Small and medium-sized enterprises (SMEs) account for nearly 50% of Southeast Asia’s GDP, contributing to job creation, innovation, and overall economic expansion. Nevertheless, like other regions of the world, small and medium-sized enterprises in Southeast Asia face challenges with regard to sufficient working capital. Simply put, small businesses are generally considered too risky for traditional banks to lend to, so banks charge high interest rates if they approve them.
Kelvin Teo and Reynold Wijaya, two entrepreneurs from Southeast Asia who met while earning graduate degrees at Harvard Business School (HBS), were acutely aware of the gaps in their home country. Inspired by HBS’s mission to “Change the World,” they set out to solve it.
“We grew up as underdogs and were honored to be at HBS and wanted to contribute that to Southeast Asia,” Teo told TechCrunch. “Small and medium-sized businesses empathize with us and their biggest challenge is financing.”
Their startup, Funding Societies, is a Singapore-based small business lending platform with licensed and registered offices in Indonesia, Malaysia, Thailand and Vietnam. The fintech startup has been struggling with funding amid strong growth across the region, having lent more than $4 billion to more than 100,000 businesses to date and most recently raised $25 million in capital.
This investment came from a single investor called Cool Japan Fund (CJF), a Japanese sovereign wealth fund. In particular, this investment is the fund’s first investment in a Southeast Asian fintech company.
The latest round brings Funding Societies’ total raised to approximately $250 million. Investors included strategic backers such as Khazanah Nasional Berhad and Maybank, which invested $40 million more than a year ago, as well as SoftBank Vision Fund 2, CGC Digital, SBVA (formerly SoftBank Ventures Asia) and Peak XV Partners (formerly Sequoia). Capital India), Alpha JWC Ventures, etc.
Funding Societies was founded in Singapore in 2015, drawing on the common backgrounds of the two founders. Teo previously worked at Accenture, McKinsey and KKR Capstone, while Wijaya has experience running a family business in Indonesia. After deciding to build a business to work with small and medium-sized businesses, the duo spent about three years researching some of America’s most groundbreaking companies and analyzing their journeys to the top.
The company said it has so far lent more than $4 billion in business financing to about 100,000 small and medium-sized businesses in five Southeast Asian countries. This is an increase from $3 billion in April 2023. Additionally, since expanding into the payments business in 2022, the company has generated more than $1.4 billion in annual payments gross transaction value (GTV).
The startup plans to use the funds to expand its primary focus, providing faster financial services to small and medium-sized businesses in Singapore, Indonesia, Malaysia, Thailand and Vietnam. It is also investing in AI to digitize and automate the loan application process and grow its payments business, which will launch in 2022.
Moreover, the partnership with CJF will provide financial services to support Japanese companies that are already operating, looking to expand their presence in Southeast Asia, or are looking to enter new markets in Southeast Asia, Teo told TechCrunch.
The startup offers a wide range of financing options, including term loans ranging from $5 to $2 million, microloans, receive/pay financing, revolver loans and asset-backed business loans to meet the diverse needs of businesses at different stages. . Many businesses use the funds as working capital or as bridge loans for expansion.
One of the things that sets the startup apart from competitors like Validus and Bluecell Intelligence is that it offers one-stop services from short-term financing to supply chain financing through online and offline channels, partnerships and payment services. To the company CEO.
According to the e-Conomy SEA Report 2024, digital financial services revenues in Southeast Asia are expected to grow, with digital lending leading the way and accounting for approximately 65% of total revenues.
Teo said that following the $144 million Series C+ funding round led by SoftBank Vision Fund 2 in February 2022, the Southeast Asian SME lending market has significantly consolidated, making the startup even stronger as a market leader.
Ironically, one company’s crisis can also be a benefit for the Funding Societies. Teo said the company expects more consolidation among credit-focused fintechs in Southeast Asia. This is because many companies are nearing the end of the runway and unable to raise more capital in the still sluggish SEA funding environment. Those focused on a single country are particularly vulnerable, he added.
“The macro markets have changed significantly since the SoftBank Vision Fund’s investment in February 2022, including the collapse of US banks and impacting the supply of credit to non-bank lenders,” Teo told TechCrunch. “Rising U.S. interest rates have also increased the cost of funds,” he said, adding that through September, macro markets had seen a 23-year period of rising interest rates, with geopolitical issues hurting small and medium-sized businesses and increasing non-performing loans.
During these difficult times, the company made its first acquisition in December 2022: Sequoia-backed payments fintech CardUp. This nearly tripled revenue while keeping headcount largely the same. Teo also mentioned that the startup invested in three companies at the time, including a fintech company and a startup specializing in POS software.
MSMEs supported by Funding Societies contributed $3.6 billion to GDP and created about 350,000 new jobs, according to the startup’s 2020 Social and Economic Impact Report in collaboration with the Asian Development Bank (ADB). Additionally, quick payments and a simple application process helped small businesses increase their sales by 13%, the company said.
