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Small and medium enterprises (SMEs) It accounts for about 50% of Southeast Asia’s GDP, contributing to job creation, innovation and overall economic expansion. Nevertheless, as in other parts of the world, SMEs in Southeast Asia face challenges when it comes to sufficient working capital. In short, SMEs are usually considered very risky in order for traditional banks to lend to them, those banks generally charge high rates if approved.
Kelvin Teo and Reynold Wijaya, two entrepreneurs from Southeast Asia who met when they were both pursuing graduate degrees at Harvard Business School (HBS), were aware of this gap back home. Inspired by HBS declared his mission To “make a difference in the world,” they set out to solve it.
“We grew up as underdogs, we felt privileged to be at HBS, and we wanted to pay it forward to Southeast Asia,” Teo told TechCrunch. “SMBs resonate with us and financing is their biggest pain point.”
Their beginnings, Funding SocietiesIt is a Singapore-based SME lending platform with licensed and registered offices in Indonesia, Malaysia, Thailand and Vietnam. Amid strong growth in the region — more than $4 billion in loans to more than 100,000 businesses to date — the fintech startup has also faced a lack of funding, most recently raising $25 million in capital.
The investment comes from one investor: Cool Japan Fund (CJF), Japan’s sovereign wealth fund. Note that this is the fund’s first investment in a fintech company in Southeast Asia.
The latest funding brings the total capital raised by the Funding Societies to approximately $250 million. They have included strategic backers as investors Khazanah National Berhad and Maybankinvested $40 million less than a year ago, as well as SoftBank Vision Fund 2, CGC Digital, SBVA (formerly SoftBank Ventures Asia), Peak XV Partners (formerly known as Sequoia Capital India), and Alpha JWC Ventures, among others.
Funding Societies was founded in Singapore in 2015 based on the collective background of the two founders. Teo has previously worked at Accenture, McKinsey and KKR Capstone, while Wijaya has experience in a family business in Indonesia. After deciding to start a business to work with SMEs, the duo spent nearly three years researching the most groundbreaking companies in the US, analyzing their paths to the top.
The company said it has so far provided more than $4 billion in business financing loans to nearly 100,000 SMEs in five Southeast Asian countries. This is up 3 billion dollars in April 2023. In addition, it has generated an annualized gross transaction value (GTV) of more than $1.4 billion after expanding into the payments business in 2022.
The startup plans to use the money to expand its focus, providing faster financial services to SMEs in Singapore, Indonesia, Malaysia, Thailand and Vietnam. It is also investing in artificial intelligence to digitize and automate the loan application process and develop its payments business, which will be launched in 2022.
Teo told TechCrunch that through the partnership with CJF, it will offer financial services to Japanese companies that are already doing business or looking to expand their presence in Southeast Asia, or are entering new markets in Southeast Asia.
The startup offers a wide range of financing options ranging from $500 to $2 million, including term loans, microloans, receivables/creditor financing, revolver loans and asset-backed business loans to meet the various needs of businesses at various stages. . Many companies use the funds for working capital or as bridging loans to scale up.
One of the things that sets the startup apart from rivals like Validus and Bluecell Intelligence is that it offers a one-stop service from short-term financing to supply chain financing, through online and offline channels and partnerships and payment offerings. to the CEO of the company.
Revenue from digital financial services is expected to grow in Southeast Asia, with digital lending leading the way and accounting for nearly 65% of total revenue. e-Economy SEA Report 2024.
$144 million since Mammoth Series C+ funding round In February 2022, the Southeast Asia SME loan market led by SoftBank Vision Fund 2 consolidated significantly, making the startup even stronger as a market leader, Teo claimed.
Ironically, a company’s crisis can turn into a profit for Funding Societies. Teo said the company expects more consolidation among credit-focused fintechs in Southeast Asia. This is because many companies have reached the end of the runway and are unable to raise more money in the still weakening SEA funding environment. He added that those focusing on single countries are particularly vulnerable.
“Since SoftBank Vision Fund invested in February 2022, the macro market has changed significantly, US banks have collapsed, which has affected the supply of credit to non-bank lenders,” Teo told TechCrunch. “US interest rate hikes also boosted the cost of funds.” By September, the macro market had hit a 23-year cycle of rising interest rates, and geopolitics hurt SMEs and increased non-performing loans.
In this difficult period, in December 2022, the company made its first acquisition: payments fintech CardUp, backed by Sequoia. It almost tripled its revenue while keeping the number of employees almost constant. Teo also noted that the startup has also invested in three companies during this period, including a fintech company and a startup specializing in POS software.
Startup’s 2020 social and economic impact report in collaboration with the Asian Development Bank (ADB) found that SMEs supported by Funding Societies contributed $3.6 billion to GDP and created approximately 350,000 new jobs. Additionally, according to the company, it has helped SMEs increase their revenue by 13% through fast payment and a simple application process.