Beacon Fund: Rethinking Debt Financing for The Next Generation of Women-led SMEs

Launched in 2020 at the peak of the pandemic, Beacon Fund faced a challenging macroeconomic environment - many investors paused their allocations to emerging markets, and many businesses rethought their expansion and fundraising plans and were instead focused on survival.

However, thanks to the backing of early investors such as the Visa Foundation and the Sasakawa Peace Foundation, Beacon has been able to get off the ground and has invested in three promising businesses to date. In addition, Shuyin Tang said that the past two years have given the team valuable insights into its target segment - the “unsung heroes” of Southeast Asian economies.

“At Beacon, we do not focus on startups, we focus on SMEs. The term ‘SMEs’ often conjures up the image of a very traditional or ‘old school’ business, but we have found that there is also a segment of progressive, dynamic SMEs that are hungry to grow,” Tang said. “They are ambitious and have big dreams, but these ambitions may not necessarily include an exit.”

That is to say, Beacon Fund targets companies that are often sidelined by traditional venture capital or private equity firms, which usually demand extremely high growth and a big exit in five to seven years. It, instead, provides fit-for-purpose debt and mezzanine financing for profitable, cash-flow-positive businesses growing at healthy rates.

“It’s a generalization, but we have observed that female entrepreneurs are often more comfortable running businesses with healthy unit economics and sustainable growth,” she added. “In addition, some of them may not necessarily aspire to an exit, but seek to build a business that lasts for generations. While an exit is sometimes presented as the be-all and end-all of a successful business, we saw that in reality entrepreneurs have many different definitions of success.”

A study by BCG and MassChallenge found that women-led businesses earn 12% higher in yearly revenue while using an average of a third less capital than male-led startups. Despite this, women do have disproportionately less access to two common sources of funding for young companies: venture investments and bank loans.

According to Crunchbase News, the proportion of investments flowing into women-founded companies accounted for just 2.2% of all venture funding in 2021. In terms of bank financing, research has shown that women are less likely to receive business credit compared to men, for a large number of reasons including gender bias held amongst bank staff and embedded into bank processes and decision-making. In addition, women tend to have less access to personal assets - in particular hard assets such as real estate - to use as collateral.

Beacon itself offers debt products, but the fund’s assessment is focused on the company’s cash flow generation capabilities and growth potential, not just on the collateral the business owner possesses.

The fund offers a number of products such as straight loans, loans together with revenue share, and venture debt. It is also working on more innovative approaches such as tieing the pricing of the debt to the impact of its investees, be it increasing the diversity of teams, or expanding their impact to customers, just to name a few.

The fund’s typical check sizes range from USD 500,000 to USD 2 million. Given the landscape after the pandemic, it also offers a special facility to make smaller investments as small as USD 200,000 and, over time, work with these businesses so that they can unlock larger investments from the fund.

As there are still a lot of misperceptions and a need for education around debt products, Beacon has run numerous workshops to help founders weigh up the pros and cons of debt and equity and choose the right mix for their type of business.

Compared to equity, debt does not dilute ownership. Founders and debt investors can decide to partner for two to three years, then shake hands and part amicably after this set timeframe. The investment helps the business grow over that period without expecting an exit or a requirement to buy back shares.

Through the Swiss EP’s Entrepreneur-in-Residence (EIR) program, the firm has received mentoring from Richard Marney.

Marney, who has around 45 years of experience in economics and debt and equity investing across the globe, has worked with the team since January 2022 to help them refine Beacon’s processes and policies. This includes loan origination, risk analysis, credit analysis and monitoring, and valuation policy, among others.

“Having somebody who has ‘been there, done that’ like Richard has been of tremendous support to us. He’s been able to share both strategic guidance as well as practical tips and tools,” Tang noted. “Our job is to translate these global best practices to what makes sense in Vietnam, and Southeast Asia more broadly.”