‘We want to pay it forward’: Funding Organizations raise $25M to raise capital for SMEs in Southeast Asia

Small and medium-sized enterprises (SMEs) make up about 50 percent of Southeast Asia’s GDP, contributing to job creation, innovation, and overall economic growth. However, as in other parts of the world, SMEs in Southeast Asia face challenges when it comes to adequate working capital. In short, SMEs are generally considered too risky for traditional banks to lend to, so those banks charge higher rates, if they approve them at all.

Kelvin Teo and Reynold Wijaya, two Southeast Asian businessmen who met when they were both graduating from Harvard Business School (HBS), were well aware of this gap at home. Inspired by HBS’s stated mission to “make a difference in the world,” they set out to tackle it.

“We grew up as underdogs, we felt privileged to be at HBS and we wanted to pay it forward in Southeast Asia,” said Teo in an interview with TechCrunch. “SMEs contact us and financing is their biggest pain point.”

Their startup, Finding Societies, is a Singapore-based SME lending platform with licensed and registered offices in Indonesia, Malaysia, Thailand and Vietnam. After strong growth across the region – so far it has lent more than 4 billion dollars to more than 100,000 businesses – the fintech startup has finished funding, and, recently raised equity of 25 million dollars.

The investment comes from a single investor: Cool Japan Fund (CJF), Japan’s sovereign wealth fund. Notably, this marks the fund’s first investment in a fintech company in Southeast Asia.

The latest funding brings the total raised by the funding agencies to nearly $250 million in equity. Investors included strategic backers such as Khazanah Nasional Berhad and Maybank, which invested $40 million less than last year, as well as SoftBank Vision Fund 2, CGC Digital, SBVA (formerly SoftBank Ventures Asia), Peak XV Partners (formerly known as Sequoia. Capital India), and and Alpha JWC Ventures, among others.

Funding Societies was established in Singapore in 2015 after a group of two founders. Teo previously worked at Accenture, McKinsey, and KKR Capstone, while Wijaya had family business experience in Indonesia. After deciding to build a business to work with SMEs, the two spent almost three years researching the best companies in the US, analyzing their journey to the top.

The company says it has lent more than $4 billion to date to about 100,000 SMEs in its five Southeast Asian countries. This is up from $3 billion in April 2023. Additionally, it has generated an annual gross transaction value (GTV) of more than $1.4 billion in payments since expanding into its payments business in 2022.

The startup plans to use the capital to expand its core focus, providing instant financial services to SMEs in Singapore, Indonesia, Malaysia, Thailand, and Vietnam. It is also investing in AI to digitize and transform the loan application process and grow its payments business, which was launched in 2022.

In addition, through cooperation with CJF, it will provide financial services to Japanese companies that are already doing business, or want to expand their presence in Southeast Asia, or enter new markets in Southeast Asia, Teo told TechCrunch.

The startup offers a variety of financing options, including long-term loans, microloans, cash receipts/payables, revolver loans, and asset-backed business loans, ranging from $500 to $2 million, to meet a variety of business needs at different levels. . Many companies use capital for working capital or as a bridge loan to grow.

One of the things that sets the startup apart from competitors such as Validus and Bluecell Intelligence is that it offers a one-stop shop service, from short-term financing to supply chain financing, through online and offline channels and partnerships, as well as payment offerings, according to . to the CEO of the company.

Revenue from digital financial services in Southeast Asia is expected to increase, with digital lending leading the way and accounting for nearly 65% ​​of total revenue, according to the e-Conomy SEA 2024 report.

Since a massive $144 million Series C+ round of funding led by SoftBank Vision Fund 2 in February 2022, Southeast Asia’s SME lending market has consolidated significantly, making the startup even stronger as a market leader, Teo said.

Ironically, one company’s problem can be Funding Societies’ advantage. Teo said the company expects more consolidation among credit-focused fintechs in Southeast Asia. This is due to the fact that many companies are reaching the end of their runways and cannot raise additional capital in the still weak SEA funding environment. Those concentrated in isolated countries are at greatest risk, he added.

“Since the SoftBank Vision Fund’s investment in February 2022, the capital market has changed dramatically, with US banks collapsing, which has had an impact on lending to non-bank lenders,” Teo told TechCrunch. “Inflation in the US has also increased the cost of finance.” Until September, the capital market faced 23 years of rising prices, and geopolitics hurt SMEs and increased non-performing loans, he added.

In this challenging period, in December 2022, the company made its first purchase: Payments supported by Sequoia through the fintech CardUp. This almost tripled its profit while keeping its price almost as low. Teo also noted that the startup has invested in three companies during that time, including a fintech company and a startup focused on POS software.

A socio-economic impact report commissioned by the Asian Development Bank (ADB) in 2020 found that MSMEs supported by the IMF contributed $3.6 billion to GDP and created nearly 350,000 new jobs. In addition, it has helped SMEs to increase their income by 13% with fast payments and a simple application process, according to the company.