Alternative financing options open up for SMEs, startups

Singapore

AN American 3D printing company went into crowdfunding platform Indiegogo looking to raise only a few thousand dollars, since it had already obtained seed capital from venture capital outfit Alsop Louie Partners in Silicon Valley. To raise that money, it sold US$249 3D printers on Indiegogo, but ended up ringing up US$500,000 in sales - way more than what it had bargained for.

Ernestine Fu, a senior associate at Alsop Louie Partners and a DBS BusinessClass adviser, said of this company she which did not name: "It used Indiegogo not necessarily because it needed the capital - but to build its customer base."

Crowdfunding is thus changing the terms of financing, evolving from being useful for raising finance into a way for startups to get their name out there among potential customers as well.

In Silicon Valley, a group called AngelList - itself a four-year-old startup - gathers investors willing to put funds into startups. Individuals with ideas for new businesses pitch directly to these certified investors, which include financial firms, wealthy individuals and companies. AngelList thus provides openings for crowdfunding among investors.

Ms Fu, who was in Singapore last month for the launch of "The Bay Area Series", at which she was the guest speaker, said: "I think it's exciting. AngelList has been around for a couple of years, but it's been taking off lately. So I think that's the trend within investing in startups."

The increasing diversity of funding options means startups and small and medium enterprises (SMEs) have more funding options at each stage of their growth, said Seow Wei Qi, director at RISA Partners Asia, a finance company headquartered in Tokyo.

"For young companies, having another option to raise funds gives them a chance at growing. When they reach a suitable size, private equity (PE) can have a role to play," she said.

RISA Partners' Asia office, based in Singapore, manages - with its partner, the Development Bank of Japan (DBJ) - the Japan South-East Asia Growth Fund.

Here in Singapore, crowd-financing platform MoolahSense recently made a splash in the increasingly crowded space of alternative financing.

Its first funding campaign for boutique education centre Smaths Consulting had aimed to raise S$100,000; the target was reached in 20 days. By the end of the campaign period, 44 individual investors had made offers totalling S$207,000.

Ms Seow said: "I expect continuous expansion and evolution of private equity in Asia.

"The community will grow with both the establishment of local Asian funds as well as the entry of foreign funds.

"However, each fund will be differentiated in its investment target and strategy. This variety will benefit companies, which have varied needs and require different support."

The increased variety of funding options means startups and SMEs have increasingly tailored options to choose from.

However, Web-based crowd-investing platforms often do not provide mentoring or market access, said Isaac Ho, managing partner of Singapore Health Tech (SHT), the investment arm of Singapore Health Holdings (SHH).

He said: "While we are not a PE firm, SHH, as a family office that invests in startups, also assesses an enterprise's market potential, and can be considered an alternative source of funding."

As more local SMEs look overseas for opportunities, these "financiers" are becoming more than just a source of funds. SHT and RISA, for instance, also help companies looking for a foothold in China and Japan respectively.

Mr Ho said: "Certainly, a key strength of ours is our ability to provide companies with the distribution channels into China."

SHT counts among its shareholders Cai Wensheng, China's top angel investor, and Sun Tongyu, one of Alibaba's founders.

"We also have an innovation hub in Hangzhou's Science and Technology Park. That gives us a strong footprint in Singapore and China," he said.

RISA, apart from tapping the network of the DBJ, has more than 170 alliances with regional banks across Japan. This gives it access to Japanese SMEs across diverse industries and cities.

Ms Seow said: "For the SME community, I believe the partnership chances are tremendous. The challenge to date has been in identifying the right partners. Japan's SME community accounts for 98.8 per cent of the country's 5.45 million companies."

She noted, however, that only 2.8 per cent of Japanese SME manufacturers have export experience, and only 12.2 per cent of companies are based in Tokyo - making for an uphill slog for South-east Asian SMEs to track potential business partners down. "This is where I strongly believe our fund can assist as a bridge between the two sides," she said.

Mr Ho foresees medical technology, education technology and finance technology as growth areas, into which investments will flow in the coming year.

"SHT is now targeting to invest in 10 companies a year. Of these 10, at least six will be under a new initiative, where we work with strategic partners, government agencies and institutes of higher learning such as the Singapore-MIT Alliance for Research and Technology (Smart) Innovation Centre. This initiative, VentureCraft, will provide an exciting and exclusive platform for IP-based start-ups," he said.

"Aside from IP-based companies, we also look at non-IP based companies in health care and education technology. . . Finance technology is another sector we may explore," Mr Ho said.