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ADDX Partners Innoven Capital to Tokenize Venture Debt Fund

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Singapore-based private market exchange ADDX is partnering Innoven Capital to fractionalize its US$50 million Innoven SEA Fund I, which provides venture debt funding to high-growth startups and technology companies across Southeast Asia, the company announced on Wednesday.

Innoven, a joint venture between Temasek’s Seviora Holdings and UOB, provides debt financing for companies that are still dependent on venture capital funding to grow. Launched in 2016, Innoven is active across India, China and Southeast Asia. According to the company, it has deployed over $1.2 billion across more than 560 debt transactions to over 300 portfolio companies in Asia.

Using blockchain and smart contract technology, fractionalization allows ADDX to bring down the minimum subscription size for individual accredited investors to US$20,000, from US$5 million, and enable secondary trading on its exchange.

The fund in question provides investors a combination of fixed income and equity return, with annual cash distributions.

Interest in venture debt

Venture debt is a fixed income investment with a lower risk-return profile as compared to venture equity capital. Its regular distributions is attractive to many investors in the current risk-off environment, ADDX said. In addition, venture debt deals typically come with equity warrants, which give venture debt funds the option to purchase equity at a future date, should the startup continue to grow.

“Private debt as an asset class is on the rise, with assets under management (AUM) forecast to increase from US$1.2 trillion in 2021 to US$2.7 trillion in 2026…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, CEO of ADDX, said.

“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, Innoven Capital SEA partner, said.

Tokenized investing on the rise

Blockhead previously reported the growing interest in asset tokenization – the process by which an issuer creates digital tokens on a distributed ledger or blockchain to represent either digital or physical assets – as crypto winter is prompting capital to focus on more viable blockchain use cases.

The projected growth in asset tokenization is driven by demand from a wide range of investors for greater access to private markets, as tokenization and fractionalization of assets lower barriers to investment in private markets by reducing minimum lot sizes.

A recent Blockhead survey of 25 investment advisors, asset managers, and analysts at research firms noted that investment management firms, private markets investment firms and crypto exchanges have jumped into the bandwagon of tokenized funds, with large investment management firms and crypto exchanges considering different products for such investors.

ADDX currently serves individual accredited investors from 39 countries spanning Asia Pacific,
Europe and the Americas (except the US). Founded in 2017, the company has raised US$140 million in funding from backers like Singapore Exchange (SGX), the Stock Exchange of Thailand (SET), Temasek subsidiary Heliconia Capital, the Development Bank of Japan (DBJ), UOB, Hamilton Lane, Tokai Tokyo Financial Holdings and Hanwha Asset Management.

Related: Tokenized Funds to Lead the Way Forward, Despite Crypto Winter