, trademarks, and wills and testaments. The legaltech has received US$811 million in funding, including a US$500 million funding round in 2018 led by Francisco Partners and GPI Capital. Investors are sprinkling money on other consumer legaltechs, including online notary Notarize and will creation website Farewill. 

The rise of the AI legal bots

Artificial intelligence (AI) and machine learning (ML) are bringing significant efficiency improvements to legaltech. Very smart algorithms will be a major growth driver for both established and startup legaltechs going forward. With an AI bot, a lawyer can review a contract in 20–90 per cent less time. Investors have backed over a dozen AI legaltechs including ContractPodAI, Evisort, Lumina, Verbilt and LinkSquares.

Corporate legal departments are using these AI legal bots to analyse and synthesise legal documents. The leader Luminance, incubated by mathematicians at the University of Cambridge and used by over 250 law firms, delivers an 80 per centreduction in contract review time and costs.

Also Read: When does your startup need a legal department?

These AI bots also do legal research, patent searches, due diligence, and amazingly conduct client interviews. Josef, a startup founded by young lawyers, has replaced lawyers with chatbots that can conduct client interviews and draft documents. 

Propelled by the high-efficiency improvements, legal community demand for AI legal tech solutions is expected to grow 39 per cent between 2018 and 2023. 

Smarter smart contracts

Bots are getting smarter but they are not as smart as smart contracts. The Alphabit Fund made what could be the most significant investment in legaltech this year. The specialist investment firm in digital ledger technology (DLT) and the blockchain led the investment round in the PAID Network, an advanced smart agreement enabling attorney-free business transactions, litigation, and settlement processes. 

The Paid Network has developed Smart Agreement templates that automatically provide the legal wrapping for contracts. Smart contracts remove trusted intermediaries like lawyers and banks from the transaction. They automatically execute transactions and actions according to the established terms of the contract. A smart contract is executed in near-real-time when the blockchain platform token is deposited, in this case, the Paid token.

With the Paid Network Smart Agreement, parties to an international trade contract can execute a legal clad contract at the same time they execute the payment transaction. Or two counter parties to an over-the-counter (OTC) swap agreement can use the smart contract to remove counter party risk. The Smart Agreement’s escrow account protects both parties.

Legaltech meets fintech

Financial institutions with high volume transactions can reap significant time and cost savings from automation. JP Morgan has been a big beneficiary of legaltech. The investment bank is using legaltech to manage counter party risk in credit agreements, and soon credit-default swaps and custody agreements. In the global OTC derivatives market, counter parties had USUS$2.4 trillion in credit risk exposure in 2019. 

JP Morgan Chase, a top-four bank dealer in the swaps market, was seeking a more efficient process for analyzing its 12,000 credit agreements a year. The solution? The investment bank built its own intelligent document management software called COIN (Contract Intelligence) to slash legal costs. The efficiency gains are nothing short of astounding. In seconds, COIN can process contract volume that previously took 360,000 man hours. 

Also Read: What tech startups need to know about the legal aspects of online marketing

A smart contract has the potential to do even more at a faster rate. The beauty of a smart contract is its simplicity. Any number of functions can be simultaneously performed in near-real-time. The PAID contract, for example, also incorporates the upfront negotiation and arbitration processes, should a dispute arise. A reputation scoring system helps reduce counterparty risk. 

The Paid Network is a parachain (blockchain platform with its own token) on Chainlink. As such, it can run all the above services in parallel with services of over 100 parachains. All of the aforementioned functions of legaltech solutions can be wrapped into one smart contract. 

Paid Network is the only blockchain legaltech startup to receive funding to date. That’s surprising given the additional business risks mitigated by digital ledger technology. DLT transactions are transparent, trackable, and irreversible. 

Following their investments this year, legaltech on the blockchain is poised to be the next hot legaltech investment sector. All major companies across all industry verticals are adopting blockchain business solutions. Ninety-one percent of businesses plan to improve business performance by adopting blockchain solutions, according to the Deloitte Global Blockchain survey. The legal industry, however, has been slower to catch on to the paradigm shift in business transaction management underway.  

Many companies are already conducting trade, commerce, and financial transactions with smart contracts. Like the mainframe, the legal industry will need to adopt more efficient technology-driven platforms. The legaltech model is well suited to run on digital ledger technology.

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A crisis also brings opportunities. Changes unfolding in the global economic landscape with COVID-19 have leaders re-evaluating growth strategies and business models, all conventional ways to work have been put through the grinder; we’re seeing the emergence of a new normal.

The financial sector has stumbled upon a hitch, as fund managers find it difficult to raise money for a first or final fund close. For those with dry powder, the challenge to wisely allocate funds, appoint a new team or go with an existing team is seen rising.

Investors across the globe share the belief that due diligence (DD) forms the most critical component of an investment process. Agnostic of the type of financial organisation– VC or PE fund managers, family offices or institutional ones, DD is a key process followed before investing in a fund or company.

The process of DD has multiple facets such as investment strategy, target markets, financial, legal, business, reference checks and more. Pre-pandemic, the process demanded on-premise and in-person engagements, which could go on for weeks, if not months. For example, an investment in a manufacturing company involved physical meetings at the production facility.

In sustainable agricultural technology investments it was standard DD to meet the different value chains and local producers, to review utilisation of the technology in real-time. These meetings were followed by interviews and more meetings with the staff and other investors, checking internal systems, processes and technologies.

Why? The findings and impressions gained during the DD stage can make or break a deal and can be the difference between investors making money or losing everything.

Also Read: Due diligence meets imagination: How SGInnovate plans to further support the deep tech ecosystem

Changing the course

Cut to the pandemic era, financial organisations now have to adapt to the new rules of due diligence. Futuristic investors and fund managers see an opportunity in revitalising investment due-diligence processes and infusing technology to weed out the inefficiencies. Communication tools such as Zoom, Microsoft Teams, Google Meet, and others are already par for the course; they were here before the pandemic and certainly will outlast the pandemic.

Platforms such as Dropbox and Google Drive find more user reliability instead of tracking documents on emails. These widely used tools help create easily accessed cloud content, collaborate remotely and share heavy files, enabling the due diligence team to gather information and insights fast, easy and effectively.

In addition, improvements in data management, records digitisation and videoconferencing technology, help one to carry out effective due diligence reviews virtually. This has worked well for VC funds who have seen increased interest from institutional investors, and who want to show that they can continue to invest capital in promising companies in a pandemic world.

A study by Omers Ventures of 150 VCs across the US, Canada, the UK and the rest of Europe shows that just four per cent of VCs are opposed to undertaking remote deals. Among the 96 per cent of VCs open to it, 42 per cent said they are willing to make changes to their processes to enable this. Interestingly, 40 per cent of the VCs surveyed said they had already done a fully remote deal, while 60 per cent are yet to do so.

With the practice of virtual DD, physical engagement can be kept to a minimum or eliminated entirely or undertaken only if absolutely required. 

How to go about normalising remote due diligence

There is no one shoe fits all practice to take this forward. VC funds address virtual DD in multiple ways as they focus on closing their pipeline of deals. In instances, relationships have been established with founders through meetings and conversations that have been going on for months, much before COVID-19 struck, and term sheets have already been signed. Closure of these deals has been relatively easy, as evidenced by the continued global flow of VC capital in Q2.

Also Read: Due diligence meets imagination: How SGInnovate plans to further support the deep tech ecosystem

With others, initial conversations have been fruitful, but final DD and signatures are pending. VCs are actively leveraging partners in the areas where these potential investees operate to drive some level of due diligence. Backchannels and talking to third parties were always an important driver for insights and this has further increased.

Further what simplifies the DD process is connecting with previous investors or funds who have already entered in the investment. Some VCs and other investment firms have, during the pandemic, done approximately 30 per cent of their due diligence remotely. Virtual tours have helped provide facility tours.

The quantum of discussions with founders has increased both at the individual level and in groups. Founders are also being encouraged more to connect across the network — with funds, entrepreneurs, and accelerators — in their local region. Remote DD has shown the critical role technology plays now when making an investment decision. References and testimonials apart, technology is the main driver of remote due diligence processes today. And from the looks of it, will continue to be so going forward.

Just Zoom meetings are insufficient to entirely conduct DD when mobility is hampered. Potential investees are working hard to help potential investors find ways to visit their factories, offices or warehouses and see first-hand what’s happening, how employees are engaged, how much stock they have and gather other information that will help the deal move forward.

Dependency on co-investors too has increased. Founders are under even more pressure to come with strong references. The increased emphasis on client checks is encouraging portfolio firms to try out the products or services of the companies under due diligence.

Be wary of betting on the wrong horse

DD is a multi-fold process and may not be always contained within set timelines. The current situation may lure investors to make mistakes. Lack of performance can be disguised under the pandemic, and going just for the supposedly “winner” sectors during COVID-19 may result in an expensive and simplistic approach, where you bet on the wrong horse.

Also Read: The hidden side of fundraising: how due diligence can make or break your deal

The fact that you’re conducting remote due diligence should not relax the depth of the analyses. If anything, there are now new scenarios to play with, new indicators to look at, to see if we’re in front of attractive investments or not. The good news? It all can be done remotely.  

Business continuity is the ultimate goal

In the current situation, where travel is significantly restricted, if not impossible, not institutionalising remote due diligence will limit business progress. Of course, having a large, well-dispersed team with deep industry relationships can be an invaluable advantage in the current environment. Nimbler investors who can harness the power of technology and couple that with a well-tentacled network may be at a significant advantage as they will draw on local capabilities to maintain due diligence processes and capture new opportunities.

Investors unable to draw on such resources will need to outsource parts of their process to trusted third-party specialists. The pandemic and the challenge that it imposes on due diligence should therefore not be an excuse to let the baton slip. It should be the catalyst that enhances scrutiny by utilising technology to further augment existing processes.

Undoubtedly, the process now takes longer; it involves far more scrutiny. A simple thing that spoke volumes during normal times, which VCs now miss, is picking up on nonverbal cues when interacting with people or teams in person. Zoom calls cannot compensate for this. A few investors will, nevertheless, prefer waiting it out till the pandemic is over.

That may just turn out to be a long wait. And there are too many challenges in the world waiting to be solved through companies using innovative technology. The investing world cannot grind to a halt.

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Editor’s note: e27 aims to foster thought leadership by publishing contributions from the community. Become a thought leader in the community and share your opinions or ideas and earn a byline by submitting a post.

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With Singapore and Jakarta occupying two of the top 10 spots for cities with the highest VC investments in 2019, it is safe to say Southeast Asian startups face no shortage of funding opportunities.

However, the pandemic has thrown a spanner in the works. According to reports, though median exit deal size in the region rose from US$5 million in 2019 to US$27 million in H1 2020, the average top investment amount fell from US$242 million in 2019 to US$77 million in the same period this year.

This decline could point to stalled deals as VCs struggle to carry out the necessary due diligence because of the movement restrictions imposed regionally.

Despite that, Jungle led a US$10 million Series B funding round in Betterplace, a Bangalore-based tech platform for blue-collar workforce management.

David Gowdey, Managing Partner of Jungle Ventures, shared in an interview with e27 that due diligence for the deal was conducted virtually, adding that it would represent a new normal for conducting future investments.

Below are the edited excerpts from the interview.

Which of the companies within your portfolio have the potential to become a unicorn in the next few years?

As we invest in India and Southeast Asia, we have Livspace and Moglix within our portfolio that are on track to be unicorns.

Founders usually don’t think about building a business just to get to a billion dollars or an arbitrary valuation number. It takes a long time to build a unicorn. Some companies would get there faster while others would be slower. It depends on the market that they’re in, but it usually requires several years to get there.

Also Read: Why David Gowdey of Jungle Ventures believes exits should be led by founders

We closed a US$100 million fund in 2016. Even the early investments out of that fund, it’s just been four years and these are mainly Series A and pre-Series A type of investments. So it takes time for these companies to grow into unicorns.

In Southeast Asia, there is definitely a cohort of businesses that you’ll start to see hit that billion-dollar valuation over the next one to two years. There’s the first cohort of companies which were founded between 2012 and 2014 which have become unicorns — the likes of Grab, gojek and Traveloka. The next batch should be joining them soon.

For companies turning into unicorns in the next one to two years, what do you think should be their preferred exit strategy?

As you get up to a billion dollars in size, the pool of buyers gets smaller. For example, if you’re a company that has a US$500-million valuation, there would be numerous companies that have a balance sheet that could afford that acquisition.

However, if you’re a US$15-billion company, the number of companies with the financial capabilities to make the acquisition is obviously fewer. Therefore, the larger you get, the more you would angle towards the public markets.

I do still think you’ll see a mix of both trade sales and IPOs. If you are a regional industry leader and there are similar businesses in the US and China that don’t have a presence in Southeast Asia, you will naturally be of M&A interest as they look to expand into the region and solidify their position as the market leader here.

A Peter-Thiel backed special purpose acquisition company (SPAC) recently filed to go public and is seeking to buy a Southeast Asian company. Does this signal the arrival of SPACs into the region?

SPACs have obviously been around for a long time, and a SPAC itself is nothing new. I do think it’s interesting to think about more regional companies listing in the US.

Sea Group has performed incredibly well. They are up nearly 4x this year and it’s been a great business to trailblaze Southeast Asia into US public markets. You need to be of a certain level of scale before you can think about listing on the US and a SPAC is no different.

Also Read: What does Peter Thiel-backed Bridgetown’s IPO mean for SEA’s startup ecosystem?

In my opinion, a SPAC is still going to need to find a business that is going to be appealing to US-based investors. It probably needs to be over a billion dollars in value for it to be sizeable enough to attract sufficient interest to have the desired liquidity.

As primary hubs for VC funding remain in Singapore and Jakarta, do you think we will see other parts of the region growing their venture ecosystem?

Singapore and Jakarta indeed remain the top two regions for VC funding. There’s a very robust venture ecosystem in Jakarta with a lot of Indonesia-focused funds.

On the other hand, most founders in Thailand, Vietnam, Malaysia and the Philippines are coming to Singapore to meet VCs. Meanwhile, the Singapore-based funds are going to Jakarta to meet Indonesian companies.

With regards to future developments in the regional venture space, there are some government initiatives to grow the deals landscape in Malaysia and Thailand. I do hope that there will be VC ecosystems forming in these countries, together with Vietnam. Ultimately, it takes time.

Also Read: 37 VCs to invest US$800M+ in Vietnam’s startups over the next 3-5 years

What are some future trends we can expect within the venture space as we move into 2021?

You will see some more companies from Southeast Asia go public as this would represent a natural path for the likes of Grab, GoJek and Traveloka.

More than that, there is a group of unicorns in Southeast Asia which have reached the “tipping point” in terms of their size, scale and maturity of the business. Some of them should start to think about going public. I would expect that over the next 12 to 18 months, we’ll see at least one more IPO come out of this region.

What are your investment plans for the next one to two years and what are the sectors you have your eye on?

We just closed an investment with Betterplace and all of the due diligence for that investment was done virtually. We’ve had to adapt our investment process to accommodate for the pandemic and have proven to ourselves that we’re capable of doing that. Therefore, even if we can’t get on a plane and travel, we will continue to make the right investments.

At Jungle, we tend to focus on two large categories — software and consumer consumption. Software is one of the industries that hasn’t been impacted much by the pandemic. Therefore, we will continue to be one of the strongest investors in software going forward.

For consumer consumption, we are seeing more consumers going online and they will increasingly transact through digital channels. Therefore, it could path the way for both e-commerce and direct to consumer (D2C) brands to grow.

We have also observed that second derivative beneficiaries of the e-commerce boom — payments, consumer credit and logistics — have seen a natural tailwind arise from the pandemic.

In essence, I don’t think our investment focus will shift or change due to the pandemic. We’ll stay consistent around consumer consumption and software verticals.

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Image Credit: Jungle Ventures

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Singapore-registered FinAccel has promoted deputy CEO Umang Rustagi as CEO of its Indonesian digital lending platform Kredivo.

Current Group CTO Alie Tan will be taking over as CEO of KrediFazz, the group’s new P2P business unit.

These are part of a series of top management changes that FinAccel has announced recently.

Joining Rustagi in the C-suite of Kredivo will be Valery Crottaz as its COO and Paramananda Setyawan as Chief Data Officer.

Akshay Garg, current CEO of Kredivo, will be moving to a the role of Group CEO, who will be supervising Kredivo and KrediFazz.

Rustagi and Tan will continue to hold concurrent responsibilities as Deputy-CEO and CTO of FinAccel group, respectively.

The changes will be effective from the start of 2021.

Also Read: Why P2P lending can be the end of banking as we know it

FinAccel said in a statement that these changes reflect a streamlining of the group structure to better serve its vision of serving 10 million customers by 2025.

Under the new structure, Kredivo, which operates under the MFC license, and KrediFazz, which operates under the P2P license, will have different focus areas.

As part of this realignment, KrediFazz will target to expand its coverage of productive loans from 35 per cent to a target of 50 per cent over the next two years, focusing on serving the under-served and marginalized segments of society.

Also Read: How fintech can help reach the unbanked and underbanked in Southeast Asia

Garg, Rustagi, Tan, Crottaz and Setyawan said in a joint statement: “We are on a once-in-a-lifetime journey to expand access to financial services to under-banked and under-served segments of Indonesian society. With these changes, both Kredivo and KrediFazz are better placed to scale, while allowing the FinAccel group to push into new areas of innovation.”

FinAccel is company backed by Mirae Asset, Naver, Square Peg Capital, MDI Ventures, Jungle Ventures, as well as several other investors.

Last month, Kredivo — which provides instant credit financing to customers for purchases on e-commerce, offline and cash loans, processed based on real-time decisions — secured a credit line funding of US$100 million from US-based investment company Victory Park Capital (VPC).

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Image Credit: FinAccel

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