Between 2016 to 2018, I was taking Lion Air flights approximately twice a month to Indonesia.

Lion Air flights were the most affordable (a fancy word for cheap), especially as I run on an NGO budget. And on 29 October 2018, Lion Air Flight 610 crashed into the water, and all 189 people on board did not survive.

I could have been in the plane that crashed

A recent Netflix documentary “Downfall” looked into the case against Boeing.

I teared when I saw the familiar Lion Air planes and Jakarta airport. It appears that Boeing’s company culture took a turn after the merger with McDonnell Douglas in 1997. The company started to focus more on sales instead of engineering.

In 2003, Europe’s Airbus overtook Boeing in terms of market share. Airbus A320neo’s fuel efficiency increased demand for Airbus’s aircraft. Boeing had to come up with something fast and was under pressure from Wall Street to deliver.

As a result, Boeing 737 Max was launched and sold to airlines worldwide.

The blame game

When Boeing 737 Max crashed in Asia and Africa, fingers were pointed at the Asian and African pilots instead of the American aircraft manufacturer.

Even though the pilots of Lion Air and Ethiopian Airlines were well trained and highly qualified, Boeing said that the pilots did not do what they were supposed to.

When the black boxes were retrieved, it was revealed that the pilots did what they were supposed to do and that the Boeing 737 Max was faulty.

Further investigations showed that Lion Air reached out for more training for their pilots for the new 737 Max planes. Boeing belittled them and refused to conduct additional pilot training.

Boeing 737 Max continued flying until China took the lead to ground this aircraft unilaterally

Boeing stood by their statement that their aircraft were safe to fly and had the US government’s support. No countries grounded Boeing 737 Max despite the two deadly crashes.

Also Read: Why innovations in the air traffic space remain a priority for a more resilient future

China was the first country to ban 737 Max planes. Australia, Canada, Singapore, Indonesia, Europe, New Zealand, etc. followed suit.

Prioritising profits over passengers’ safety

Boeing engineers raised their concerns for safety but were shut down by Boeing’s executives.

The “revolutionary” 737 Max includes a significant change, a new software: MCAS, which pushed the nose of the aircraft down, causing the two crashes.

From the documentary, it appears that Boeing wanted to avoid the expensive costs to train pilots and categorised MCAS as a minor change.

Over 300 people lost their lives as a result. But Boeing’s share price was unaffected.

Even though Dennis Mullenburg was fired, he walked away with over US$60 million. There must be consequences for people who disregard public safety.

Lesson on diversity for all of us

Here are my takeaways:

• If we were not biased towards Indonesia’s Lion Air, we might have caught the default in Boeing 737 Max earlier, and the second crash might not have happened.
• If we did not prejudice Ethiopian Airlines, countries could have grounded 737 Max much earlier.
• The world needs diverse voices. The USA cannot be the dominant voice that “leads the world”. We need Asian, African, Middle Eastern, Latin American, etc. voices at the table to hold each other accountable. I shudder to imagine if China did not lead ground 737 Max, how many more lives would have been lost?
• A company needs to heed the voices of their engineers as much as their sales and marketing people.

Perhaps I feel more strongly about this due to my close proximity to Lion Air. I would love to hear what your thoughts are.

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ScaleUp Malaysia, an accelerator programme that focusses on growth-stage companies in Malaysia, in partnership with Quest Ventures, Indelible Ventures, and Mranti, today announced the 11 companies from its third cohort that have raised investments from the investors.

Kicked off August 2021, ScaleUp Malaysia said that it drew over 200 applications from 26 countries including Malaysia, the US, Egypt, Indonesia, Singapore and Japan. Twenty companies were shortlisted to participate in Cohort 3 and placed into separate tracks, giving them exclusive access to Quest Ventures and Indelible Ventures respectively over the course of 16 weeks.

Each company will receive up to US$60,000 (~MYR250,000) in investment.

The following is a list of the companies and the tracks they were grouped in:

Quest Ventures track

GuruInovatif
A platform that provides complete online resources for teachers’ professional development.

MADCash
A digital platform that tracks the impact of funding an interest-free microloan given to unbanked women micro-entrepreneurs.

Also Read: 25 notable startups in Malaysia that have taken off in 2021

Open Academy
An education platform that provides real, non-theory based programmes, training, and content by industry practitioners.

SpareXHub
Provides an e-commerce marketplace for genuine auto spare parts. They believe Every Part Has A Car and this marketplace brings together automotive stockists, independent workshops and car owners in Malaysia’s first platform, where heavily discounted and guaranteed genuine car parts are sourced and sold in complete confidence.

VireServe
A Managed Service Provider that focuses on Cyber Security and IT Solutions. The platform can be used as a tool for freelancers and/or consultants to perform compliance consulting and act as lead generation to Service Providers (Technology Principals & System Integrators).

WA Sushi
An F&B e-commerce company, building “quality food made for delivery”. WA in Japanese means peace, harmony and the company’s mission is to “deliver happiness through great food”.

Indelible Ventures track

Howuku
An online platform that offers an all-in-one web optimisation and analytics solution. They provide a set of easy to use UX testing tools to help you visually understand your visitors so you can focus on improving conversion rates.

Kumo
A SaaS provider for the beauty and medical aesthetics industry.

Midwest Composites
A go-to Engineered Composites Partner. They design and manufacture Advanced Composites and Biobased Composites for customers that want to use futuristic materials in their products.

Also Read: How Malaysian workplaces need to manage the impact of “coronastress”

New investments by ScaleUp Malaysia

RECQA
A knowledge sharing platform for team members to share learnings and other relevant information and contribute to an organisation’s collective intelligence.

BizTech Asia
A cross-media and marketing B2B platform that enables business to business marketing for our clients via scheduled video & podcast content as well as networking & corporate gaming events.

BizTech Asia and RECQA are alumni from the programme’s second cohort. Quest Ventures and Indelible Ventures also announced that it is looking to announce one or two more companies at a later date.

ScaleUp Malaysia has also opened registration for startups to state their interest to participate in Cohort 4.

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ScaleUp Malaysia has partnered with e27 to provide their investees access to e27 Pro with complimentary 30 days access and a 40 per cent discount if they continue with their membership.

With over 400 verified active investors on the platform, e27 Pro members will have the ability to find, connect, and engage with the right investors for their companies.

Not a Pro member yet? Start here.

Image Credit: ScaleUp Malaysia

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While there are various Singapore government grants available to Singapore-incorporated companies, not every company will qualify for such grants or find them sufficient for its growth or working capital.

In such cases, funding from investors becomes necessary, whether it is from the infamous 3Fs (friends, family and fools) or venture capitalists.

This article examines the common forms of debt and equity financing adopted by private companies incorporated in Singapore to raise funds.

Prospectus requirements

It is important to note from the outset that the Securities and Futures Act (Cap. 289) of Singapore (“SFA”) requires a prospectus to be issued for all offers of securities (including shares and debentures) or securities-based derivatives contracts unless they are excluded or exempted from such requirement.

Exempted offers include:

• Small personal offers where the total amount raised from such bids within any 12 months does not exceed SG$5 million (US$3.72 million) or such other amount as may be prescribed by the Monetary Authority of Singapore (section 272A of the SFA)
• Offers made to no more than 50 persons within any 12 months (section 272B of the SFA)
• Offers made to institutional investors (section 274 of the SFA)
• Offers made to accredited investors (section 275 of the SFA)

In each case, subject to any further conditions such as the offer not having been accompanied by an advertisement (other than an information memorandum prepared as a basis for the investment decision) and no promotional expenses incurred in connection with the offer.

Companies looking to raise funds without a prospectus should ensure that their offers fall within the relevant exemption or are otherwise not regulated under the SFA.

In the crowdfunding space, debt-based crowdfunding (commonly known as peer-to-peer (P2P) lending) and equity-based crowdfunding are subject to the above prospectus requirements as they are considered to be offers of securities, including crowdfunding involving the use of digital tokens or cryptocurrencies which fall within the definition of securities under the SFA.

In addition, operators of crowdfunding platforms that facilitate such offers or provide advice relating to such offers may be seen to be “dealing in securities” or “advising on corporate finance”, respectively, which are regulated activities requiring a capital markets services licence under the SFA.

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

Other types of crowdfunding which are not securities-based (such as rewards-based or donation-based crowdfunding) do not fall within the above purview of the SFA.

However, crowdfunding for charitable purposes will be subject to the Code of Practise for Online Charitable Fund-raising Appeals, which ensures the legitimacy, accountability and transparency of philanthropic appeals hosted on crowdfunding platforms in Singapore.

Debt vs equity

The two main types of financing available to companies are debt and equity.

Debt financing involves the borrowing of monies, while equity financing involves selling part of the equity in the company. Deciding between debt and equity financing will depend mainly on the stage a company stands, its financial status and business needs, amongst other things.

In determining the type of financing to adopt, a key consideration is whether the company is willing to relinquish any equity as this would result in a dilution of ownership and, potentially, management control and a sharing of any profits of the company, which may ultimately cost more than a loan.

The upside to this is that, unlike a loan, no repayment of monies is required, which can be advantageous to companies without significant cash-flows or profits yet and which need a longer trajectory to break even.

Companies may also potentially raise more funds through equity financing, where the capacity of the business to support debt is constrained, particularly where the business’s growth potential supports a high valuation of the potential earnings.

In terms of speed, debt financing in a simple loan from investors is generally faster to secure. This is mainly attributed to the additional time required for investors to conduct due diligence and negotiate investor rights before acquiring equity in a company. This is usually seen as a long-term investment.

However, there are instances where debt financing may also involve such due diligence or negotiations, particularly if the loan is sought from banks or other financial institutions (which is outside the scope of this article), or in hybrid cases combining both debt and equity financing such as venture debt and convertible debt as further discussed below.

As part of such due diligence or negotiations, the investor may require the company to rectify any issues and provide certain warranties (to be qualified by any disclosures) and indemnities to mitigate any risks discovered during the due diligence exercise.

Debt financing

Loans are typically obtained as short to medium-term solutions to provide immediate or recurring cash flow for working capital needs. However, longer-term finance may be required to finance capital expenditure.

Also Read: Why companies should prioritise compliance during a worldwide pandemic

They may be subject to interest with a fixed repayment plan and secured by collateral provided by the company and its founders in favour of the lender, such as personal and corporate guarantees and charges over assets.

In addition, the lender may require the company to give negative covenants to restrict or prohibit the company from carrying out certain acts which may adversely affect the loan, such as incurring further indebtedness and creating further encumbrances over assets.

The lender will be able to assert limited control over the business management in this manner, despite not having any voting rights in the company.

Some companies may find debt financing unsustainable due to the strain of repayment, high-interest rates or lack of significant assets to offer as collateral over time.

The severe implications of becoming insolvent and possibly even being wound up due to defaulting on loans is another reason for businesses not to overextend their debts. Any guarantors of the loans would also be affected, running the risk of bankruptcy in the case of personal guarantors, usually the founders.

Therefore, many startups prefer to treat debt financing as an interim arrangement (such as a bridge loan or subordinated debt that converts into the next equity round) until they can secure more permanent financing.

Hybrid financing

An alternative form of debt financing is venture debt which has recently emerged in Singapore and aims to support high growth enterprises between equity financing rounds.

Under a venture debt, the loan quantum is usually a percentage (e.g. 30 per cent) of the amount raised in the company’s last equity financing round, coupled with an option for the lender to acquire equity in the company at a percentage (e.g. 20 per cent) of the loan quantum in the future.

The Singapore government has introduced venture debt programmes to support this, such as the Enterprise Financing Scheme (EFS) Venture Debt Programme, which provides a loan quantum of up to SG$8 million (US$5.95 million) to eligible companies.

Venture debt is distinguished from convertible debt, where the lender usually has the right to convert the loan quantum to equity upon the occurrence of certain trigger events (such as a qualified equity financing round), subject to any anti-dilution rights further discussed below.

This would result in a higher dilution of ownership of the company compared to a venture-debt where equity to be acquired limited to a percentage of the loan quantum.

This distinction is intended given that venture debt is meant to complement and not replace equity financing, providing startups with a quick boost without drawing significantly on equity reserves.

Equity financing

Equity financing is generally carried out via a subscription of new shares in a company with one or more classes (and sub-classes) of shares.

Also Read: 7 common legal pitfalls startup founders should avoid

While it is also possible for investors to acquire existing shares in the company via a share transfer (e.g. from a founder or a leaving shareholder) and limit the effect of dilution only to the transferor, the funds for such share transfer would be payable to the transferor and not the company requiring such funds.

Such share transfer would also be subject to a stamp duty of 0.2 per cent of the purchase price or the net asset value of the shares, whichever is higher.

Typically, the founders of a company would hold ordinary shares with voting rights and, depending on the parties’ negotiations, incoming investors may then subscribe for preference shares with preferential rights.

Any subsequent equity financing round would then involve a subscription of a new class of preference shares, usually with preferential rights ranking higher than those offered in the last equity financing round.

Preference shares are characterised by the preferential rights attached to them with respect to priority of repayment of capital in a liquidation event (such as a trade sale), participation in surplus assets and profits, cumulative or non-cumulative dividends, voting and priority of payment of capital and dividend about other shares in the company.

Parties may further negotiate for preference shares to be redeemable by the company and convertible to ordinary shares in the future, including in a qualifying IPO.

Anti-dilution rights may accompany conversion rights attached to preference shares. The company subsequently issues new securities at a lower price than the existing preference shares (i.e. a down-round).

Anti-dilution rights are usually based on a full ratchet or a weighted average. A full ratchet adjusts the conversion price of the existing preference shares to the lower price in the down-round, while a weighted average adjusts such conversion price by taking into account:

• The number of ordinary shares outstanding before the down-round calculated on a fully diluted, as-converted basis (i.e. broad-based).
• The number of the ordinary shares outstanding before the down-round is calculated by considering only ordinary shares issuable upon conversion of the preference shares in question (i.e. narrow-based).

As anti-dilution rights favouring the investor will inevitably further dilute the founders’ shareholdings in the company, the founders should consider whether they are willing to offer such anti-dilution rights and, if so, which formula should be applied in the circumstances.

Under section 75 of the Companies Act (Cap. 50) of Singapore, the rights attached to preference shares must be set out in the company’s constitution before issuing such shares.

It would also be prudent to amend the company’s constitution for consistency with any investment agreement between the parties to avoid any conflicting provisions in the company’s constitution, given that the company’s constitution is a public contract separate from such investment agreement and binds the company and the registered shareholders and not just the parties to the shareholders’ agreement.

In addition to the rights attached to preference shares, investors may also request other investor rights such as board representation, inclusion in the quorum for board or shareholder meetings, pre-emption rights or rights of first refusal, tag or drag-along rights, information rights and reserved matters (depending on whether the investor will be a minority or majority shareholder or is a lead investor in the equity financing round).

Also Read: 9 fundraising mistakes entrepreneurs and founders must avoid

Parties will usually spend some time negotiating such investor rights as they will allow the investor to exert influence over the company’s management. However, this may be beneficial to the company to a certain extent if the investor is a business collaborator or has relevant expertise to contribute to the company.

Venture capital investment model agreements

To facilitate seed rounds and early-stage financing, the Singapore Academy of Law and the Singapore Venture Capital & Private Equity Association have launched a set of model agreements known as Venture Capital Investment Model Agreements (“VIMA”), which comprise the following documents:

• Venture capital lexicon
• Non-disclosure agreement
• Convertible agreement regarding equity (CARE)
• Series A term sheet (short and long-form template)
• Subscription agreement
• Shareholders’ agreement.

However, VIMA should only be used for general reference and not as legal advice.

The relevant documents provided in VIMA may need to be customised and supplemented to meet the parties’ requirements, especially to incorporate any negotiated points in compliance with applicable laws and best practices.

Legal advice regarding each financing round should be sought for this purpose.

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Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic.

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Imagine entering a store, restaurant, or office without temperature control. Uncomfortable, right? Especially in the Asia Pacific’s tropical and subtropical regions, building cooling is a business-critical expectation, not an option.

It goes beyond comfort. Establishments like hospitals and some factories require temperature control to operate properly.

Demand for cooling is expected to proliferate as economies develop, people’s livelihoods improve, and poverty decreases. Approximately two-thirds of today’s buildings will still exist in the next 20 years. On top of that, the world will add 2.4 billion square metres of new building floor area by 2060.

Also read: CM.com enables growth for Southeast Asian businesses and beyond

The linkage between cooling demand and socio-economic development poses a sustainable development challenge, however. Temperature control, along with lighting and other building operations, already contributes 28 per cent of the world’s carbon emissions annually and is a major contributor to climate change.

The world’s decarbonisation efforts, therefore, hinge on finding ways to cool buildings, both new and existing, more efficiently.

How should we start?

“Overall, about 20% of the electricity used in buildings goes to cooling,” said Priyantha Wijayatunga, Chief of the Energy Sector at the Asian Development Bank. “By 2050, it is estimated that it could be as high as 30% under cooling demand, and in some countries, it can be even higher.”

An increase in cooling demand will mean an increase in electricity consumption, and this is where the importance of sustainable energy consumption comes in, especially for Asia Pacific countries.

“Our energy sector contributes to almost 50 per cent of greenhouse gas emissions in the world,” Wijayatunga said. “Asia Pacific is a critical region when it comes to cutting down greenhouse gas emissions.”

Also read: Feeling the pressure to boost your startup? Let e27 PRO+ help you

Given the region’s contribution to global greenhouse gas emissions, much of the discussion around solutions naturally gravitates towards increasing the supply of green energy. Yet, renewable energy sources cannot solve the problem on their own. Capital investment is high, and new infrastructure will be needed to support it.

That is why Arjun Gupta, founder of India-based Smart Joules, believes energy efficiency deserves more attention.

Energy savings is not only scalable but very profitable

“One of the biggest opportunities for Smart Joules and the way we look at energy management is to attack all the sources of energy waste that we find in every business and every factory,” said Gupta.

And what they found is that there are three things that contribute to energy waste: poor cooling system design, wrong cooling equipment, and operational inefficiency.

Smart Joules looks into these three things and works with their customers to improve their current structure and guarantee a reduction in energy consumption. While the solution may sound simple, it’s the technology-enabled execution that makes Smart Joules unique.

It starts with Smart Joules taking on all the risk by investing in all the cooling equipment at no upfront cost to the building owners. The building owners would then pay Smart Joules back over time by sharing their energy savings.

This business model innovation by Smart Joules may just be the key in addressing one of the highest barriers to improving energy efficiency in building cooling; with no large capital investment, more and more building owners can afford to easily shift toward energy-efficient cooling systems.

KIMS hospital is one of the companies that Smart Joules has worked with. “Electricity accounts for almost 50 to 60 per cent of the overall expenditure,” said Dr Abhinay Bollineni, CEO at KIMS hospital. “It’s very important to get the design right, it’s very important to get the cost structure right. And it’s very important that it can sustain for a long period of time.”

Also read: 36 unique startups to pitch before 1500 global investors

KIMS hospital ended up with savings of roughly US$50,000 yearly, which is shared with Smart Joules.

New solutions like these, while important, tend to scale slowly. How are we now supposed to make this accessible to more people?

“Partnerships are absolutely going to play a key role in making this happen,” said Gupta.

Existing companies already have the things needed to make a huge impact on a large scale. Gupta gave the example of an electric utility company with thousands of commercial customers. Working with the electric utility company instead of individual buildings or customers would give the solution instant scale.

Imagine an electric utility company with a geographical grid of about 50,000 commercial buildings and establishments. By partnering with Smart Joules and offering their solution at no upfront cost for building owners, energy-efficient cooling solutions can be instantly implemented in all of them.

For these electric companies, partnering with and sharing the upfront costs with Smart Joules to provide these solutions to their customers means implementing and investing in energy-efficient solutions at a large scale. This would result in them avoiding much more costly investments in new energy generation to meet increasing energy demand.

No upfront costs for customers, earnings from energy savings, profitable business opportunities, and reduced carbon emissions. This just might be the solution we were looking for.

The Climatic Series episode 3

In this episode of the Climatic Series, we take a look at how demand for cooling will lead to a surge in electric consumption and meet startups, investors, and other stakeholders who are working on meeting these energy needs in a more sustainable way.

Watch the talk show here

Watch the solutions showcase here

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Photo by Scott Webb from Pexels

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This article is produced by the e27 team, sponsored by ADB Ventures

We can share your story at e27, too. Engage the Southeast Asian tech ecosystem by bringing your story to the world. Visit us at e27.co/advertise to get started.

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Thai VC firm ORZON Ventures has invested in five local startups operating in mobility and lifestyle.

The startups are Pomelo, Carsome, Freshket, GoWabi, and Protomate.

ORZON Ventures is a US$50-million VC fund launched in October 2021 by SGHoldCo, a wholly-owned subsidiary of Thai oil company OR and early-stage investor 500 TukTuks (now 500 Global). The fund invests in early-stage startups (Series A to B) in both OR-related businesses areas and in new businesses in the mobility and lifestyle sectors.

By investing in startups through ORZON Ventures, OR seeks to thrive beyond the oil business, realising startups’ strengths in the use of technology and their adaptability to the rapidly changing economic landscape. It is an opportunity for OR to develop synergistic projects with startups in Thailand and the region.

Also Read: Freshket nets US$3M to bring together farmers and food processors to supply fresh produce in Thailand

The startups have access to 500 Global and 500 TukTuks’ global VC network and business consultation from ORZON Ventures’s general partners, namely Krating Poonpol, Natavudh (Moo) Pungcharoenpong, and Pahrada (Mameaw) Sapprasert.

Below are the brief profiles of the five startups:

Pomelo: An online fashion brand and platform in Southeast Asia, Pomelo’s Tap Try Buy concept allows customers to order online and try in-store or at home before making the purchase. Pomelo also serves as an omnichannel enabler for brands. It now offers more than 500 brands locally and globally on its platform.

Carsome: It is an online platform for buying and selling used cars in the region. Carsome provides end-to-end solutions to consumers and used car dealers, from car inspection to ownership transfer to financing.

Also Read: Carsome completes acquisition of ASX-listed content automotive platform iCar Asia

Freshket: It is an online food supply chain platform for HoReCa businesses and consumers, offering a variety of more than 7,000 items of fresh and dried food from quality suppliers. Freshket now has over 10,000 HoReCa customers.

GoWabi: It is an online platform for discovering and booking health and wellness services online, matching OR’s direction of creating a lifestyle ecosystem for customers. Users can easily search for services, compare prices, find discounts, read reviews and ratings by other customers, and book and pay online. GoWabi also offers a SaaS tool for their thousands of providers to help manage and optimise their business.

Protomate: It is a hardware AI startup producing consumer electronics products and services in emerging technology areas. Its innovative solutions match OR’s mission to uplift the mobility experience for customers.

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