Vertex is a family of funds investing in early-stage companies around the world
- For Vertex Ventures HC or our other funds

Scaling SME financing across Southeast Asia with Validus Capital

October 10, 2018

A key part of running a business is cash flow. However, what happens if it gets cut off? Regardless of the size of the SME, a low cash flow can result in an inability to pay off immediate bills, such as operating costs and labour fees. This is a result of delayed payments by clients,  according to a recent study conducted by SPRING Singapore.

To curb the problem, firms tend to look for the solution in the form of bank loans. Even so, many SMEs are turned down due to the stringent requirements. In fact, four in five SMEs are not qualified for business financing because of their low operating cash flow. Furthermore, a 0.6 percent drop in bank loans tightens the selection process, leading more and more SMEs to face cash shortages.

Alternatively, to sustain overhead expenses, small enterprises approach invoice financing firms. This method occurs as an additional cost decreasing profit margins due to high interest fees. Apart from higher expenses, potential stakeholders may not perceive such loans positively, damaging chances of future funding.

This is where Ajit Raikar and Vikas Nahata saw an opportunity, and founded Validus Capital. In 2015, they created an online peer-to-peer funding platform bridging SMEs with investors. The aim is to provide cash flow for small enterprises by having investors supply cash as a temporary fix for account receivables and invoices.

As explained by Mr Richard Hoon, former chairman and current advisor, “we see this as a new asset class that links Global investors looking for better than market returns with deserving Singaporean SMEs who require funding. A healthy eco-system comprising happy investors and borrowers will help create a positive social impact locally and we will spread this across other Asian countries.”

The firm has connected more than 100 SMEs from various sectors to investors, pooling a total of over $22 million disbursement. It continues to remain competitive by benefiting both borrowers and investors through attractive interest rates. Investors can expect high market returns ranging from 9 percent to 28 percent per annum depending on the risk factor, while SMEs are charged between 0.65 percent to 3.0 percent per month. This is a significantly lower amount as compared to the 4 to 7 percent charge by private traditional invoice financing firms

Besides invoice financing, Validus Capital attained the Capital Markets Services License for project financing and working capital loans in 2017 as well. SMEs can now be funded for major projects plus day to day operation costs.

In order to qualify for any loans as stated, a company must first register itself through Validus’ website. After being reviewed and approved by the risk management team, the application will be posted as a funding request to registered investors on the platform. Once accepted, funds will be received after seven days in completion of transaction documents.

To ease transaction procedures, Validus also partnered with Visa to create a virtual credit card option for its users. Unlike traditional credit cards, the virtual credit card requires the company to put up invoices for funding in exchange for monthly credits. It offers SMEs with a choice of immediate cash flow, allowing higher turnover rates for their products or services.

Recently, Validus raised US$3 million and US$600,000 by Vertex Ventures and angel investors in a recent Series A funding round respectively. Funds will be used to expand further into the Southeast Asia market by providing more services to a variety of users.

One of these new services include the removal of manual invoicing processes. Validus Capital is looking into alternatives to accelerate their users’ invoicing process, such as facilitation of tracking and management of invoices. This means a reduction in time spent in administering invoices, enabling SMEs to focus on other pressing issues.