Many of us have seen the recent headlines featuring Naomi Osaka’s withdrawal from the French Open due to her mental health condition. Osaka’s decision led to an outpour of support worldwide and even triggered The International Tennis Federation to review how tennis players and media interact during tournaments.

Mental health problems have been on the rise and those who work in fast-paced, high-stress environments such as startups can be at risk. Osaka’s withdrawal from the French Open may reveal some surprising lessons that startup entrepreneurs can learn.

The balance between mental health and startup momentum

Today, more business leaders are aware that mental health impacts workplace productivity. As a startup work culture can be fast-paced, always prioritising business growth and moving the sales numbers upwards can lead to adverse effects on mental wellbeing.

According to a research study, Singaporeans have one of the highest rates of the major depressive disorder compared to eight other high-income nations. Statistics from the Institute of Mental Health (IMH) also reveal that mental disorders are on the rise in Singapore.

Lifetime prevalence of mental disorders in Singapore

Researchers from IMH claim that the increase in lifetime prevalence of people experiencing a mental disorder could be due to increased awareness of mental disorders and more sources of stress.

Reportedly, more than three-quarters of the people with such conditions do not seek any form of professional help. While there are a handful of simple remedies to prevent mental health problems, here are four lessons from Naomi Osaka that can be applied to any startup work culture.

Learn to stand your ground and say no

Remember the last time someone asked for a favour and you wanted to say no but also felt the pressure to succumb to external demands? Did you stand your ground or did you go along to avoid confrontation? In our society where saying no might lead to a string of missed opportunities and repercussions, not many of us are brave enough to speak our mind.

Also Read: How to deal with stress: 8 practical tips for entrepreneurs

As an entrepreneur, you might think that pushing yourself over the limit is the winning formula to grow your business. However, always saying yes may lead to increased physical and mental deterioration that can cost more money down the road.

If there is one lesson to learn from Osaka’s encounter, it is her bravery to make choices based on her personal limits despite having to say no to more money-making opportunities. Fundamentally, knowing your stress limits and learning to say no is the key to maintaining a work-life balance.

Set healthy boundaries

As American author Napoleon Hill once said, “You are the master of your destiny. You can influence, direct and control your own environment. You can make your life what you want it to be.”

It’s better to set and control your own boundaries than to leave them in the hands of others. Setting boundaries is an important part of establishing one’s identity but it is also crucial for maintaining your business philosophy so that you can manage client expectations without over stretching your resources.

Boundaries can be physical or emotional, and they should strike a balance between being overly rigid and too versatile. Healthy boundaries fall somewhere in between.

Stay humble and apologise

While saying no and setting boundaries are perfectly justifiable for self-protection, it should be done humbly and mindfully. Like Osaka, startup leaders should not be afraid to define their role. But you should also be mindful that your actions may cause inconvenience to others. If so, be willing to face the situation humbly and apologise for any negative outcome.

A quick review of Osaka’s tweet may present some valuable tips on how to do this graciously. Be truthful about your boundaries, be brave enough to own up to any shortcomings and limited abilities, sincerely apologise without reservation.

Focus on solutions at the right time

Osaka’s solution was recognising her limits and putting a stop to her work so that she can regain mental wellness, what’s yours? All too often, the first thing we do in the face of a problem is focused on the negative situation. This could mean overextending yourself to meet a client’s unreasonable demands or working past regular hours to meet deadlines.

Also Read: Overworking is not sustainable, and these 4 steps will help you become proactive in dealing with stress

When you choose to focus on the problems instead of implementing workable solutions and processes with long-term benefits, you’re allowing the same problems to repeat themselves. To turn failure into a gift and grow through stressful times instead of just casually going through them, you need to focus on resolving the underlying cause of those problems.

Whether this means finding business loans or better credit facilities for your startup, or leveraging technology to handle tedious tasks, focusing on solutions at the right time can be a game-changer for you and your business.

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Editor’s note: e27 aims to foster thought leadership by publishing contributions from the community. This season we are seeking op-eds, analysis and articles on food tech and sustainability. Share your opinion and earn a byline by submitting a post.

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BondEvalue co-founders Rajesh Johar and Rahul Banerjee (R)

BondEvalue, an electronic bond trading startup in Singapore, has raised US$6 million in Series A round of fund raising from a slew of investors, including MassMutual Ventures Southeast Asia and Citigroup.

Existing shareholders Potato Productions, a company helmed by entrepreneur Lee Han Shih, and Octava, a Singapore-based family office, also joined the round.

This brings the total capital raised by BondEvalue to US$10 million.

BondEvalue will use the proceeds from the new round to increase its international members.

Also Read: What entrepreneurs can learn from Naomi Osaka’s withdrawal from the French Open

The startup also announced a joint venture (JV) in Mexico to form a Peso bond exchange and represents the first local currency expansion by BondEvalue.

BondEvalue was established in 2016 to provide electronic bond trading and to make bond investments accessible to a wider group of individual investors.

The company’s proprietary technology and enterprise-grade blockchain enables BondbloX investors to buy and sell bonds in denominations of US$1,000 instead of the usual US$200,000, and through a public exchange where prices are highly transparent.

The platform operates on a B2B2C model and connects to the end investor via their bank or broker.

BondEvalue Information services brings innovation to bond price discovery, AI-based news, analytics, and delivers these services via mobile, web and APIs.

Last October, it received a Recognised Market Operator (RMO) approval from the Monetary Authority of Singapore to operate BondbloX Bond Exchange, the world’s first fractional bond exchange.

Co-founder and CEO Rahul Banerjee said: “We are focused on executing our mission of bringing bond investing to the so-called HENRYs (High earners, not rich yet), who hitherto were unable to buy bonds.”

Anvesh Ramineni, Managing Director at MassMutual Ventures, said: “Investing in corporate bonds has typically been out of reach for most retail investors in Asia. BondEvalue is changing that by bringing greater transparency and democratising access to the fixed income asset class.”

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Image Credit: BondEvalue

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Abhinay Peddisetty, co-founder of BukuWarung

BukuWarung, a fintech firm that helps Indonesia’s micro SMEs digitise their business, has raised US$60 million in Series A funding.

American VC firm Valar Ventures led the round, along with fintech unicorns Wise, N26, and Goodwater Capital.

Former GoPay CEO Aldi Haryopratomo and Klarna founder Victor Jacobsson, as well as partners from SoftBank and Trihill Capital, also participated.

This brings the two-year-old company’s total funding raised so far to US$80 million.

The fresh capital will be used to enhance the company’s tech and product capabilities across its core accounting, digital payments, and commerce products. They include building a robust payments infrastructure to solve deeper use cases for Indonesian merchants such as QR payments and financial services.

Furthermore, it plans to double its team size to 300 and triple its engineering and product teams across Indonesia, Singapore, and India, as well as remote teams in other locations.

A customer using BukuWarung app

Chinmay Chauhan and Abhinay Peddisetty (former executives at Carousell and Grab) founded BukuWarung with the vision to digitalise Indonesia’s 60 million MSMEs.

Also Read: BukuWarung raises strategic financing from Rocketship to help Indonesian MSMEs improve bookkeeping process

They launched an app for micro-businesses that could help them improve the bookkeeping process by tracking daily transactions, including cash flow, credit, expense, and sales.

The company also recently launched a Shopify-equivalent, called Tokoko, which allows MSMEs to create online storefronts and sell their products.

Over the last six months, BukuWarung claims to have recorded over US$15 billion worth of transactions and US$500 million in payments. The team size grew 5x to around 150 people over this period.

“BukuWarung is already a market leader in MSME digital payments growing in a cost-effective and sustainable manner since its inception. This investment will further help us build an operating system for MSMEs, creating a positive socio-economic impact across Indonesia as the country emerges from the COVID-19 pandemic,” said Peddisetty.

“COVID-19 continues to expose the vulnerabilities of Indonesian MSMEs who remain a linchpin of the national economy. We have since seen the ecosystem rally between stakeholders — big and small – to accelerate the MSMEs’ digitalization by improving their operational resilience and market reach. From my experience, BukuWarung is not only building on such efforts but also emerged as one of the key actors accelerating this much-needed transformation,” added Aldi Haryopratomo, former CEO of
GoPay.

The company most recently secured an undisclosed amount of financing from Rocketship.

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Image Credit: BukuWarung

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Las week, we learned why building thought leadership was essential for your fundraising efforts. This week, we will focus on the ‘how’.

While every founder in Asia Pacific understands that they need to be a thought leader (check out the effort our contributors put in), more often than not, it is ad hoc.

Finding time to speak at (virtual) conferences, networking with journalists to be interviewed and build your your own fan base via LinkedIn and other writing platforms is a lot to juggle with the tasks of running a startup.

And it is this very juggling that makes most of them sound like a content marketing studio. They fail to realise that thought leadership is not just about your product and its features — it is a reflection of your thoughts put forth confidently.

This week, I would like to enlist some tips for you to keep in mind to build your own thought leadership strategy especially when you do not have personnel to take care of it.

What to do

• Thought leadership distinguishes you and your brand from others. Events, podcasts and blogs can help you build leads, future investors, and even increase consumer base. But bear in mind that it is a slow process and yields no instant returns. It is a consistent and long-term process.
• Its starts with you. As the founder you are the face of the company and should work on enhancing your PR and marketing skills. Freely share your views about the industry and what’s happening at your startup via your company blog, LinkedIn, Twitter or more. Once the startup grows, the founder can take a backseat, but don’t stop doing it.
• As your startup grows, it’s important to know who participates in where. Divide and plan all your thought leadership efforts. Slowly, a startup can involve its technologist, sales and market leaders, or even HR executives to share their company practices, product know-how, etc.
• Steer clear of product marketing. It should not be the thrust of your thought leadership. You never want to appear as just a salesman hawking his products. No one, after all, likes to be sold to. What people do appreciate, on the other hand, is having their problems solved.
• The major thrust of your thought leadership should always be market education, especially in Asia, where most consumer and enterprise tech industries are still relatively new (at least compared to Silicon Valley).

Where to start

• Start a company blog if you can. But let it not just talk about your products, but also about what’s happening at your company, how you make decisions, etc. This will help engage all your stakeholders.
• Join Telegram groups or communities and network your way with peers. The e27 Facebook community is a great place to start. You can not only share your views and tips but also learn from others and stay up to date with industry sentiment.
• Contributor posts at media such as e27, Inc42, Forbes, etc. Contributed posts are a good break from story pitch and press release and an easy way to earn bylines for key members of your company. LinkedIn is a great tool too and the best way for brands to put company updates out there.

Anyone can become a thought leader and benefit from the added visibility. All you need are passion, expertise, and honesty, says Muara Makarim, who has helped startups such as Shopee and Circles.Life at their PR and thought leadership game.

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An image of a MooVita car

MooVita, an autonomous vehicle (AV) tech startups based in Singapore, has raised multi-million dollar amount in a Series A round of investment, led by Yinson Green Technologies Division, a subsidiary of Malaysian energy infrastructure company Yinson Holdings.

SMRT Ventures, the corporate venture arm of SMRT Corporation, also participated in the round.

This investment marks Yinson’s first foray into the mobility space.

MooVita will use the funds to accelerate the development, commercialisation and international expansion of its driverless solutions — beginning with the deployment of driverless solutions for public transportation and the urban environment.

As per a press note, these plans are aligned with Singapore’s “Sustainable Singapore Blueprint”, which sets out to achieve a cleaner and greener transport system by 2030.

Also Read: Vietnam launches first autonomous vehicle

“With this injection of capital, we will focus on advancing our driverless technologies, building a fleet of driverless shuttle buses and safe on-road operations, expediting the deployment of the MooVita’s driverless public transport solutions across Asian urbanscapes, starting from Singapore and Malaysia,” said co-founder Dilip Limbu.

Established in 2016, MooVita is specialised in designing and deploying roadworthy autonomous vehicles in urban cities worldwide. It is currently developing a component-based driverless software solution, which transforms various vehicle types into versatile autonomous vehicles for multitudinous driving conditions and applications, such as first/last-mile transportation, logistic transportation, agriculture, and utility solutions.

Headquartered in Singapore, Moovita also has offices in Malaysia and India.

MooVita’s early investors include Pioneer Smart Sensing Innovations Corporation (a consolidated subsidiary of Pioneer Corporation), SEEDS Capital and GreenMeadows Accelerator.

According to Digital News Asia, the company was also the first to receive approval to test its autonomous vehicle in Cyberjaya, Malaysia.

“Our plan is to replace existing infrastructure and develop innovative business solutions in order to make transportation sustainable through the adoption of clean and environmentally sound technologies. The co-investment into MooVita presents a wonderful opportunity to contribute back to the sustainable transportation infrastructure in Singapore,” commented Yinson Group Vice President Eirik Barclay.

“We are adopting a targeted strategy where we tap into our existing strengths in logistics solutions, energy infrastructure, and renewables; and focus on the geo-markets where we’re currently active. We believe that this approach will help us to build profitable, disruptive businesses, that meet the needs created by the global climate action agenda,” added Yinson Group Chief Strategy Officer, Daniel Bong.

According to KPMG’s latest Autonomous Vehicles Readiness Index, Singapore holds first place for autonomous vehicle (AV) policy and regulation and second for infrastructure — surpassed only by the Netherlands — and is widely recognised as a global leader in AV development.

Some of the other AV companies currently active in the region include nuTonomy, Red Dot Robotics, and OpenSourceSDC.

According to data compiled by Tracxn, there are 10 smart car startups in Singapore as of 2020.

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Image Credit: MooVita

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Alodokter co-founder Suci Arumsari

Indonesian telemedicine “super app” Alodokter has announced that it has secured an additional investment from MDI Ventures, a subsidiary of Telkom group, and Samsung Ventures.

The size of the investment was not disclosed.

This deal takes place nearly eight months after the Jakarta-headquartered startup raised a funding round led MDI Ventures in November 2020 as part of its US$30 million Series C extension.

The health-tech firm will use the funding to further expand and develop new products.

Started in 2014 by Nathanael Faibis and Suci Arumsari, Alodokter provides all-encompassing digital health services that include reliable health content, access to general practitioners and specialists (telemedicine), online booking of doctor’s appointments at hospitals, medicine purchase through e-pharmacy and affordable insurance packages.

Also Read: Halodoc snags US$80M Series C led by Astra to expand its telemedicine platform in Indonesia

The firm claims it has more than 30 million monthly active users and more than 43,000 certified doctors across 1,500 hospitals and clinics on its platform.

Since 2019, Alodokter has raised significant investment from investors such as Softbank Ventures, Sequis, Golden Gate Ventures, Philips, Heritas and Hera Capital.

CEO Faibis said: “…Key focus areas going forward include technology innovation, increasing the talent pool, and adding new features and functionalities…By integrating our ecosystem with additional state-owned enterprises, we expect to provide tech-enabled healthcare access to more Indonesian patients.”

Donald Wihardja, CEO MDI Ventures, said: “Alodokter has a proven track record of growing their comprehensive healthcare solution. All the innovations, from telemedicine to insurance, have been developed to cater to Indonesia’s needs for accessible and affordable healthcare services. The funding from MDI will further extend the growth of health services through the potential collaboration with several BUMN entities in Indonesia.”

“With the increasing demand for the use of health services, this follow-on funding aligns Telkom’s mission to increase innovative products within the SOE environment and continues to be committed to providing solutions to millions of people in Indonesia,” explained Director of Enterprise & Business Service Telkom Group, Edi Witjara.

Previously, Alodokter had raised seed funding in 2015 and US$2.5 million in Series A led by Golden Gate Ventures in 2016.

In April this year, Halodoc, another Indonesian telemedicine startup, raised US$80 million in a Series C funding round led by local automotive conglomerate Astra.

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Image Credit: Alodokter

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UNOBank CEO Manish Bhai 

UNObank receives digital banking license in Philippines

The story: UNObank has received approval from the central bank Bangko Sentral ng Pilipinas (BSP) to operate a digital bank in the Philippines.

About UNObank: A company under Singapore’s DigibankASIA, it offers anyone in the Philippines to save, borrow, transact, invest, and protect their finances easily with speed and ease.

More about the story: The BSP has granted three digital bank licenses, two of which are conversions from previous bank licenses.

Tonik, another Filipino neobank, also received the license.

“The BSP’s vision and foresight to digitise the local banking industry is future-forward and apt because ultimately it will help align the Philippines as a modern banking center for the region,” says Manish Bhai of UNOBank.

Carousell ropes in former Razer executive as new CFO

The story: Carousell, a Singapore-based mobile listing service company, announced today the appointment of former Razer executive, Edwin Chan, as its Chief Financial Officer.

Also Read:  Ecosystem Roundup: Why SEA’s exits market looks bright

New role: He will oversee Carousell’s overall capital strategy, including corporate development, fundraising, as well as mergers and acquisitions.

Additionally, corporate controllership and accounting, financial reporting, investor relations, legal and compliance functions will fall within Edwin’s remit.

Gojek’s GoSend courier drivers protest over low incentives

The story: Drivers of Gojek’s delivery arm, GoSend, are planning to strike a protest today, according to messages distributed via WhatsApp groups. This was first reported by Kr-Asia.

The reason: GoSend is planning to cut incentives for deliveries by more than half the current rate.

More about the story: Yulianto, a GoSend drive and a spokesperson of the protest, said that the protest will run for three days in Jakarta, Bogor, Depok, Tangerang, Bekasi, and Bandung.

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Image Credit: UNOBank

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[L-R] wagely co-founders Tobias Fischer (CEO), Sasanadi Ruka (CTO), and Kevin Hausburg (CCO)

wagely, a financial wellness platform that enables earned wage access (EWA) in Indonesia, has received US$5.6 million in a strategic round of investment, led by Integra Partners (formerly known as Dymon Asia Ventures).

Also participated in the round were ADB Ventures, PT Triputra Investindo Arya (one of Indonesia’s largest privately held groups), Global Founders Capital, Trihill Capital, 1982 Ventures, and Willy Suwandi Dharma (former President Director of PT Asuransi Adira Dinamika).

Also Read: Impact-tech investor ADB Ventures in talks to raise US$100M debt fund

The Jakarta-headquartered startup will use the capital infusion to accelerate the adoption of its platform.

Founded by Tobias Fischer (previously with Grab) and Sasanadi Ruka (formerly with Tokopedia) wagely gives employees access to their earned wages and financial education.

EWA is a concept wherein an employ can withdraw a part of his/her already earned salary before the payday. For example, you have worked from 1st-10th June, while payday is on the 25th. You can withdraw a part (say, 50 per cent) of your prorated salary for that month (10 days) before the payday comes.

This is aimed at reducing financial stress for millions of low- and middle-income workers, who struggle with unexpected financial expenses between pay checks.

wagely claims it serves tens of thousands of employees across many industries, including restaurants, factories, hospitals, and retail stores.

“More than 100 million Indonesian lower- and middle-income workers are living paycheck to paycheck and struggle with unexpected financial expenses between paychecks, which in turn impacts businesses with higher turnover, lower productivity, and more employee loans,” said CEO Fischer.

“Our workplaces are changing rapidly, especially since COVID-19 struck. Now the way people are getting paid is changing, too, and at scale. wagely provides a financial flexibility that is perfectly suited for today’s agile and progressive workforce,” he added.

Its financial wellness solution is used by companies such as British American Tobacco, Ranch Market, PT Mustika Ratu, and PT Kencana Energi Lestari.

“wagely offers our employees financial stability in times of uncertainty. It is incredibly important and a crucial step for the long-term resilience of our business,” said Wilson Maknawi, President Director at PT Kencana Energi Lestari.

“With no changes to our payroll process, wagely’s solution has proven to increase our business savings and helped our employees to avoid predatory loans while providing savings and budgeting tools that increase their financial literacy,” he shared.

As concerns over COVID-19 continue to grow, employers around the world, including Walmart, Pizza Hut and Visa, are turning to EWA solutions to reduce turnover, enhance productivity, and increase business savings.

Dailypay, a leading US-based EWA provider, just recently raised US$500 million and reached unicorn status.

Other noted EWA providers are US-based Payactiv, UK-based Wagestream,  Mexican firm Minu, and US-based Even.

Payactiv already counts more than 2 million users and has processed more than US$5 billion in earned wage access, highlighting the tremendous potential of the space.

Also Read: 1982 Ventures partners with 3 Korean investors to help country’s startups enter SEA

Daniel Hersson, Senior Fund Manager at ADB Ventures, commented: “wagely offers workers what they did not have before: a fair and accessible financial tool to help them manage life’s inevitable contingencies and emergencies, including those caused by climate change.”

Over 70 per cent of the Southeast Asian adult population is still underbanked and lacking access to affordable and responsible financial services, while many of the 140 million low- and middle-income workers (72 per cent of the Indonesian workforce) who live from paycheck to paycheck are exposed to the cycle of debt caused by overdraft fees, high-interest credit, and payday loans.

Taking this opportunity, the earned wage access solutions offer a sustainable alternative to employees. With the COVID-19 pandemic and increased levels of financial stress that is directly impacting employers, wagely has become even more important to employees and employers and is well-positioned to further support millions of Southeast Asians with its holistic financial wellness platform.

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Image Credit: wagely

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Autopair CEO Santi Vajanapanich

Autopair, an online automotive parts trading company in Thailand, has raised an undisclosed amount in a pre-Series A financing round.

Summit Auto Body Industry, one of Thailand’s largest suppliers of automotive parts, led the round.

Prior to this, Autopair has raised US$500,000 in seed funding from KK Fund in 2018.

Autopair said in a statement that it will use the fresh capital to help approximately 1,000 independent automotive workshops digitise their work processes through its newly launched digital business management platform.

Additionally, it has also announced plans to expand into markets like Indonesia and Malaysia.

Despite the slump in domestic car sales due to the COVID-19 pandemic, the impact on the industry has been offset by the corresponding increase in demand for car maintenance.

However, Autopair believes that independent automotive workshops have not fully capitalised on these opportunities due to high fragmentation and a reliance on traditional, inefficient operational processes.

Also Read: Carsome snags US$30M Series D to strengthen its C2B and B2C offerings

Founded in 2018, Autopair’s goal is to transform the automotive aftermarket industry via its online automotive parts trading platform.

Its SaaS offerings are ‘Smart Procurement’ and ‘Smart Workshop’ are its core features.  Smart Procurement provides a virtual inventory of parts, wholesale discounts, as well as a 90-minute contactless delivery of service parts at competitive prices.

The second product streamlines business solutions for calendar scheduling, tracking, managing labour efficiencies as well as inventory management and customer relationship management (CRM) tools for estimates and invoices.

The company has over 50,000 virtual stock-keeping units and its solutions are available in 29 provinces in the region.

In the past three years, Autopair claims to have recorded a compound annual growth rate (CAGR) of over 385 per cent.

Some of its clients are industry leaders including Bridgestone Corporation, Toyo Tires, Nitto Automotive, and Nankang Tires.

“I believe that with an uncertain future in uncertain times, the best strategy is to be part of the disruptive wave instead of standing against it,” said Kornkrit Jurangkool, President of Summit Auto Body Industry.

“Autopair has demonstrated its success in digitising the automotive aftermarket industry to date, and given our connections throughout the industry and ecosystem, we believe we can help drive Autopair’s business forward,” he added.

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Image Credit: Autopair

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More than US$300 billion was raised through IPOs worldwide in 2020, including record numbers of issuances in the US last year despite a sharp economic downturn brought on by the pandemic. A large portion of such issuances was via special purpose acquisition companies (SPACs), which are publicly traded investment vehicles created to merge with an existing company to bring it public.

According to Goldman Sachs, SPAC IPOs have raised a total of US$78 billion across 244 transactions globally in 2020. This represents a remarkable five-fold increase from the year before.

Closer to home, Southeast Asia’s most valuable startup Grab is also set to list on the Nasdaq via SPAC Altimeter Growth Corp at an estimated valuation of US$40 billion.

The sudden boom in SPAC IPOs was more notable given the tepid IPO markets in the years leading up to the pandemic. Companies were trying to stay private longer as venture capital and private equity money was abundant. The rapid renewal of interest in public equity capital raises the question of whether “staying private for longer” will become history.

Public valuations for startups, especially within the tech sector, is at a historic high with a median IPO priced at 24x sales in the year 2020 (a fourfold increase from the preceding twenty-year average).

Such lofty valuations are attractive for the typical SPAC target – young, loss-making, with no clear path to profitability, but are reminiscent of the dot-com bubble. The sustainability of these trends has major implications for the financial markets and thus warrants a more sobering view of SPACs.

Also Read: Ecosystem Roundup: Will SPACs sound the death knell for IPOs in SEA?

How it works

To evaluate the SPAC model, it pays to first understand how one works. A SPAC typically begins life as a team of experienced financiers (often referred to as sponsors). The sponsors leverage their reputation to raise cash in an IPO, then take up to two years in search of private companies to merge and bring public.

Along the way, it issues shares, warrants, and rights to parties that do not contribute cash to the eventual merger, thereby diluting the value of its shares. If investors eventually agree to a proposed merger, the SPAC redeems the majority of its shares from the public market, issues new shares to its sponsors or to third party private investors (PIPEs), and finally merges with the target company. The remaining public shareholders, sponsor(s), and PIPE investors all own a portion of the post-merger company’s equity.

A key risk of SPACs comes from a characteristic inherent to the design of SPACs: dilution. A recent Stanford study found that, on average, SPACs retained only 66.7 per cent of the cash they raised in the initial IPO at the time of merger, after compensating the sponsors and early investors.

Such common practices provide great returns for early investors but leave a gaping dilution hole which is proven to be correlated with poor post-merger performance. Few exceptions exist in the market, yet many SPACs are skyrocketing on the slightest rumours of a deal.

The enigmatic nature of SPACs and their targets’ ability to bypass rigorous IPO due diligence have helped them avoid public scrutiny and thrive in a market where behaviours depart from fundamentals and are driven by the fear of missing out. As market sentiments cool, and the crowd comes to realise the actual enterprise value of a SPAC, share prices typically plunge – posting negative returns.

Another danger stems from the first – the way in which the majority of SPACs are currently structured gives rise to two sets of non-overlapping investors with different, often opposing incentives. The ‘early’ investors who bought into the SPAC at the time of its IPO primarily hedge funds and some private equity firms tended to exit at the time of merger to lock in positive returns.

‘Later investors’ tended to hold shares through the merger and suffer from poor post-merger returns in the short and medium term. Of the 89 SPAC IPOs that have completed mergers between 2015 to June 2020, the median return was a disappointing -36.1 per cent compared to the average after-market IPO returns on the Nasdaq in the same period.

Also Read: Traveloka in talks for a merger with Peter Thiel’s SPAC to go public: Report

Why would anyone invest in a structure that collects cash, looks for a company to take public, and then allow those who invested the cash to exit?

Historically, sponsors have not been very influential in the growth of the post-merger company. If a target company is promising, why would sponsors and early investors not commit in the same way a private equity firm controls a portfolio company? Unlike in a successful traditional IPO where the majority of investors would hold a long position, most SPAC IPOs have a significant portion of investors who are looking for a quick return on their investments. This calls into question the notion of ‘targets benefitting from their sponsors’ experience and resources’ that many sponsors tout.

SPACs are not necessarily a ‘cheaper’ way to go public. If shareholders bear the full brunt of the dilution inherent to a  SPACs’ designs, the cost of raising funds through a SPAC would far exceed that of a traditional IPO, which includes a 4-8 per cent underwriting fee plus a price premium at public offering, which averaged 18 per cent in 2019.

Who is it for?

Dangers aside, SPACs can still be effective vehicles to raise capital for young and truly innovative companies that may otherwise be unable to scale and grow. The pandemic has ushered in the start of another tech revolution as multiple industries are forced to change. With VC funding reaching record levels in high growth areas such as healthcare, remote work, and e-commerce, the need for SPACs will continue to rise in the future.

In Southeast Asia where ECM/IPO activity has been slow, SPACs can lend credibility to regional startups to tap capital markets. The key to success lies in (1) high-quality sponsors and (2) sound governance – quality sponsors can provide the network, mentorship, and experience necessary for companies to reach their potential, while good governance ensures that a post-merger entity continues to thrive.

Take the Grab-Altimeter Growth Corp partnership as an example: the SPAC merger will give Grab’s founder Anthony Tan 60.4 per cent of voting rights with a mere 2.2 per cent financial stake.

The arrangement resembles that of such companies as Google and Facebook, where a dual-class share structure have allowed founders to continue driving their companies’ visions. While there are potential downsides, such efforts to align incentives are a welcome change in how SPACs operate.

Investors reacted to the early to mid-phase of the recent pandemic-driven exogenous shock in a predictable way. With levels of business uncertainty high and interest rate expectations low, the TINA (acronym for ‘There is no alternative’) effect took hold in financial markets.

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

Investors piled into crowded assets (typically growth stocks such as SPAC-mergers) irrespective of fundamentals because other asset classes offered worse risk-adjusted returns. However, with strong economic recovery in sight and interest/inflation expectations set to rise, the allure of the TINA trade is fading rapidly.

Investors now see opportunities in other parts of the market, and it is hard to believe that the enthusiasm for SPAC IPOs will remain. Without a fundamental shift in how SPACs operate – to align incentives and minimise dilution, SPACs will remain unattractive.

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