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Venture debt fills gap as equity funding falters
Pitchbook recorded a 50 percent increase of venture debt in Indonesia to US$109 million in 2023.
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The basic of impact investing is an investment activity that aims to generate returns and maximize social and environmental impact. (Shutterstock/-)
W
ith venture capital (VC) tightening its purse strings and fundraising expected to be tougher this year, venture debt, as an alternative source of funding, could be the star of the show in Indonesia's prolonged tech winter, industry insiders say.
“Naturally, when equity gets tighter and the funding climate gets stiffer, more and more people will look at debt as an alternative for their capital sourcing,” Darryl Ratulangi, managing director of OCBC Ventura, the investment arm of Singapore banking giant OCBC, said on Wednesday.
Darryl noted the growing market share of venture debt in the country and the scarcity of local tech-focused lenders.
But “venture debt is not for everyone,” Darryl pointed out. “It’s best suited for start-ups looking to expand, like building outlets, clinics and stores. If it is for paying employees [or] building infrastructure, the return is less clear and predictable [for lenders].”
Read also: Indonesia sees fintech investments down by half in 2023: report
Genesis Alternative Ventures managing director Jeremy Loh expressed optimism about the long-term prospects of venture lending. Speaking to The Jakarta Post on Thursday, he said this opportunity was one of the reasons why several former bankers of Singapore’s DBS got together to found his firm in 2019.
“Venture debt firms are like VCs, because we do get an equity option, a warrant to buy shares in the company, and we’re also like banks, because we provide loans to start-up companies,” Loh explained. “It’s a hybrid product, integrating both a VC equity portion and a bank loan portion.”
