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Iswaran: Finance, law firms must embrace tech

FINANCIAL institutions, as well as law and accountancy firms, must “get comfortable” with the technology and innovation ecosystem, Minister for Trade and Industry S Iswaran said on Thursday at the launch of the S$500 million Venture Debt Programme (VDP) that supports high-growth enterprises.

Speaking to reporters during a visit to homegrown vessel-monitoring company Ascenz Solutions, he added that these professional services would do well only if they appreciate new businesses – whose assets are unconventional, and comprise mostly intellectual property (IP) – and their risks.

This way, banks can create relevant financing products to serve the new businesses, lawyers can understand how to value and protect new types of IP, and accountants can learn how to size them, he said.

VDP – led by Spring Singapore and supported by all three local banks DBS, OCBC and UOB – aims to catalyse about 100 venture debt loans over two years, under which Spring will provide 50 per cent risk-sharing to the financial institutions.

Small and medium-sized enterprises (SMEs), including startups, can apply for venture debt loans of up to S$5 million each for working capital, assets, projects or mergers and acquisitions for business expansion purposes.

Venture debt – a form of alternative financing for enterprises with high-growth potential but which may not have established revenue streams or assets to use as collateral – involves lending money in return for interest payments and the option to take equity at a later stage.

It is unlike venture capital (the more established form of startup financing), where the entrepreneur typically sells off a stake in the company.

“(Venture debt) addresses the gap between traditional bank loans and equity investments,” said Chew Mok Lee, assistant chief executive of Spring Singapore.

VDP, announced in Budget 2015 as a complement to current government loan financing schemes, has since January backed four companies, among them Ascenz Solutions, digital media firm Conversant, and fashion manufacturer and retailer MDS.

Ascenz Solutions secured S$1 million in venture debt from Spring and OCBC to expand regionally and to enhance its solutions in fuel consumption measurement, as well as bunkering and vessel tracking.

Tan Chor Sen, head of international and global commercial banking at OCBC, said: “We recognise that not all high-growth companies are built around technology . . . that is why we are offering venture debt financing to high-growth companies from different industries instead of limiting it to high-tech companies.”

Companies need not be backed by a venture capital firm to be eligible for VDP with OCBC, the latest bank to launch venture debt offerings.

DBS, which rolled out a commercial venture debt financing programme in February 2015, requires companies to be backed by a “reputable” venture capital firm.

UOB (the first bank to offer venture debt in October 2014) last August partnered Temasek Holdings to invest in venture debt company InnoVen Capital, and offer up to US$500 million in venture debt loans over the next five years to Internet startups in China, India and South-east Asia.

Companies already have a good option with InnoVen, said Vinnie Lauria, managing partner of Singapore-based venture capital firm Golden Gate Ventures. So VDP ought to “do something” to set itself apart.

There is a role for venture debt, he added. “Almost all companies – e-commerce ones, in particular – need debt between formal equity rounds due to high capital costs of their business.”

Original article by Jacqueline Cheok, AsiaOne Business