As countries become more financially uncertain during the pandemic, venture debt and revenue-based financing are slowly turning out to become the go-to option.
Genesis Alternative Ventures is one such private venture debt fund in Singapore which has experienced the escalation in requests from startups seeking this mode of investment. The venture fund backed by Malaysia’s CIMB bank and Sassoon family office also recently managed to secure investment from American global investment fund Capria.
With a strong philosophy of investing in high growth companies in emerging markets, Genesis’s main focus is to help Series B and above companies grow.
In this interview with e27, co-founders Ben J. Benjamin and Martin Tang discuss impact investment, spotting “impact washers”, venture debt and growing competition in Southeast Asia (SEA).
Impact investment is a broad term, different people have different meanings to it. What does impact investing mean to you?
Benjamin: We have been looking at this space for more than 12 to 18 months, and it is a term that needs some work because it really can mean differently for different people. On the one hand, there’s the environmental and social angle to it, and on the other, there’s the governmental side of it, which is all about reputation management.
For Genesis, we believe in profit-making companies who are looking to achieve some kind of positive impact within their business models.
As a company scales, so will the impact which is why our recent partner Capria likes to call it, “impact at scale”. So this is where we play in the impact space and the entire ecosystem.
A lot of VCs are investing capital into impact companies; for example, there has been a trend of growing interest in fintech companies that support financial inclusion. But this also leads to a saturation in the space. What is your strategy to locate winning companies in this kind of situation?
Benjamin: I think we would agree there are quite a few fintech impact companies in the space and the reason I believe they exist is because basic access to good financial infrastructure is such an important theme.
So I believe that there is a very noble aim in that and countries such as India, Indonesia and Vietnam can be well placed to benefit from it.
It’s important to see many players in the process, while some champions will emerge, others will have gone through battles and emerge with battle scars that will fine-tune their model to allow them to be successful in the future.
So we as a VC firm openly welcome the competition.
Tang: There has also been a lot of bad press on “impact washing”, the so-called startups that position themselves as an impactful company without having any real impact. But we have been kind of trained to see through the smoke and mirrors.
So when we engage with our VC partners, first and foremost, we are looking for profitable companies with a really good and sustainable business model.
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In that case, what advice would you give startup founders who would want to approach a venture debt firm like yours? What are some qualities you are seeking out in a company?
Tang: My advice for any entrepreneur looking for a capital provider and not just Genesis would be, to be honest. Come to us and be as real and transparent as you can because we have seen so many times when founders hide things that we find out later and for us to find out and decide not to do the deal is a waste of everyone’s time.
So we prefer to engage with founders early on, and we don’t mind if they have questions about things. We are here to help and figure out the unknowns together. So I’d say if I look back at all the deals and the founders, the ones we like and have grown close to are the really sincere and honest ones.
There are opportunities in SEA in terms of population, market base, and resources. The space has also been developing significantly. What do you think has sparked that change in recent times?
Tang: From my point of view, the first wave happened when I was in my previous job. Back then a company had to fill up ESG (environmental social and governance) checklists to see if they were compliant, even though there wasn’t any impact at all. Later there came a wave of social enterprises, where more impact started coming in.
However, a lot of investors were wary of it because they believed social enterprises were backed by foundations and a lot of times they were not profit-driven, so the question was how does one invest in these companies and still make money?
But obviously, with more global investors coming in and as more NGOs started providing awareness, the landscape began to shift. However, profit-first philosophy still prevails.
SEA countries are at vastly different stages in terms of development and infrastructure readiness; startup ecosystems also having different maturity levels. How does this affect your decision to invest in these regions?
Benjamin: Everything is indeed in a bit of a flux in this region. But one of the critical things about SEA companies that we like is that leaders can look at their business opportunities across the region and even though they might not be able to cover the whole of ASEAN, they cover a few of these countries.
And, for any founder or any business that wants to grow, it will try to target some of the more significant economies such as Indonesia, Vietnam, Philippines.
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So when we look at our portfolio at the companies, we have invested in and the incoming investments that we’re looking at, we see a nice mix of geographies across different countries.
In terms of impact, however, if you talk to an investor about investing in a company that’s operating in Singapore or Hong Kong minimal impact can be done at scale. This is because they are rich countries and more mature in their life cycles.
So a lot of the focus we find from investors in this space is really in the emerging markets where our “impact at scale” thesis can work.
Venture debt can be viewed as “intimidating” by some founders. Are there myths around it that you would like to bust?
Benjamin: Venture debt is no different from any other debt. We take debt in every single part of our life, for example, buying a car, house etc. So one’s got to know where you are in your situation to be able to decide whether it is right for you.
For example, if a founder is trying to raise money to buy depreciating assets such as servers or equipment, they certainly wouldn’t want to let go of personal equity for that. That’s a painful thing to do. So there are situations that call for debt rather than equity, like in the SME world.
It also trains companies to be more financially disciplined, and when investors look at a successful venture debt history, it shines a positive light on the startup.
The other thing is its also a misconception that we are there simply to provide financial transactions. But that is not true, we are growth investors and support companies in our portfolio through their mid and long term grooming stages.
We do this through networks, leads and also through balance sheets because that balance sheets you a lot of the story. Things like monetisation strategies and if you are paying your suppliers too fast, a simple analysis that can help improve the cash flow of the company can be extremely helpful in the long run.
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Image Credit: Genesis
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