ADDX is part of a wider trend of firms using technology to make it easier for investors to enter the private markets and alternative investments space.

Singapore-based private market exchange ADDX has fractionalised a venture debt fund by Innoven Capital, reducing the minimum amount that individual accredited investors must put in to become involved.

Investors now can get access for as little as $20,000 rather than $5 million because ADDX uses blockchain and smart contract technology.

Innoven is a joint venture between Seviora Holdings – a wholly owned subsidiary of Temasek Holdings – and United Overseas Bank. The investment offering was completed via a special purpose vehicle, Prometheus-13 Pte. 

ADDX is part of a wider trend of firms using technology to make it easier for investors to enter the private markets and alternative investments space. The group has raised $140 million so far in funding rounds, with its most recent financing announced here. Its investors include Singapore Exchange, Temasek subsidiary Heliconia, Development Bank of Japan, SET, Hamilton Lane, UOB, Tokai Tokyo Financial Holdings, Kiatnakin Phatra Financial Group, Krungsri Bank, Hanwha Asset Management and Juroku Bank.

The Innoven SEA Fund I provides venture debt funding to high-growth startups and technology companies across Southeast Asia. The fund, which is anchored by a $50 million commitment from Seviora and UOB, provides investors a combination of fixed income and equity return, with annual cash distributions.

Venture debt is a form of debt financing for companies that are still dependent on venture capital funding to grow. Loans sizes can go up to 30 per cent of an equity round or cash in bank, and loans are made out based on factors such as the strength of the startup’s shareholders, the quality of its management team as well as the firm’s competitive advantage. 

For startup founders, venture debt is less dilutive than equity financing, allowing companies to extend their cash runways and secure more time to achieve growth milestones, ADDX said. For investors, venture debt is a fixed income investment with a lower risk-return profile compared with venture equity capital. 

Venture debt is, however, accompanied by regular distributions, which is attractive to many investors in the current risk-off environment, ADDX continued.

“The macroeconomic climate and interest rate hikes that have impacted company valuations have led to cautious deployment of capital from equity investors. Companies have shifted their focus to decreasing their burn rate and building cash reserves in anticipation of a potential near-term period in which equity capital may be more difficult to obtain. In this current environment, the demand for venture debt has increased significantly,” Paul Ong, partner of Innoven Capital SEA, said.

Oi-Yee Choo, CEO of ADDX, said: “Venture debt is poised to grow. In the US, where the ecosystem is more mature, venture debt deals make up around 25 per cent of venture capital funding. In Southeast Asia, that figure is less than 5 per cent. This strongly suggests there is room for expansion, as venture debt funds raise more capital from investors and deploy that capital in a region where the prospects for tech startups remain bullish in the medium- to long-term, despite the uncertainty we’ve seen in the capital markets this year. 

“More broadly, private debt as an asset class is on the rise, with assets under management forecast to increase from $1.2 trillion in 2021 to $2.7 trillion in 2026. As blockchain technology lowers the barriers to entry for individual investors – by as much as 250 times, as in this case – we take the view that a significant share of the projected growth in private debt will come in the form of new, mass affluent investors getting access for the very first time,” Oi-Yee Choo added.