Resources & Latest News

SO(H) MAGNIFI-SOH! Icon Law's Soh Chun Bin has been featured in the Asia Business Law Journal's annual "Singapore's Top 100 Lawyers" list, which "unveils the top talent in the Lion City’s legal profession".

The ABLJ is a highly respected legal publication known for its coverage, and prestigious rankings, of top lawyers, law firms, and legal innovators across Asia. Its rankings are based on extensive research and industry feedback, serving as a benchmark for excellence in the legal profession.

The ABLJ upholds a cherished tradition with this highly anticipated list, regarded as one of the most esteemed accolades a lawyer can attain. Making it is a mark of distinction as it highlights only the most influential and accomplished legal professionals in Singapore.

"[Chun Bin] exhibited remarkable strategic thinking, attention to detail, and a deep understanding of the legal landscape, which ultimately led to a favourable outcome for our company" - Kenneth Lim, Vice-President of Group Finance, noco-noco (Icon/Chun Bin assisted with its NASDAQ listing (de-SPAC)).

The entire feature is available here.

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GCL GlobalHoldings Ltd. has on 14 February 2025 commenced trading on Nasdaq via a business combination with RF Acquisition Corp. (Nasdaq: RFAC). The business combination, which valued the company at US$1.2 billion, raised US$42.9 million.

GCL Global is a leading provider of games and entertainment content based in Asia, with the GCL group of companies comprising video game publishers, Epicsoft Asia and 4Divinity, video game distributor, 2Game, and Titan Digital Media – the influencer marketing company owned by YouTube personality, Tan Jianhao.

The Icon Law team, led by Managing Director, Soh Chun Bin, Director Katherine Tan and Counsel, Tan Wy Lu acted as legal advisers on Singapore law to GCL in its listing on Nasdaq.

For more information, please contact Soh Chun Bin or refer to the media's widespread coverage of the transaction.

This is for general information only and is not a substitute for legal advice.

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Goodwill Entertainment Holding Limited has on 15 November 2024 IPO-ed and listed on the Catalist board of the Singapore Exchange! This achievement represents a significant milestone in their journey.

Goodwill Entertainment Holding Limited is in the business of operating multi-entertainment concepts, comprising a network of family-friendly karaoke facilities with food and beverage concepts, performance halls and dance clubs, operating under the brand names “HaveFun Family Karaoke”, “FATEbyhavefun” and “HaveFun Live Show”.

Icon Law is honoured to have acted as IPO counsel, advising and assisting Goodwill as its legal advisor. Our transaction team comprised Managing Director, Soh Chun Bin, Director Katherine Tan and Counsel, Tan Wy Lu.

For more information, please contact Soh Chun Bin or refer to the media's widespread coverage of the transaction.

Under the leadership of Soh Chun Bin and Jeremiah Huang, Icon Law has made it onto AsiaLaw's jurisdiction rankings, being:

1. Recognised for its capital markets practice; and

2. Notable for its corporate and M&A practice.

AsiaLaw is the only legal directory focused on comprehensive analysis of Asia's regional and domestic firms, and leading lawyers from the region, and it has for the past almost 3 decades. Icon Law is honoured to make the list, which serves not only as validation of the team's technical ability as lawyers, but the firm's cross-border and Asia-centric practice.

Icon Law is excited to announce that it has been ranked by the International Financial Law Review (IFLR) as a Notable Firm for Capital Markets: Equity and Mergers & Acquisitions.

Additionally, Directors, Soh Chun Bin and Jeremiah Huang, have been recognised as Notable Practitioners for Mergers & Acquisitions.

First published in 1982, the IFLR is the world's leading guide to financial and corporate law firms and lawyers - and Icon Law, Chun Bin and Jeremiah are lucky and grateful to be on the list. We wish to express our deepest gratitude to our many clients, friends and of course, family (both at work and home)!

Icon Law is proud to have acted as Singapore legal advisers to TCL Zhonghuan Renewable Energy Technology Co Ltd (“TZE”) in the restructuring of approximately US$403 million existing convertible notes issued by Nasdaq-listed Maxeon Solar Technologies Ltd (NASDAQ:MAXN) (“Maxeon”) and Maxeon’s additional issuance of approximately US$97.5 million new convertible notes to TZE.

Maxeon is a Singapore-headquartered manufacturer of Maxeon® and SunPower® brand solar panels, and has sales operations in more than 100 countries (operating under the SunPower brand in certain countries outside the United States). TZE is the largest shareholder of Maxeon. In order to improve its liquidity, Maxeon and TZE agreed to restructure and extend the repayment of existing convertible notes of an aggregate principal amount of approximately US$403 million. TZE also agreed to provide fresh debt funding of US$97.5 million (via the purchase of new convertible notes) and a separate equity investment of approximately US$100 million in equity funding.

Leading the transaction team was Managing Director, Chun Bin Soh, with assistance from our Director Wong Ee Vin and associate Constance Tay. For more information, please contact Chun Bin Soh or refer to Maxeon's SEC Filing.

Icon Law is excited to announce that it has once again made the finals of the Asian Legal Business' Southeast Asia Law Awards (now in its 20th year, this 2024) in the category, Transactional Boutique Law Firm of the Year.

Additionally, Director, Jeremiah Huang, has been shortlisted for Young Lawyer of the Year (Law Firm).

Asian Legal Business, which is owned by Thomson Reuters, is the world's leading source of intelligent information for businesses and professionals.

While results will only be announced at the gala night and ceremony to be held in May, we wish to first express our deepest gratitude to our many clients, friends and of course, family. Without your support, we would not be here!

What a way to close out the Year of the Rabbit and welcome in the Year of the Dragon! Under the leadership of Soh Chun Bin and Jeremiah Huang, we are off to a fiery start as a finalist in ALM’s Law.com International’s Asia Legal Awards 2024 in the category, Boutique Law Firm of the Year!

Founded in 1979, ALM is America’s foremost authority on law firms and lawyers, most famous for their flagship news-as-it-happens platform, Law.com, and the Am Law 100 list. To be recognised halfway around the world from the United States is both astounding and humbling.

Roars of gratitude to our clients, friends, and family (plus a nod to the mighty ALM and Law.com International teams). We soar because you give us wings! Keep breathing fire!

Under the leadership of Soh Chun Bin and Jeremiah Huang, we have made the shortlist of the IFLR's Asia-Pacific Awards 2024 in the category, Rising Star Law Firm! We are especially honoured as the only firm from Singapore!

First published in 1982, the IFLR (International Financial Law Review) is the WORLD'S LEADING international legal market researcher specialised in the ranking of financial and corporate law firms and lawyers.

While results will only be announced at the gala and ceremony to be held in Hong Kong this March, we wish to first express our heartfelt appreciation to our clients, friends, and family (and of course, the IFLR) - without their invaluable support, this achievement would not be within our grasp.

We are pleased to announce the promotion of Katherine Tan to Director.

Katherine has been with the team since her admission to the Singapore bar, and has over the years, amassed extensive experience with corporate transactions and matters in both public and private markets. The breadth of her practice spans corporate actions/compliance advisory all the way to IPOs and post-listing obligations.

"Kath is a trusted and integral member of our team, well regarded by all who have worked with her. This well-deserved promotion is testament to her ability and a reflection of our commitment to our talent," says Soh Chun Bin, Icon Law's Managing Director.

Congratulations Katherine!

We are excited to announce that owing to our growing corporate services business, we have established a wholly-owned subsidiary, Icon CorpServ Pte. Ltd., to focus on this burgeoning practice of ours.

Further to the above development, Icon Law will be transferring all its corporate services business to Icon CorpServ.

Singapore-based noco-noco Pte. Ltd., an electric battery technology company, which is a subsidiary of Japan's 3DOM Alliance Inc. (a venture group that owns several decarbonisation and renewable energy technology companies), has on 4 September 2023 debuted on the Nasdaq (NASDAQ: NCNC) further to a merger and business combination (i.e. de-SPAC) with Nasdaq-listed special purpose acquisition company (SPAC) Prime Number Acquisition I Corp.

Noco-noco’s proprietary battery separator technology, known as X-SEPA™, results in batteries with better performance, durability, and heat resistance compared to its peers.

Icon Law is proud to have acted as Singapore legal advisers for noco-noco. Leading the transaction team was Managing Director, Soh Chun Bin. For more information, please refer to the media's coverage of the transaction.

Singapore-headquartered electric motorcycle manufacturer and distributor, Charged Asia, has secured up to US$40 million of growth capital from SGX-listed Geo Energy Resources Limited, through its subsidiary, Geo Electric Pte. Ltd.

Charged Asia, which has successfully developed three (3) electric motorcycles, is backed by reputable investors and shareholders, DeClout Ventures and Vmoto. DeClout Ventures is the corporate venture arm of Exeo Global Pte. Ltd, the global headquarters facilitating the operational and strategic management of overseas subsidiaries for Tokyo Stock Exchange Prime listed EXEO Group, Inc, while Vmoto is a leading, fully integrated, new energy e-mobility solution provider listed on the Australian Securities Exchange.

As at the date hereof, Charged Asia has already delivered more than 1,000 of the same across Indonesia, Malaysia and Vietnam. Charged Asia will be utilising the funds to scale its growth throughout Southeast Asia, with a focus on Indonesia

Icon Law is proud to have acted for Charged Asia, with Managing Director, Soh Chun Bin, leading the team. For more information, please refer to the media's coverage of the transaction.

Under the leadership of Soh Chun Bin and Jeremiah Huang, Icon Law has made the finals of the 19th Annual Asian Legal Business' Southeast Asia Law Awards 2023, and is in the running for not one but two categories: 

(1) Transactional Boutique Law Firm of the Year; and

(2) Rising Law Firm of the Year.

Asian Legal Business, which is owned by Thomson Reuters, is the world's leading source of intelligent information for businesses and professionals.

While results will only be announced at the gala night and ceremony to be held in May, we wish to first express our deepest gratitude to our many clients, friends and of course, family, who have made this momentous achievement possible. Thank you all!

Under the leadership of Soh Chun Bin and Jeremiah Huang, Icon Law has been featured in Asian Legal Business' annual list of "Singapore Firms to Watch", which identifies boutique firms that provide "specialised expertise and personal attention to their clients ... spotlighting such firms that have stood out in the crowd and continued to make an impact on the market".

Asian Legal Business, which is owned by Thomson Reuters, the world's leading source of intelligent information for businesses and professionals, writes:

"... since its explosive start as ZICO Law’s new Singapore member, Icon Law has shown no signs of slowing down. The firm was recently made KPMG Law’s best friend in Singapore, as the latter continues its rapid and successful expansion across Asia. Apart from being routinely featured on ZICO and KPMG’s mega transactions, the Icon Law team is deep-rooted in the Singapore market and has a stellar reputation and track record of delivering quality legal services and presenting innovative and successful solutions. ... Leading the solid team of award-winning talents are Soh Chun Bin and Jeremiah Huang, who are routinely the subject of word-of-mouth marketing and referrals from clients and counterparties.This, coupled with the strategic combination brought by ZICO and KPMG, poises Icon Law for rapid growth, and to become a key name in the corporate space."

The entire feature is available here.

We are pleased to announce the promotion of Wong Ee Vin to Director.

Ee Vin has strong corporate finance and equity capital markets experience and a focus on venture debt, private credit, funds, alternative investment products, and venture capital. He has assisted a broad range of clients with their legal matters, including family offices, venture capital funds, listed companies, and start-ups, often in transactions spanning across Singapore and other Southeast Asian countries such as Indonesia, Vietnam and the Philippines.

"Ee Vin is a valuable and trusted member of the team here at Icon Law and well regarded by his peers and his clients. His promotion to Director is an endorsement of his seniority and a confirmation of his ability to lead transactions and deliver solutions to clients," says Soh Chun Bin, Icon Law's Managing Director.

Ee Vin commenced legal practice in 2017, and worked at boutique and international law firms prior to joining the former Singapore member firm of the ZICO Law Network in September 2019. During his time as a Senior Associate there, he was recognised as a “key lawyer” by the Legal 500.

Ee Vin regularly writes legal articles on legal or corporate matters in Singapore and the Southeast Asian region, some of which are accessible on our website. He graduated from the Singapore Management University with a Bachelor of Law (Cum Laude) in 2016, and is also a candidate for the Chartered Financial Analyst program.

Just 3 months after the establishment of Icon Law LLC, it has been featured and recommended in The Legal 500 (Asia Pacific) for "Capital Markets: Equity and Debt: Local Firms". This achievement validates the strong capabilities and market reputation of the team led by Directors, Soh Chun Bin and Jeremiah Huang.

The Legal 500 is considered to be the largest legal referral guide in the world, with rankings thereon based on merit (researched by the editorial team).

For and on behalf of the entire team, we wish to express our sincere gratitude and appreciation to our clients, friends and family who have supported us on our journey, and of course, to The Legal 500.

Real estate funds in Singapore, whether listed or unlisted, have conventionally been constituted as unit trusts. A unit trust is a type of collective investment scheme that is based on a trust over assets (in this case, real estate and real estate-related assets) held by the trustee, and of which beneficial interests are vested in the holders of ‘units’ in the said trust.

That said, the launch of the variable capital company (‘VCC’) structure in Singapore in January 2020 provided a new alternative to structure real estate funds. Briefly, a VCC is a corporate entity that can be used to hold one or more collective investments schemes over any form of property, including real estate and real estate-related assets. It can be structured in a variety of ways, most notably as an umbrella VCC with several sub-funds, each having its own separate and segregated investment objectives, assets and liabilities.

Despite the establishment of over 540 VCCs as of mid-2022,[1] as of the date of this article, there are no real estate funds listed on the Singapore Exchange Securities Trading Limited (‘SGX-ST’) that are constituted as VCCs – most have adopted the unit trust structure. Anecdotally, we have had many clients who request for their real estate funds to be structured as unit trusts, and view VCCs with some degree of unfamiliarity or suspicion.

Borne out of this context (and perhaps a little frustration), we want to delve into the reasons underlying the persistence of the unit trust structure for real estate funds (instead of VCC). Ultimately, we argue below that the VCC offers greater advantages over a unit trust structure and should be the structure of choice for listed and unlisted real estate funds going forward.

The history of unit trust structures in Singapore

Much of the preference for unit trust structures in Singapore for real estate funds can be traced to the widespread use of real estate investment trusts (‘REITs’). REITs were first conceptualised in 1960 by the United States (‘US’) Congress to give all investors, particularly small retail investors, opportunities to invest in real estate without incurring significant capital outlay. Such real estate funds were not corporatised (i.e. they were constituted via trust structures) primarily because of a prohibition on corporations from qualifying as REITs under the US tax laws in force at that time.[2] As such, trust structures have, by reason of precedent, been used to house REITs in the US, although (since certain amendments made to the US tax laws in 1976) the trend in the US has been to corporatise REITs as state law corporations.[3]

Locally in Singapore, market players have followed the trailblazing precedents set by the US, Australia and other foreign jurisdictions. The first listed Singapore REIT (‘S-REIT’), CapitaMall Trust, was constituted as a unit trust and listed on the SGX-ST in 2002. Over the years, the S-REIT landscape has matured, with 43 S-REITs and property trusts having a total market capitalisation of SGD111 billion as at June 2022.[4] A quick sampling of these S-REITs reveal that almost all of them are set up as unit trusts. So prevalent are unit trust structures that the rules of the SGX-ST relating to real estate funds are drafted assuming that the real estate fund is constituted as a unit trust,[5] even though there is no strict requirement to be constituted as such. Therefore, it remains to be seen how such listing rules, requirements and procedures will be applied to a real estate VCC in the future.

Anecdotally in the private unlisted real estate fund industry, we note that clients often have a strong preference for unit trust structures, as documentation is widely available on the SGX-ST and in other exchanges. Such structures are well-understood and ingrained into the public consciousness.

Aside from familiarity, what advantages do unit trusts have over other structures and in particular the VCC? We compare these two structures– and on a balance, argue that the VCC is actually much more suitable to house real estate funds than trusts.

The VCC versus the unit trust structure for real estate funds

One of the often-cited advantages of constituting a real estate fund as a unit trust is the tax transparency treatment of certain specified income distributed by the trustee. Tax transparency means that the specified income will not be taxed at the trustee level, but in the hands of the unitholders. However, while that is true for REITs, we have had to explain to some clients that REITs have a specific meaning – being a trust investing in real estate and real estate-related assets that is constituted as a collective investment scheme authorised under section 286 of the Securities and Futures Act 2001 (‘SFA’) and listed on the SGX-ST.[6] As such, for many of our private clients, they will not be able to avail themselves of the automatic tax transparency treatment and income tax will be levied in the trustee’s hands at the prevailing corporate tax rate. This outcome is therefore similar to a VCC for income tax purposes, as a VCC is treated as a company incorporated under the Companies Act 1967 and subject to the prevailing corporate tax rate. In both cases, downstream distributions from a unit trust to its unitholders or a VCC to its shareholders are exempt from another separate tax.

In addition, while the tax incentive schemes generally available to real estate funds, being the Offshore Fund Tax Exemption Scheme,[7] the Singapore Resident Fund Tax Exemption Scheme[8] and the Enhanced-Tier Fund Tax Exemption Scheme,[9] are applicable depending on its legal structure, similar economic benefit is accorded under these schemes. In each case, the real estate fund must fulfil the specific conditions to prove that its ‘specified income’ is derived from ‘designated investments’, and therefore is exempt from tax. Thus, there is no inherent benefit in constituting a real estate fund as a unit trust. Conversely, certain qualifying expenses incurred in the incorporation or registration of a VCC may be defrayed by the VCC Grant Scheme offered by the Monetary Authority of Singapore (‘MAS’), capped at SGD150,000 per VCC. As at the date of this article, the VCC Grant Scheme is still available.

From a regulatory perspective, the managers of VCCs are required to be regulated by the MAS, and are excluded from relying on the exemption relating to immovable assets under the SFA from holding a capital markets services (‘CMS’) licence for fund management.[10] Accordingly, the additional time and effort involved in the application of a CMS licence for fund management may deter the utilisation of VCCs. In contrast, a manager of a unit trust can invoke such exemption and be deemed to be a ‘restricted scheme investing in non-capital markets products’, provided that (i) the fund invests solely in immovable assets or in securities issued by investment holding companies whose sole purpose is to invest into real estate development projects and/or real estate properties, and (ii) the units in the fund are offered only to accredited investors.[11] The adoption of the unit trust structure therefore appears to be a relatively quicker path to establish a real estate fund.

Yet from a legal perspective, there are benefits in having clearly defined statutory rules governing the segregation of assets and liabilities of the sub-funds of a VCC, that the sub-trusts of a unit trust do not have the advantage of. This is most relevant in considering the protection of the unitholders during insolvency or winding up of the real estate fund. Such segregation laws are statutorily enshrined in the Variable Capital Companies Act 2018 (‘VCC Act’) which states that the assets of a sub-fund of a VCC cannot be used to discharge the liabilities of the umbrella VCC or of another sub-fund. Third party creditors of a sub-fund are therefore ring-fenced into recovery against that sub-fund’s assets by the operation of clearly defined legal rules. In comparison, the unitholders of a sub-trust are not conferred similar protection and must rely on contractual provisions set out in the trust deed to segregate the assets and liabilities of each sub-trust. Legally speaking, such segregation is contractual and only binding on the trustee and unitholders inter se and may not be entirely effective against third party creditors who are not privy to the trust deed and have had no notice of the same. As such, protection of the unitholders afforded by a unit trust is weaker than that rendered to the shareholders of a VCC.

Finally, from a conceptual perspective, it must be highlighted that trust laws do not mandate a limitation of liability between unitholders and their trustee, and therefore theoretically unitholders may be exposed to unlimited liability incurred by the trustee. Unless otherwise agreed, trustees have a right to be indemnified against the trust assets and where insufficient, against the unitholders personally,[12] insofar as the trustee is not in breach of its statutory duties under the SFA. On the contrary, given that the VCC is a company, the liability of shareholders is limited to their subscription into the VCC, and the directors and/or managers of the VCC do not have direct recourse against the shareholders. This is however a conceptual point because to our knowledge, the limits of such personal recourse by a trustee against its unitholders have never been tested in Singapore courts.

In summary, it appears that the VCC has several clear legal advantages over the unit trust structure, and generally enjoys similar tax treatment to a unit trust (which is apposite for unlisted real estate funds). However, a real estate fund constituted as a trust and which is deemed as a ‘restricted scheme investing in non-capital markets products’ need not have a licenced manager, which a VCC is statutorily required to have. This may deter smaller real estate funds from adopting the VCC structure.

The way forward

Having considered both the advantages of the VCC as well as its limitations relative to the trust structure, we set out our thoughts on possible enhancements to the VCC framework going forward to better suit real estate funds.

An important step forward would be to extend the exemption relating to immovable assets under the SFA from the requirement to hold a CMS licence for fund management, to the fund managers of real estate funds constituted as VCCs, subject to the satisfaction of the requisite conditions. By doing so, it would bring the VCC on par with the unit trust structure in this respect. While we acknowledge that the rationale for mandating that fund managers of VCCs be regulated by the MAS is to maintain supervisory oversight and prevent any abuse of the VCC structure, safeguards may be implemented via the introduction of more stringent requirements under the corporate governance framework of VCCs. Nonetheless, it remains a curious case as to why a real estate fund constituted as a trust and which is deemed as a ‘restricted scheme investing in non-capital markets products’ need not have a licenced manager, whereas a real estate fund constituted as a VCC must have a manager that is regulated by the MAS.

Moreover, as noted above, the present rules of the SGX-ST pertaining to the listing of real estate funds are drafted in trust language. By providing express guidance as to the applicability of the rules of the SGX-ST in relation to the listing of real estate funds constituted as VCCs, this will provide clarity and aid the decision making in structuring real estate funds as VCCs.

On this note, it is hoped that subsequent revisions of the VCC framework will progressively bolster Singapore’s position as a leading asset management and fund domiciliation hub, in addition to its status as a global REIT hub.

If you have any questions or require any additional information, please contact Soh Chun Bin.

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[1] Thompson and Priest, ‘Singapore: Wider Adoption Greater Goal For Singapore VCC’ (Mondaq, 5 September 2022) <https://www.mondaq.com/directors-and-officers/1227428/wider-adoption-greater-goal-for-singapore-vcc-> accessed on 27 October 2022.
[2] Lee and Foo, ‘Real Estate Investment Trusts in Singapore: Recent Legal and Regulatory Developments and the Case for Corporatisation’ (2010) 22 SAcLJ at 37-38.
[3] Ibid at 38.
[4] SGX Research, ‘Chartbook: SREITs & Property Trusts’ (SGX, June 2022) <https://www.reitas.sg/wp-content/uploads/2022/06/SGX-Research-SREIT-Property-Trusts-Chartbook-June-2022.pdf> accessed on 27 October 2022.
[5] Rule 404(8) of the Mainboard Rules of the SGX-ST.
[6] Section 43(10) of the Income Tax Act 1947 (‘ITA’).
[7] Section 13D of the ITA.
[8] Section 13O of the ITA.
[9] Section 13U of the ITA.
[10] Paragraph 5(1)(h) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations.
[11] Paragraph 6A of the Sixth Schedule to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005; MAS, ‘FAQs on the Licensing and Registration of Fund Management Companies’ (MAS, 30 March 2022) at 5.
[12] EC Investment Holding Pte Ltd v Ridout Residence Pte Ltd [2013] 4 SLR 123 at [13].

In this increasingly austere period of fundraising, debt financing is for many start-ups the only option to tide over this difficult period. Yet, institutional lenders often refuse or are unable to lend to early-stage companies. There is an alternative to institutional lenders – venture debt – nonetheless, from our experience, it remains a relatively unfamiliar option for many start-ups in Southeast Asia. This article aims to shed some light on venture debt, demystifying its terms and the venture lending business in Southeast Asia.

Venture debt is, at its core, debt that is specifically provided to early-stage companies and start-ups. This fundraising paradigm was first conceived and developed in the United States and has grown in deal flow to almost USD30 billion annually in the past few years.[1] As with traditional debt, venture debt can comprise of term loan facilities, revolving facilities or other types of debt financing.

Compared to equity financing, debt is attractive to founders as it permits them to extend their cash runways with minimal or no dilution. This is complementary for early-stage companies seeking to raise capital to meet commercial objectives or to achieve meaningful milestones, so as to justify a higher valuation at the next funding round. However, start-ups and their founders often cannot access financing from institutional lenders, because such lenders assess debt repayability of start-ups based on their financial track records, positive cash flows, and assets over which security can be granted, all of which are not readily available in early-stage companies. To this end, venture lenders try to meet this demand in a manner that benefits all parties.

To compensate for the inherently higher risk assumed by venture lenders by lending to start-ups, venture lenders charge interest rates that are higher than those charged by institutional lenders. Venture lenders may also ask for security in support of their loans. Typical security may include, amongst others, personal guarantees from the founders, all-asset debentures granted by the borrower, and charges on specific bank accounts and/or account receivables of the operating subsidiaries. There is no market standard on the type of security to be provided, and much depends on what is commercially acceptable and reasonable to the parties.

In addition, a common condition for venture debt is the borrower’s provision of share warrants that are redeemable into shares at a specified exercise price. The number of share warrants to be provided is typically expressed as the ‘warrant coverage’ over the loan amount, such as ‘20% of the loans drawn down’. This would mean, assuming a loan amount of USD1 million, that the venture lender can subscribe for an equivalent of USD200,000 in shares at the specified exercise price under the share warrants. Such share warrants are ‘detachable’ and are, after their issuance, often expressed to be transferrable to third parties. However, it must be noted that the terms of the warrants, the exercise price, the type of shares and the warrant coverage are all matters to be negotiated between the venture lender and borrower at the outset. There are no market standards for how such share warrants should be constituted.

Venture debt should not be confused with convertible debt or other equity instruments, as they are not convertible – the share warrants are exercisable upon the payment of the specified exercise price for each share.

Venture lenders vs institutional lenders: differences in perspectives, approaches and processes

While institutional lenders usually comprise banks and financial institutions, venture lenders can include not just such financial institutions but also family offices, private equity, hedge funds and high net worth individuals. Because of the nature of their business, venture lenders are not constrained by capital adequacy and regulatory requirements that are imposed on institutional lenders, and therefore can assume a greater amount of risk.

In making a lending decision, unlike institutional lenders, venture lenders focus beyond the start-up in question and will also consider the private equity, angel investor and/or venture capital firms (collectively referred to as “venture capital firms”) involved with the start-up. This is for several important reasons:

• Traditional metrics for assessing debt repayability do not work on start-ups. Venture lenders must decide based on their assessment of the long-term sustainability of the start-up, as well as the possibility of follow-on fundraising. However, venture lenders may not (unlike venture capital firms) have specialist knowledge or the technical skill to assess the underlying products or services. In addition, unlike the comprehensive due diligence carried out by venture capital firms, there is little or no due diligence carried out in venture lending. As such, the involvement of a good venture capital firm serves as a powerful indicator of start-up quality, to the extent that venture lenders generally do not extend venture debt to start-ups until venture capital firms are involved.
• From a logistical perspective, the assumption of debt, the undertaking of security and the grant of share warrants are often board reserved matters and/or shareholder reserved matters. Without the consent of venture capital firms and their nominated directors, venture lending cannot proceed.
• Venture lenders face a great deal of information asymmetry. While venture lenders usually have monitoring mechanisms and covenants built into their facility documentation, they do not have the benefit of a board seat, veto rights or other forms of operational control over the company. As such, having a good venture capital firm involved and actively monitoring the financial health of such start-ups is complementary to the venture lender’s ongoing monitoring of their borrowers.
• There is often an implicit understanding that some portion of the future rounds of fundraising may be used to repay venture debt, which would otherwise be impossible without the close cooperation of venture lenders with venture capital firms.

In addition, the manner in which negotiations are run by institutional lenders and venture lenders are different. Institutional lenders assume that borrowers are sophisticated, capable of understanding complex documentation, and have the resources to engage qualified advisors. When default occurs, institutional lenders have recourse through their transaction security and recoverability is high. However, start-ups do not have the same resources and collateral as their established counterparts and are often under-represented or even unrepresented. As such, the consequences of the borrower’s negligence, breaches and defaults are much heavier to a venture lender. Consequently, some venture lenders choose to take a greater degree of control in the lending process, such as requesting for voluntary disclosures from the borrower (which will be elaborated further below), assessing if the required consents under the borrower’s constitution and shareholders’ agreement have been properly obtained, and providing template resolutions, registers and other documents which the borrower must use.

Finally, while institutional lenders may rely on a variety of financial covenants to monitor borrower’s risk profile, the risky nature of start-ups means that venture lenders place heavy emphasis on monitoring the cash runway and bank account balances of their start-up borrowers.

Venture lending in Southeast Asia from a Singapore perspective

Having explained what venture lending is and how it differs from institutional lending, how does venture lending in Southeast Asia compare to other regions such as the United States or Europe?

We set out below some observations we have noted in our deals in the past few years.

• Despite recent improvements, the legal landscape of Southeast Asia remains fragmented and divergent relative to the United States and/or Europe. It is not uncommon for the fundraising holding company of a Southeast Asian start-up to be incorporated in one jurisdiction and its operating subsidiaries in various jurisdictions with each entity being subject to different laws on borrowing from offshore entities, taking and enforcing security, and foreign ownership. In this context, venture lending is often extended to the holding company (being the entity under which venture capital was raised), pursuant to a facility agreement governed by laws and in a format comfortable to the lender, and some of the supporting transaction security may be granted by the operational subsidiaries pursuant to foreign law security documentation of that jurisdiction.
• As noted above, institutional lenders assume borrowers understand the loan documentation as a sophisticated party. Where the representations and warranties set out in the documentation may not be accurate or complete, institutional lenders assume that borrowers will negotiate limitations or exceptions and disclose the reasons why. In the institutional context it is unheard of for borrowers to give disclosure letters to such representations and warranties. However, in the Southeast Asian venture lending context, where recoverability is limited and borrowers may not be sophisticated, some clients have insisted on borrowers giving disclosure letters – with the sole purpose of forcing their management team to read through the representations and consider the documents in great detail. We can attest that this method works: we have had deals under which no comments were received during the negotiations of the loan documentation, but disclosures were subsequently made when the borrower was forced to draft the disclosure letter.
• Given the financial conservatism of Southeast Asian lenders and longer runways to future equity fundraising rounds, venture lenders are often hesitant to extend venture debt if there are too many loans on the start-up’s books. Venture lenders often make exceptions for existing loans granted by institutional lenders and may be happy to rank junior to such loans, but will otherwise scrutinise other types of debt, including shareholder loans and convertible notes. In such situations, some venture lenders will require that these other lenders expressly subordinate their debt to their venture debt.
• In the United States, we understand that some venture lenders do not use extensive loan covenants – going so far as having ‘no-covenant’ or material adverse change clause-only deals as the market standard.[2]  In the Southeast Asian context however, venture lenders are more risk-adverse and have extensive positive and negative covenants relating to, amongst others, the dissipation of assets, the assumption of further debt, and the use of loan proceeds. Nevertheless, the fast-changing and unpredictable nature of start-up businesses means that waivers are often requested for many of these covenants, which renders their compliance irrelevant in the first place. Venture lenders are aware of this and use such covenants to maintain a conversation with start-up borrowers and venture capital firms, so as to find mutually acceptable compromises for all parties.

Conclusion

In conclusion, aside from equity funding and institutional lending, venture debt is another fundraising option that start-ups should consider and explore. While there are differences between venture debt and traditional debt, we have endeavoured to demystify such differences and explain the dynamics between the parties involved in the venture lending process.

If you have any questions or require any additional information, please contact Soh Chun Bin and Wong Ee Vin.

[1] Darian M Ibrahim, ‘Debt as Venture Capital’ (2010) 4 University of Illinois Law Review 1169, 1194.

[2] Marina Temkin, ‘Large-scale investors flock to venture debt’s ‘phenomenal returns’ (PitchBook, 30 September 2022) <https://pitchbook.com/news/articles/venture-debt-financing-blackstone-KKR> accessed on 27 October 2022.

Icon Law is pleased to announce its establishment and joining of the ZICO Law network as the member firm in Singapore effective Monday, 3 October 2022.

Founded and led by Soh Chun Bin and Jeremiah Huang, Icon Law showcases diverse legal talent, with decades of award-winning corporate, finance and transactional experience.

Icon Law is an evolution from the former Singapore member firm of the ZICO Law network, with a deep-rooted and select team dedicated to providing innovative and high-quality legal services that keeps pace with the ever-changing demands of one of the world's fastest-growing markets, Southeast Asia.

We provide local, multi-ASEAN and multinational clients with timely, commercial and effective legal advice and assistance in Singapore, and together with the rest of the ZICO Law network, across all ASEAN.

Regional Managing Partner of ZICO Law, Hanim Hamzah said, “Singapore has been and remains a vital market for ZICO Law and we are delighted to continue to strengthen the network through the familiar team of Icon Law.”

For more information on Icon Law and the ZICO Law Network, please visit: www.iconlaw.sg and www.zicolaw.com.

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About ZICO Law

ZICO Law is the first network of leading independent local law firms with a full presence in all 10 ASEAN countries. Being in 18 cities in 10 out of 10 ASEAN countries, ZICO Law’s 300+ lawyers enable clients to enjoy value-added legal services by leveraging a combination of local expertise and regional insights.