What Choco Up wants you to know about running a revenue-based financing platform in Asia
On Wednesday, music tech startup Soundbrenner announced that it had raised a US$1.5 million funding from Choco Up, a Singapore- and Hong Kong-based revenue-based financing (RBF) and growth platform.
Originally founded in Germany, Soundbrenner has built the world’s first wearable device for musicians, and it intends to use the funding to support its global expansion plan. This development is among the latest investments that Choco Up has announced.
Founded in 2018, Choco Up offers flexible non-dilutive funding solutions across eight countries and ten sectors. It builds a data-driven fintech platform that leverages data analytics to automate growth fund deployment and risk management –while not losing the human touch that it provides for its portfolio companies.
But how exactly do they achieve that balance?
In this interview with e27, CEO and co-founder Percy Hung explains how Choco Up sets itself apart from similar platforms, the kind of support it gives to entrepreneurs, and what is next for the company. He also explains the story behind its unique name.
A human touch
RBF is an alternative financing model in which companies raise capital based on future revenue. In this concept, RBF platforms such as Choco Up put up funds for companies’ growth in exchange for a regular share or a certain percentage of the recipient companies’ revenue.
Hung begins the interview by explaining the difference between RBF platforms in mature markets like the US, Europe, and Asia.
“The big difference is that, in the Western world, [the fundraising process with RBF] is already fully automated. People go to the platform, apply, plug in their own API, draw some data … then they will be offered options of funding. It’s very seamless and very quick,” Hung explains. “Whereas in Asia, it is still something new. It takes a bit of time for Asia to catch up with what the West is doing.”
In short, there is still urgency for trust-building through face-to-face interaction in Asia.
“Because for an RBF platform user in Asia, if we receive an email or SMS [saying that we have secured funding], we probably think it is a scam. So the trust level needs to be built before people will use an automated system,” Hung says.
He also stresses how founders go through different kinds of problems –which is not something that a machine can solve right away. “So we have the automated part where smaller clients can just go on the platform and apply … but we also have an investment manager who reached out to clients that are a bit more complex.”
This human element also plays a crucial role in promoting the platform in an environment with relatively low trust where the Choco Up team still has to reach out to potential investments.
While the quantitative elements of the business are being taken care of by the digital platform, the qualitative elements –such as reference checks– are done by the team.
Lastly, besides providing funding for companies, Choco Up also supports them by building an ecosystem of different partners to offer services to their portfolio companies at a discount. The services range from cloud hosting to marketing consultancy.
“We are creating some value chain in this whole ecosystem, not just providing funding for them to work and expand … So we’re a little more holistic [in our approach],” Hung says.
Their role in the ecosystem
This holistic approach also affected Choco Up’s views on its position in the regional startup ecosystem: Hung does not see other investors as their competitors. In contrast, Choco Up see VCs as their partners in building up the ecosystem as they have referred companies to VCs for a potential investment.
“Because we can take some companies past a tough time or go to a different level until they become eligible to use a bank loan, or they become eligible to get funded by VCs,” Hung says.
“I think of them as friends. Because of how we execute and run [our business], we are very different from them as well,” he continues. “In the business world, we are not trying to be your primary form of capital. We could be your complimentary, we could be your safety net, we could be your third option. We’re happy to be there when you need us. So this is what we’re trying to build.”
The founding of Choco Up itself was inspired by the co-founders’ own experience in starting their own companies.
“We did a lot of research and found out that the RBF model could potentially help us. While we were trying to apply for RBF, we both felt like many friends and entrepreneurs around us could use the same service. So we’re like, ‘Hey, why don’t we just try to do it ourselves?'” says Hung.
Choco Up has done around 150-160 deals by the time this interview is published.
When it comes to searching for a potential investment, it is also open to investing in all stages and verticals. The platform typically invests between US$300,000 and US$3 million.
“As much as we prefer all those digital-native businesses, we’re also happy to look at traditional SMBs or offline businesses as well. Because a good business is always a good business, we try not to limit ourselves to which sector or what stages. We funded companies from seed round to pre-IPO. And we have helped some companies to go through the last mile successfully, and they went public after that,” Hung elaborated.
Lastly, would they be able to share the story behind their name?
“Chocolate is an energy booster,” Hung explains. “[The name] also doesn’t mean anything, so it is easier for us to trademark.”