How to plug an Asian tech funding gap with revenue-based financing
Since 2018, Percy Hung's Choco Up has channeled $60 million across 220 deals to startups with a revenue-led model.
Percy Hung is the co-founder of Singapore-based Choco Up, a revenue-based financing (RBF) firm looking to remove constraints faced by Asian tech startups in fundraising. A serial entrepreneur with experience in e-commerce, apparel, and automotive, Hung is determined to build a “de-facto” RBF platform in Asia. Choco Up is raising up to $10 million in a series A funding round expected to close next quarter, which could value the firm at $100 million.
How does revenue-based financing (RBF) work?
Let’s say a power seller is on an online platform, and they want to boost their sales on the shopping festival Double 11. They would need to prepare tens of thousands of dollars in ad spend and build a physical inventory, in order to participate. So we come in, look at the data, and fund them for their spend or for their purchase inventory and other operating expenses. Over the next couple of months, their transfer of the funds from their clients will come, and we’ll split that payment together.
What makes RBF a good financing alternative for tech startups in Asia?
Tech startups are normally not profitable, at least in the first three to five years, and they’re usually asset light. Because of these factors, they are deemed as high risk and traditional financiers will probably not give them capital. Getting a VC term sheet could take months, and for banks, they might do 20 checkboxes and if you miss one then your whole process is gone.
As a startup, time is the most important, and we realized RBF could help businesses immediately. The model allows us to come in somewhere in between traditional bank financing and a VC. On a bad month, the repayment is much less than on a good month. We behave like a partner in this sense, and so I think we are quite founder friendly and getting popular in Asia.
Where do you see the most potential for revenue-based financing adoption in this part of the world?
Actually about 70% of our portfolio companies are in Southeast Asia, and the other 30% are in Hong Kong, Australia, Spain, and Canada. The learning curve of the technology side in Southeast Asia is quick. There are a lot more people in Southeast Asia who will want to have more opportunities to try to do their own things. Other than that, there’s a lot of major VCs in the region; the governments here are very supportive and nurturing of tech startups. So, they try to build the whole ecosystem on a consistent basis, whereas, I think in other parts of Asia, where the capital markets and the property market are booming, it makes sense for investors to go for those routes rather than investing in tech companies. Indonesia is a big blue ocean that we’re trying to enter.
How do you compete with rising interest from global VCs and private equity firms?
I don’t believe we’re competing with VCs, PEs, or family offices, or even banks. There are different kinds of fundings — bank loan equity, money from VC equity, money from RBF — and they can coexist, you know; they don’t conflict with each other. We’re so flexible, we can come in at any stage of a company’s growth. We’re not a competitor against other types of funding. In fact, we work very well with them, and we have created a lot of good partnerships and synergy with VCs as well.