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DBS offers new venture debt platform for viable tech startups

Loans are combined with warrants or rights to purchase equity to compensate for the higher risk of default

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DBS bank at Shenton Way.

Singapore

STARTUPS in Singapore - often said to struggle with the limited availability of post Series A or growth-stage financing - just scored a new capital-raising platform.

DBS Bank on Thursday launched venture debt, a form of debt financing specially structured for startups that have earlier raised capital from venture capitalists (VCs) or angel investors.

Unlike traditional bank lending, venture debt is available to startups and growth companies that typically do not have positive cash flows or significant assets to use as collateral. Venture debt providers therefore combine their loans with warrants or rights to purchase equity to compensate for the higher risk of default.

The venture debt, said DBS, can be used by tech startups for working capital, fixed assets acquisition and even project financing.

The bank did not say how much it would invest in a startup, only that the investment will come with "little or no dilution to their equity".

To qualify, these tech startups must be backed by DBS' partner VCs - among them Vertex Venture, Monk's Hill Ventures and Golden Gate Ventures - and should have raised at least S$1 million in Series A funding.

They should also be incorporated for at least two years, be in operation for at least a year, and have demonstrated that their business model is commercially viable.

Startups can apply for venture debt with DBS directly, or be approached by the bank, a DBS spokeswoman told BT. She added that even with the new venture debt offering, DBS will continue to support government-assisted schemes such as the Micro Loan Programme (MLP) and the Local Enterprise Finance Scheme (LEFS) to finance Singapore startups.

MLP offers working capital loans of up to S$100,000 to small businesses with 10 or fewer employees or an annual sales turnover of no more than S$1 million, while LEFS provides loans of up to S$15 million for the purchase of equipment to local SMEs.

DBS reportedly disperses the highest number and volume of micro loans under the MLP.

"As the bank that sparked the development of Singapore, we are pleased to be one of the first banks in Singapore to offer venture debt as an alternative capital-raising option for tech startups," said Lim Chu Chong, head of SME banking at DBS. He added: "Tech startups can use venture debt to complement venture capital, and buy more time and flexibility for their businesses to hit key development milestones, which can potentially increase their company valuations... help them scale up and reach profitability at a faster pace."

Currently, UOB Bank offers venture debt. It will proactively identify key market trends, and then search for companies from the relevant markets to invest in.

"Our customers tell us that they welcome venture debt as it means that they do not dilute their shareholdings when compared with getting capital from VCs," said Eric Tham, head of group commercial banking at UOB.

DBS's venture debt offering comes a year after the Entrepreneurship Review Committee called for venture debt and equity crowdfunding (ECF) to be made more accessible as new financing options for startups. Last week, the Singapore Exchange and Clearbridge Accelerator announced plans to develop an ECF platform for startups and SMEs here.