Earlier this month, Hong Kong-headquartered insurtech firm, OneDegree Group, announced receipt of its inaugural venture debt funding from the HSBC New Economy Fund.
“We had been exploring venture debt during Series B, as we consider it a good tool to reduce the cost of capital and optimise the capital structure,” OneDegree co-founder and CEO, Alvin Kwock, told FinanceAsia.
Kwock explained that OneDegree connected with the bank around the Lunar New Year, and it took approximately four months to close the deal.
“We had been collecting term sheets from banks, and one of our shareholders, Gobi Partners, introduced us to the HSBC New Economy Fund team.”
In 2019, HSBC launched two dedicated debt financing schemes totalling $1.8 billion to support technology and healthcare ventures in the Greater Bay Area. In June, the bank announced a move to combine the schemes to form the upsized $3 billion HSBC New Economy Fund.
The strategy invests in early-stage high-growth, tech-focussed businesses active in Hong Kong and China, with the aim to support growth across the region’s innovation economy.
It signs ticket sizes from $1-50 million, with venture debt commitments starting from $10 million for qualified start-ups at Series B or beyond.
FA understands that the fund’s commitment formed part of OneDegree’s recent $28 million Series B1 funding round, which brought the total funds raised by the company to date, to over $70 million.
The transaction constitutes the fund’s first Asia-based venture debt transaction.
OneDegree will use the capital to accelerate its international expansion, while leveraging support from the bank’s global footprint as its strategic partner, Kwock confirmed.
Venture potential
Thomas Elliott, managing director and head of Client Coverage for HSBC’s Hong Kong-based Commercial Banking team elaborated on the financing offered.
“When we provide venture debt financing, these follow the constructs of revolving and term loan debt structures, but with some important differences,” he told FA.
“Firstly, these committed loans are typically customised for pre-profit, venture capital-backed businesses that would not normally meet traditional lending criteria. Secondly, venture debt loans can be accompanied by equity warrants to offset the borrowing costs in return for a share in the economic upside as the business grows.”
He explained that, at a time when low valuations make equity expensive and rising rates substantially push up non-dilutive debt costs, demand for venture debt financing is likely to be “very robust in coming years”.
“We see huge potential across the verticals of climate tech, industrials, consumer, technology, healthcare and life science in Greater China as they are underpinned by significant and positive structural trends including transition to net zero, continued digitalisation, and a burgeoning middle class,” he shared.
Tech-backed transformation
Established in 2016, OneDegree aims to use cybersecurity and digital assets expertise alongside cutting-edge technology, to transform the insurance arena.
“In our recent fundraising round, we welcomed new investors and strategic partners, alongside three largest existing institutional investors,” Kwock confirmed.
“We are rapidly reaching scale,” he said, adding that the group plans to achieve profitability by the end of 2024.
In terms of customers, OneDegree Group targets digital assets exchanges, custodians and managers with its provision of asset-related services; it licenses its cybersecurity and insuretech offering to insurers, brokers and multinational corporates – some of whom are based in Hong Kong, Cambodia, Malaysia, Vietnam and Taiwan; and it also provides direct-to-consumer insurance offerings ranging from pet and home products to critical illness coverage.
Kwock shared that the firm recently joined forces with Microsoft to integrate Azure OpenAI into its IXT Seeble and Cymetrics Copilot solutions.
“These pioneering generative artificial intelligence (AI)-enabled solutions for the insurance industry streamline complex insurance processes and enhance customer interactions and cybersecurity management,” he explained.
He shared that the firm now has “years of runway” and no further imminent fundraising plans.
“We find HSBC team really understands our business well, and are committed to support our business plan across multiple geographies,” Kwock concluded.
