On the first day of Echelon Asia Summit 2023 on June 14 at the Singapore Expo, two leading fintech companies in Southeast Asia (SEA) revealed the key points to their steady growth throughout the years: A careful approach to fundraising and regional expansion to neighbouring countries.
According to Richard Koh, Founder/Group CEO of M-DAQ Global at a panel discussion on Forge Stage, regional expansion is all about timing.
“There is no middle ground; you are either too early or too late. So, in the early part of our journey, back in 2010-2012, we tried to scale up, tried to grow, tried to hire a little bit too early. Earlier than what our clients are expecting us to be ready when the market is going to be ready for our product,” Koh said, adding that during this difficult time, there was a moment when his employees did not receive salaries for months.
“At the same time, if we had done it too late, the space that we were trying to get into might be overcrowded. You will become a red ocean rather than a blue ocean. So timing is something we are still trying to get right; unless you have a crystal ball. It’s still a bit of a guesswork, but I guess through various iterations, you get slightly better and better.”
The importance of timing is also something that Nikhilesh Goel, Co-Founder & Group CEO of Validus, agreed on. He also added the importance of resilience in achieving it.
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“The second is not getting swayed positively or negatively by the startup fairyland stories. There are so many startup founders who expect to be valued at US$100 million next year, a billion dollars next year, and so forth. But our stories do not always pan out like that. It takes a very long time,” he explains.
“We spent a long time in Singapore before we decided to add that second country because we wanted to make sure that we believed in our product. We are sure that when we take it outside Singapore, it will work. We did not have the FOMO to add a new country because our competitors were doing it.”
Goel also stressed on the importance of credibility when trying to expand into new markets. Validus achieved it by choosing to partner with investors that are linked to the government of Singapore; something that he dubbed as “easily” marketed to in countries such as Indonesia and Vietnam.
A slow approach to fundraising for fintech companies
The same kind of careful approach was also used by these fintech companies in fundraising.
M-DAQ is known to have a large gap of time between its funding rounds; this gap could reach all the way to five years. These funding rounds are also not well-publicised.
“We enter the market every three to four years even during the heydays of startup funding, when somebody is going to raise some funds every six months. We try to raise enough and just stop. At the same time, we also try to do something a bit unusual. On average, in the last two-three rounds, when we raise the fund, 70 per cent or more of the fund goes back to our previous investor. So we took it upon ourselves to take care of them,” Koh said.
Koh attributed this attitude to the “Asian mentality” that he grew up with, one that puts emphasis on never having to have debts whenever possible.
“Growing up, I was taught never to owe people money. This is why we sort of baulk at doing too frequent fundraising and making announcements about it. Because it feels like I was telling the world that I just borrowed US$100 million,” he said. “But during when winter time, it turns out to be a little bit of a safety net.”
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When it comes to fundraising, Validus is also careful in choosing which deal to close.
“There are tons of VCs who claim to add value. But when you ask them to define it, most are at a loss for words. So, we have chosen our investors very carefully,” Goel said, stressing that the fintech company raised “very little” money from VCs. Instead, they opted to focus on raising money from government-linked entities and large families in the region.
“Our last round was led by Japanese and Korean banks because we believe that they are a lot slower; they are a lot more conservative in terms of valuation,” he explained.
“We have always chosen the term sheet with the lowest valuation because anybody who is giving you a very high valuation basically is not going to add any other value. So, the first term sheet that we got was from Temasek. Once you get that kind of credibility, a whole host of ecosystems opened up to us that would never open up otherwise. But that was the stingiest term sheet we got. The same goes for term sheets from banks. I think there are now too many examples, whether listed companies or private companies in India, where their market cap today … is not even 1/10 of the valuation that it used to be.”
Validus is one of SEA’s largest SME lending players focused on Singapore, Indonesia, Vietnam and Thailand.
M-DAQ is a B2B player that works with local banks and e-commerce platforms. It has just under 300 people operating over eight overseas offices.
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