Earth Venture Capital (Earth VC), a global climate-focused VC firm, has made an undisclosed investment in German biotech startup Cambrium’s seed extension round.

Gradient Ventures anchored this round.

Also Read: Earth VC backs US nuclear energy startup Aalo Atomics

Cambrium develops sustainable biomaterials by fusing AI with biotechnology.  It creates protein-based materials, the building blocks for sustainable alternatives to petrochemical products. Leveraging biotechnology and AI, the startup aims to produce biodegradable materials that replace conventional resources.

Its current focus includes NovaColl, a precision-fermented, skin-identical collagen for personal care, launching in 2024, and plastic-free leather alternatives for fashion, launching in 2025. These innovations cater to rising consumer demand for sustainable products.

The latest funding will expand Cambrium’s production capabilities and accelerate product development in personal care, fashion, and nutraceuticals. By 2025, Cambrium plans to introduce plastic-free leather alternatives and textile coatings.

Also Read: Earth VC joins US-based cultivated meat startup Orbillion Bio’s funding round

Since its founding in 2020, Cambrium has raised EUR 11 million in funding.

“Investing in Cambrium is a direct bet on the future of sustainable materials, which is expected to reach US$138 billion by 2030. Protein-based innovations like Cambrium’s are the game-changers we need to decarbonise industries,” said Tien Nguyen, Founding Partner at Earth VC.

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Malaysia is catching up as a “sexy” place to set up a VC shop in the past year with a series of back to back funding commitments via the fund of funds by the government.  To recap, the Malaysian government announced the “fund of funds” programme in April, which will focus on VC fund managers investing in local startups, with a funding commitment of at least RM5 million (approximately US$1,149,393.88) per VC fund.

Fast forward to October, Khazanah Nasional Bhd, Malaysia’s sovereign wealth fund announced that the “fund of funds” programme will be open to all local Malaysian VC fund managers, focusing on VC fund managers who are raising their first, second, or third fund based in Malaysia or overseas, as well as regional or international VC fund managers seeking to leverage their portfolio companies to add value by expanding into Malaysia.

Regulatory framework for VC fund management in Malaysia

A person seeking to raise and manage a VC fund in Malaysia needs to be registered as a VC fund manager by the Securities Commission Malaysia (SC). 

Key regulations to be aware of include the Capital Markets and Services Act 2007 (CMSA), the  Securities Commission Guidelines on Venture Capital and Private Equity (Guidelines) together with other applicable guidelines that may apply to a VC fund operations. The Frequently Asked Questions should also address common questions based on SC’s past queries. 

Additionally, this year the Practical Guide on Venture Capital and Private Equity in Malaysia was published by the SC with contributions by the Central Bank of Malaysia, Ernst & Young, and the members of Malaysian Venture Capital and Private Equity Association (MVCA) (I co-contributed to the publication under my role at Izwan & Partners). The guide covers common topics from regulatory framework, fund structuring, to fund management and operations. 

Note that existing global VCs with strong track records and at least US$100 million in assets under management may apply to the SC for an expedited approval process via the “VC Golden Pass” programme.

At least one “responsible person”

As an applicant applying to become a VC fund manager, you need to have at least one full-time person designated as a “responsible person.” A “responsible person” must be “fit and proper” (i.e., no past conviction involving any financial crime) and have the necessary relevant work experience (e.g., fund management, corporate finance, management consulting, corporate law) for at least the past five years. The SC may also assess a startup founder as a potential applicant.

Paid up capital requirements

As an applicant, you need to maintain at least RM100,000.00 (approximately US$23,250.00) of net assets at all times. 

Choosing a fund structure

A VC fund may be formed in Malaysia either as an onshore fund by forming a private company or as an offshore private fund as a limited partnership under the Labuan private fund structure.

If a VC fund is formed onshore as a company, the investors will subscribe to new shares on a “capital call” basis based on the total capital commitments. 

Also Read: The state of digitalisation in Malaysia 2024: How other Southeast Asian countries can learn from them

Alternatively, a VC fund may be formed as a Labuan private fund under the limited partnership structure, which is consistent with international practices by having the legal distinctions of limited partners and the general partner. Note that additional rules apply under the Labuan Financial Services Authority (LFSA), as it is considered an offshore domicile.

In our experience, a VC fund may also be formed offshore in other jurisdictions under a “master-feeder” structure or a “fund of funds” structure.

Raising capital from “sophisticated investors”

Like other VC funds overseas, the fund’s information memorandum may only be circulated to “sophisticated investors”. A “sophisticated investor” in Malaysia is defined as a person with a total net assets of RM3 million (approximately US$689,642.68) or a gross annual income of RM300,000.00 (approximately US$68,964.00) or an entity with at least RM10 million (approximately US$2,298,808.94) in assets and other accredited investors (eg, other approved entities like institutional funds). 

Earlier this year, the scope of a “sophisticated investor” was expanded to include professionals in the capital market or in the financial services industry (eg, chartered accountants, licensed financial planners). This includes accredited angel investors (i.e. members of the Malaysian Business Angels Network). 

Tax consideration

As a VC fund manager, you may be eligible for tax exemption on the carry interest and the management fee so long as the fund has been certified by the SC, while LPs that invest in a VC fund  may also be eligible for tax deduction subject to SC’s prior certification. 

Engaging service providers and professionals

When deciding on the fund structure, you may also wish to consult a tax adviser, legal counsel, fund accountant, and corporate secretarial firm to assist with fund structuring matters, from fund documents to agreements (e.g., information memorandum to subscription agreement).

Final thoughts

The new funding programmes will hopefully benefit the local VC landscape and contribute to the growth of both the VC sector and the startup ecosystem in Malaysia.

As a venture lawyer, we have advised VCs in the past on both onshore and offshore funds. In our experience, VCs may need to consider carefully the appropriate fund structure and adhere to compliance obligations. For instance, a VC fund formed outside Malaysia may have different considerations, and other bodies of law may apply to it and its fundraising efforts. Working closely with a venture lawyer helps ensure that your VC fund is set up smoothly.

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As startups disrupt Southeast Asia’s legacy business models, the region’s legal profession undergoes its soul-searching mission over how its service is delivered and how to attract and retain top talent. 

Last year, Southeast Asia’s startup ecosystem saw a record US$25 billion investment. Today, the region’s digital companies alone are worth around US$340 billion, a number that is expected to grow to US$1 trillion by 2025.

With companies and startups around the region riding on the digital wave, almost every industry has experienced some form of digital disruption and upheaval of traditional commercial models.

Yet, until recent years, one sector has remained absent from this revolution: law.

However, thanks to the flourishing startup ecosystem and the demands of startups and their founders, that is starting to change.

For the uninitiated, legal technology, known as legaltech, is the convergence of legal services and technology designed to improve legal services (typically centring around making lawyers’ costly manual processes cheaper and more efficient).

Legaltech emerged to provide technology solutions and innovations to law firms, and while the first case management tools emerged as far back as the 1980s, the industry has been slow to adopt them.  

Despite the plethora of very interesting use cases for the legal profession, including automating the creation of legal documents, special tools to help in discovery (the process of sifting through large volumes of evidence during litigation), due diligence and many more, the adoption of such tools within the legal industry has been slow-moving.

Also Read: Legaltech on blockchain is the next hot investment sector. Here’s why

However, the legal profession might not be able to drag its heels as the explosion of startups seeking legal services with more cost transparency, flexibility and efficiency have seen legaltech pivot towards the end-users needs.

Startups, especially those in the early stages, tend to be cautious in resourcing. Everything from getting their business up and running to securing investment costs money they would have traditionally spent with law firms but often can not spare. 

This problem is at the heart of legaltech solutions that aim to service startups and small businesses by removing the need to engage lawyers. Many new and cutting edge startups, especially high-growth technology companies, will also be looking for digitally-enabled solutions to power their backend, including their legal.

In the last few years, legaltech companies have emerged that aim to serve the end-users rather than law firms (sometimes referred to as lawtech). Leveraging technology, these companies can aid early-to-mid stage startups by automating paperwork, speeding up research and drawing up smart contracts. 

Early-stage startups benefit from having access to automated legal docs to help them start, raise and grow. Platforms like SeedLegals allow startups and investors to generate employment agreements, and NDAs raise traditional funding rounds or agile fundraising between rounds and even incentivise teams through option schemes. 

The idea is not to put lawyers out of work but rather to give startups an alternative option when they’re at the earliest stages so they don’t have to spend money they don’t have on bloated legal services.

Startups these days are also nimble, agile and global, so having a fully digital solution such as SeedLegals means they can continue to move just as quickly and efficiently when it comes to their legal.    

Also Read: How to protect your early stage startup from unnecessary legal hassles

In 2021, the legaltech industry drew in more than US$1 billion in funding through 85 funding rounds. Regionally, Singapore and Hong Kong are showing high demand for legaltech, while industry innovation continues to sweep the wider Asia Pacific market. Amid this rise in customer and investor demand, the eyes of talented legal professionals are quickly taking notice.

A new alternative

Last year, 538 burnt-out, disillusioned lawyers in Singapore left the profession for good, citing overwork and toxic behaviour. Despite being one of the most coveted professions, the legal industry suffers from a talent churn.

Every year, Southeast Asia’s law firms and in-house legal teams draw a healthy supply of new entrants, but they need to retain talent has become ever-pressing.

The startup ecosystem presents an increasingly appealing route for lawyers rethinking their traditional career journeys. Of all traditional sectors, the law has been one of the slowest to transform and adapt itself.

The result is smart, educated, well-trained lawyers are leaving the profession entirely in search of more “commercial” roles that offer different types of opportunities. Many have opted to move into product management, business development, strategy and pure technology roles that allow them to leverage the skills they built through traditional legal practice. 

Although moving towards commercial roles isn’t a new phenomenon, nine per cent of global CEOs have a legal background; there are signs the golden handcuffs that law firms once commanded over their lawyers are not quite so golden in the new world we operate in.

For lawyers seeking to bridge the gap between their pedigree and technology, legaltech offers a new world of possibilities powered by digital disruption. Digitally-savvy law students, in particular, are most primed to seek career paths outside traditional legal practice and reshape the industry for years to come.

Armed with legal training and technological understanding, this new wave of lawyers is positioned to drive the growth of the Southeast Asian ecosystem. They are the ones to offer founders and entrepreneurs a seamless way to understand the legal obligations required for their fundraising goals. 

Once relegated to back-office support services, legaltech is now entwined with Southeast Asia’s digital revolution. The rise of legaltech is a win-win for both startups and law firms. As legaltech continues to accelerate, both the ecosystem and the legal industry can transform, thrive, and benefit each other.

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This article was first published on April 6, 2022

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Exchange-traded funds (ETFs) have revolutionised the investment landscape, offering a versatile and cost-effective way for individuals and institutions to gain exposure to a wide range of assets. As financial markets evolve, the emergence of crypto ETFs has introduced a new dimension to this investment vehicle, providing regulated access to the volatile and rapidly growing world of cryptocurrencies.

This article outlines the key features of ETFs and crypto ETFs, their advantages, and the potential risks investors should consider.

What is an ETF?

An ETF is an investment fund that holds a collection of assets such as stocks, bonds, commodities, or other securities. Like individual stocks, ETFs are traded on stock exchanges, allowing investors to buy or sell shares throughout the trading day at market prices. ETFs offer several advantages, including diversification, liquidity, lower fees, and tax efficiency, making them an attractive option for both retail and institutional investors.

Key features of ETFs

• Diversification: ETFs typically hold a broad basket of assets, allowing investors to spread risk across various sectors or asset classes. This reduces exposure to the volatility of any single investment.
• Liquidity: Traded on exchanges, ETFs provide greater liquidity compared to mutual funds, which can only be traded at the end of the day. This makes it easy for investors to enter or exit positions during market hours.
• Low fees: Most ETFs have lower expense ratios than mutual funds due to their passive management, often tracking a specific index (e.g., S&P 500).
• Tax efficiency: ETFs offer greater tax efficiency compared to mutual funds by deferring capital gains taxes due to their unique structure.
• Transparency: Many ETFs disclose their holdings daily, giving investors full visibility into what they own.
• Variety: Investors can choose from a wide range of ETFs, including those that track indexes (like the S&P 500), sectors (technology, healthcare), commodities (gold, oil), bonds, international markets, and even specific themes such as ESG (Environmental, Social, and Governance).

Types of ETFs

• Stock ETFs: Track a basket of stocks or specific indexes.
• Bond ETFs: Invest in various types of bonds, such as government or corporate bonds.
• Commodity ETFs: Hold physical commodities like gold or oil.
• Sector/Industry ETFs: Focus on specific industries such as technology or healthcare.
• International ETFs: Provide exposure to foreign markets.
• Thematic ETFs: Invest in companies based on themes such as clean energy or blockchain.

Introduction to crypto ETFs

As the cryptocurrency market continues to gain prominence, crypto ETFs have emerged as a way for investors to gain exposure to digital assets like Bitcoin and Ethereum without directly owning or managing these volatile and complex instruments. Crypto ETFs blend the structure of traditional ETFs with the unique characteristics of cryptocurrencies, providing a regulated and accessible way to invest in the crypto space.

Also Read: Asset classes demystified: Building a strong, diversified portfolio in today’s financial markets

Key features of crypto ETFs

• Diversification: Crypto ETFs can offer exposure to a single cryptocurrency, such as Bitcoin, or a diversified portfolio of multiple digital assets. This diversification helps spread the risk associated with the volatile nature of cryptocurrencies.
• Liquidity: Like traditional ETFs, crypto ETFs are traded on stock exchanges, providing liquidity throughout the trading day. Investors can easily buy or sell shares, similar to trading traditional stocks or ETFs.
• Accessibility: Investors can gain exposure to cryptocurrencies using their existing brokerage accounts, eliminating the need for digital wallets or direct interaction with cryptocurrency exchanges.
• Regulation and security: Crypto ETFs operate under regulatory oversight, providing an added layer of security and transparency compared to direct cryptocurrency investments.
• Professional management: These ETFs are typically managed by financial professionals, who handle the complexities and risks associated with the cryptocurrency market.

Types of crypto ETFs

• Spot crypto ETFs: These ETFs directly hold the underlying cryptocurrency. For example, a Bitcoin Spot ETF holds actual Bitcoin in its portfolio.
• Futures-based crypto ETFs: These ETFs invest in cryptocurrency futures contracts rather than holding the underlying digital asset. Futures-based ETFs introduce additional complexities, including potential discrepancies in performance.
• Thematic crypto ETFs: These ETFs focus on specific themes within the cryptocurrency space, such as decentralised finance (DeFi), blockchain technology, or NFTs (Non-Fungible Tokens).
• Index-based crypto ETFs: Track a cryptocurrency index, which may include multiple digital assets based on criteria like market capitalisation.

Advantages of crypto ETFs

• Ease of access: Investors can gain exposure to the cryptocurrency market without the need for digital wallets or navigating crypto exchanges.
• Regulatory oversight: As regulated financial products, crypto ETFs offer a sense of security and legitimacy compared to unregulated crypto investments.
• Tax efficiency: In some jurisdictions, crypto ETFs may provide more favorable tax treatment compared to directly holding cryptocurrencies.
• Liquidity: Crypto ETFs can be traded like any other stock or ETF, providing flexibility for investors.

Also Read:  How to scale voluntary carbon markets with DeFi and Web3

Risks and considerations

• Volatility: Cryptocurrencies are known for their extreme price swings, which can lead to significant fluctuations in the value of crypto ETFs.
• Regulatory risks: The evolving regulatory landscape surrounding cryptocurrencies poses risks for crypto ETFs, as changes in laws and regulations can impact their operation.
• Management fees: While typically lower than mutual funds, crypto ETFs may carry higher fees due to the complexities of managing crypto assets.
• Tracking errors: Futures-based crypto ETFs, in particular, may experience discrepancies between the ETF’s performance and the actual performance of the underlying cryptocurrency.
• Security risks: Although ETFs mitigate some security risks by managing custody of the digital assets, cryptocurrencies remain susceptible to hacks and cyber-attacks.

Current status and notable crypto ETFs

As of late 2023, crypto ETFs have gained traction in regions with favourable regulatory environments, such as Canada and Europe. In the United States, the approval of Bitcoin and Ethereum ETFs remains a topic of ongoing regulatory discussion.

Notable examples

• Purpose Bitcoin ETF (BTCC): Launched in Canada, this ETF directly holds Bitcoin and is traded on the Toronto Stock Exchange.
• Grayscale Bitcoin Trust (GBTC): While not an ETF, GBTC functions similarly by offering Bitcoin exposure and is traded over-the-counter (OTC).
• VanEck Bitcoin Strategy ETF (XBTF): A futures-based Bitcoin ETF available in the U.S., focusing on Bitcoin futures contracts rather than holding Bitcoin directly.

How to invest in crypto ETFs

• Open a brokerage account: Investors need a brokerage account that offers access to crypto ETFs.
• Conduct research: Evaluate the specific crypto ETF, including its structure, fees, and underlying assets.
• Assess investment goals and risk: Given the volatility of cryptocurrencies, investors should consider how crypto ETFs fit into their overall investment strategy.
• Monitor regulatory developments: Stay informed on regulatory changes, as they can impact the performance and availability of crypto ETFs.

In closing

Crypto ETFs represent a bridge between traditional finance and the evolving cryptocurrency market, offering investors a regulated and convenient way to gain exposure to digital assets. While they provide benefits such as accessibility, liquidity, and diversification, they also come with risks related to volatility and regulatory uncertainties.

As the cryptocurrency market continues to mature, crypto ETFs are likely to play a growing role in the portfolios of investors seeking exposure to digital assets.

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Agility is one of the key factors to a startup’s success. In the current climate, with interest rates rising and a recession looming on the horizon, startup valuations have seen a decline as startups adopt a “take what you can get” mentality, feeling the pressure to extend their runways and raise their next rounds. 

This year alone has seen Klarna’s valuation slashed down to just US$6 billion and mass layoffs at Southeast Asian startups such as Sea and StashAway.

Lower valuations and lengthy funding cycles give startup founders less money and flexibility to spend on product launches, customer acquisition and growth. Lower valuations also put founders under more pressure to give away more equity to secure the investment they need in their next funding round.

But accepting a low valuation isn’t the only option available to startups today.

A small and agile solution to a big problem

Rather than facing a 12-18 month cycle to do a full funding round, early-stage startups can shift to agile fundraising, raising small amounts frequently and taking investments opportunistically.

Savvy startup founders already use agile fundraising to grow their businesses, meaning they spend less time holding back business growth as they need to line up the investors and do a full funding round.  

With agile fundraising founders take investment before or between funding rounds. Two of the most popular methods to do that is:

• Advanced subscription agreement (ASA)
• Convertible loan note (CLN)

ASAs allow investors to instantly invest money which will convert into shares at the next funding round at a valuation determined at that future funding round. Familiar usages of this include the ‘Simple Agreement for Future Equity’ (SAFE), which remains popular in the US.

Early investors using an ASA may also benefit from a discount on the price per share paid by investors in the next funding round or by setting a cap on the maximum valuation amount at which the ASA will convert at the next round.

Meanwhile, founders benefit from an immediate funding injection that can be used to extend their runway or to invest in growth. Using an ASA, home set-up service Just Move raised US$7864445.49 (SG$11 M) from over 100 investors, tapping each one as and when the opportunity arose.

Also Read: Fundraising 101: How to approach investors

CLNs are short-term debt instruments that give investors debt into a company that can convert into equity either in the next funding round or at a specified deadline known as a longstop date.

For investors, CLNs are an attractive option as they provide an interest rate and more protection in the event of insolvency, liquidations and if the debt ranks higher than equity. In addition, investors are more likely to back their money if the company fails to raise a qualifying funding round.

Who is agile fundraising right for?

While early-stage founders may be the most obvious beneficiaries of agile funding, that’s not to say those who have already raised multiple funding rounds cannot benefit from it too.

One such scenario is when the founder has found their first investor who is willing to invest, they may use ASAs to commit the investor and access funds sooner while they search for other investors. This process can be repeated for each investor.

Through ASAs, founders obtain their investment immediately and can use the funds to invest in the startup’s growth or extend their runway.

It is generally easier for prospective investors to view a founder’s business positively when an investor is already committed and has already transferred funds.

ASAs are also useful if founders and investors cannot agree on a valuation or need more time to choose one. In these situations, ASAs give founders sufficient funding to provide them with more time to work on their startup’s valuation.

Agile fundraising works for founders who are eyeing involvement from particular investors. In cases when the founder has landed their dream investor and has a significant amount of their target raise committed, it may be wise to close the round and continue raising via mechanisms that allow for a top-up.

Other incoming investors would sign up to the same terms as the existing round. This allows founders to receive funds and put them to work immediately while continuing to fill and complete their rounds using top-ups.

Agile fundraising is an essential method for founders needing easy-access funding to stay afloat. With funding from either ASA or instant investments in their pockets, founders then can better utilise the time to focus on their business. They can also navigate delays to larger funding rounds while focusing on their startups’ growth.

In times of economic upheaval, agile fundraising could be the most feasible and durable solution for founders to raise funds. Investors, meanwhile, can stay in the game without committing huge sums amid uncertainty. It’s a win-win for both parties.

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This article was first published on September 12, 2022

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