Kelvin Teo is the co-founder and CEO of Funding Societies which is an online peer-to-peer lending marketplace for SMEs to acquire loans and fuel their growth through investor funding. The company has raised close to $60 million from top tier investors such as Sequoia, Softbank Ventures, Golden Gate, Alpha JWC Ventures, Qualgro VC, The Graduate Syndicate, and Line Corporation to name a few. 

In this episode you will learn:

  • Growing yourself as a leader as your business grows
  • The future for Funding Societies and digital lending
  • Kelvin’s top advice for new founders
  • How they tackled the dilemma of starting a marketplace business
  • The venture ecosystem in Asia

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About Kelvin Teo:

Kelvin Teo is the co-founder of Funding Societies | Modalku, the largest SME digital financing platform in Southeast Asia, licensed and operating in Singapore, Indonesia, and Malaysia. It gives loans to small-medium businesses for growth, crowdfunded by individual and institutional investors.
 
Backed by Sequoia Capital and SoftBank Ventures Asia, it has been selected for top FinTech 100 firms globally by KPMG, Global SME Excellence Award at United Nation’s ITU Telecom World, and FinTech Award by the Monetary Authority of Singapore. Chosen as the Top 200 FinTech influencers in Asia by Lattice 80, Kelvin has spoken at major conferences such as ASEAN Capital Markets Conference, LendIt Shanghai, and Money20/20 Asia.
 
Prior to this, Kelvin served as a consulting professional at KKR, McKinsey, and Accenture. Kelvin graduated from Harvard Business School and the National University of Singapore and is a certified Chartered Accountant.
 

Connect with Kelvin Teo:

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have a guest that is definitely going to teach us a few things about the building and scaling and financing of a hypergrowth business, especially when it comes down to online marketplaces around lending. So, without further ado, let me welcome our guest today, Kelvin Tao, welcome to the show.

Kelvin Tao: Hi, Alejandro. Thanks for having me. Honored to be here.

Alejandro: So you are originally from Singapore. Is that right?

Kelvin Tao: I was actually born in Malaysia, but I went to Singapore at the age of 15 on a scholarship.

Alejandro: Tell us about your upbringing. How was life growing up in Malaysia and then going to Singapore

Kelvin Tao: I’m Malaysian Chinese. I came from a small town in Southern Malaysia called Senai, where the main economic industries are oil palm as well as factories. I’m very honored to be born into a family of teachers. My mother is a teacher, and she values education a lot. I was very fortunate at the age of 15. I received a scholarship given by the Singapore Government, called the [Assess 2:27] Scholarship, where they can attract talents from all across Southern Asia to start in Singapore, and then eventually go to Singapore, and that’s why I did.

Alejandro: Got it. And no kidding – talking about universities: Wharton, U Penn, then Harvard Business School. I think that your parents are happy. You came through.

Kelvin Tao: I’ve been very, very fortunate. I actually did my undergrad mostly at the National University of Singapore because of a scholarship given by the Singapore Government. One thing that was special was that they had this entrepreneur program called The NUS Overseas College, where I could exchange for one year at U Penn Wharton while working part-time at a startup, and that’s where the whole entrepreneur interest was born. That program also became the powerhouse of entrepreneurs in Singapore since then. So, I’m very fortunate that after graduation, I took my first job at Accenture as a management consultant because I believe that even how much time is spent at work, you can help companies to be better companies, and you can really improve the lives of people. After Accenture, I moved on to McKenzie, and then KKR Capstone to learn how to [3:44], how to transform a company. I went to Harvard Business School. I was fortunate to be among the two Malaysians that at the end of every single year – that’s when I transformed the idea of peer-to-peer lending. We found that if I adapted to the local contents of Southeast Asia. It could really solve the problem of SME financing, which was a big problem in Southeast Asia.

Alejandro: Part of your background, something that is very interesting here is that you have the consulting and then the investing. The consulting from Accenture and McKenzie, and then also the investing from KKR. Why is it that most of the founders that I speak with that have built massive companies have either done consulting or investing? And you’ve done both.

Kelvin Tao: I was more on the operational side at KKR Capstone, so enough exposure to investing. I wouldn’t claim to be an expert in investment in myself. I think the whole idea I had was that starting at Accenture, it was good because of consulting, but moving on to McKenzie, I thought, “Everyone can think of a new strategy.” I wanted to be better than the others, so I actually focused on Operations Transformation at McKenzie. But after doing that for a year-plus – I was at McKenzie for two years and spent one year on Operations Transformation for a bank in Indonesia – but realizing, not just Operations Transformation is important. I realized that if I went on to a sustainable business, I would need to be able to manage more in investors, and that’s why I moved on to Capstone. I do think that the whole training experience that consulting provides is a very good starting point for entrepreneurs in Southeast Asia, especially given that there aren’t many entrepreneur startups in Southeast Asia. So, we’re the first generation FinTech founders in Southeast Asia.

Alejandro: Let’s talk about Funding Societies. Funding Societies is really something that sparks out during your time at Harvard Business School. So, tell us about how you stumble across this problem and how you go about assembling the band, the founding team, and then also bringing the idea to life.

Kelvin Tao: When I decided to go to Harvard Business School, the whole idea wasn’t to start a company. It was really just to have fun for two years while getting a degree in the process. I think what really inspired me to act was a talk given by Peter Thiel. At that time, he was marketing his book called Zero to One on our campus, and one thing that he said was that we should really leverage. It left an impression on me that Asia probably doesn’t need a lot of innovation. It needs execution because Southeast Asia is so far behind in innovation. That really struck a note on me that if the U.S. and Europe are so far ahead in innovation, how can I eventually study some of the innovative companies in the U.S. and bring it back to Southeast Asia? So I looked at the top 50 most innovative companies in the U.S. in the last few years and evaluated them based on three criteria in my mind. The first is a startup should be solving a problem that I’m passionate about. The second criteria was that there must be a huge problem that we’re solving so that we can be very tactful to Southeast Asia. I think the third one is having a reasonable path to be #1 in that particular space. We studied all these companies. The only one company that satisfied all these three criteria was Peer-to-Peer Lending. At that time, it was a shoestring in the U.S. We took the opportunity to visit Peer-to-Peer Lending in the U.S.  and realized that the model is certainly interesting, but you need some adaptation to meet the needs of Southeast Asia. So, I raised the idea to my classmate, Reynold Wijaya, who was my classmate at Harvard Business School. It struck a note on him that it is something that he’s passionate about as well, and he believed this is what could help to solve this problem in Southeast Asia. We also realized that timing is the biggest factor in terms of the success or failure of a company. Yet, at the same time, we could not drop out of school because of our Asian parents. So, we decided to start a company while we were still in school. We worked around 8:00 pm to 3:00 or 4:00 am in the morning because of the 12-hour time difference between Boston and Singapore. Then we go to class at 9:00 am because Harvard does not allow students to skip classes, and you will fail your degree if you skip too many classes. One thing led to another. We started a company at school. We were very fortunate to receive state funding during our summer holidays. That round was led by Alpha JWC, and then as the company grew, Sequoia reached out and just before they wanted to give an offer for our Series A, they were surprised to find out that we were still students, and not only students but students in the U.S. as opposed to being in Southeast Asia. So, they were very kind to continually keep in touch with us. Upon graduation, they gave us our Series A term sheet, and that’s how the company has assets ever since.

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Alejandro: How big was the Series A?

Kelvin Tao: It was 7-million U.S. dollars. I think by U.S. and European, and Chinese standards are probably quite low, but at that point in time, 7-million USD was a bigger round for Series A at that point in time in Southeast Asia.

Alejandro: How much capital have you guys raised to date for Funding Societies?

Kelvin Tao: I think from an equity perspective, we have raised approximately 58 million USDs in the last five years. But I think more importantly is how much we have served and helped the SMEs. In the last five years, we have given up 1 billion U.S. dollars in loans to SMEs, and that’s cost 25,000 to one million businesses across Singapore, Indonesia, and West Malaysia. That made us the biggest platform in the region, approximately three times the size of our closest competitor, and as big as some of the smaller banks in the region.

Alejandro: For the people that are listening, what ended up being the business model of Funding Societies? 

Kelvin Tao: That’s a very good question. Funding Societies is basically an SME financing platform. We give loans to small-medium businesses. [10:21] capital loans and these loans have to be funded or balance sheet-funded by individuals and/or institutions. Where, really, we’re looking for a stable liquid-form of fixed income to protect our wealth or code our wealth. So, it’s solving a [10:38] financing problem for the SEMs as well as a [10:41] fixed income investment opportunity for the investors.

Alejandro: In terms of building a lending marketplace, here in the U.S., it’s a beast when it comes to regulatory hurdles. You need to have the lawyers right away helping. What is the difference with doing a business of this nature, especially with these types of restrictions, let’s say in Asia?

Kelvin Tao: Southeast Asia is fortunate because it could learn from lessons and experiences from the U.S., Europe, and China. When we first started Funding Societies, there was no regulation whatsoever in the region. But because we noticed that the evolution in China that if there are no proper regulations, some of the more reckless players could potentially ruin the reputation of the industry, and that was why we proactively started the regulations across the world, and then proposed the regulators and self-regulating ourselves even while the regulators were pondering what form of regulations to adopt. We were very fortunate that regulators had been very responsive and were very keen to engage us, and that has helped us to be a first player to secure a license in Singapore, Indonesia, as well as Malaysia.

Alejandro: Also, to put into perspective and to put in parallel, how developed is the venture ecosystem in Asia compared to what you’ve seen and what you’ve experienced in the U.S.?

Kelvin Tao: It is very young and nascent. I think it is not more than five or probably seven to eight years old in terms of the Asian industry. When we first started Funding Societies, there was this whole where the Singapore governments seeded some venture capital funds to start their very first one. I think ever since, the venture capital scene has developed meaningfully, such that they’re quite a number of seeds rounds, Series A, Series B funds that can support the startups in the region. I think, increasingly, when we realized the value of that was actually Series C, whereby the startups are bigger than what a venture capital firm would be willing to invest but still smaller than what private equity investors would be looking at. That’s why you see a lot of startups in Southeast Asia. They actually start fundraising from Hong Kong, from Japan, from Korea as their ethic and authority of source of venture capital funds. Increasingly, we also see some come to the U.S. to speak to investors who may have more appreciation or interest to [13:24].

Alejandro: When you’re building a company of this nature, a marketplace is really a beast because you have the supply and demand. So, how did you go about building it up and making sure you were addressing both sides of the equation?

Kelvin Tao: I think it is a constant balancing act, and the question is always, how do you stop off because you need to have both sides available. There are many strategy books that talk about how you can solve a marketplace problem, but I think for us, how we have solved it is by first getting power up in one or solving one side of the equation before moving on to the other. In our case, we realized that from a funding side, it’s probably an easier problem to solve, so that’s why we actually put in our own capital to fund SMEs at the start. Even though we were launching 10 to 15, we were giving out, we were [14:21] for the SMEs, but at that point, the [cut 14:24] was just 2% [14:26], so we funded the loans all in those initial years. Of course, there were many loans, but it has helped to kickstart the business and slowly [14:36] traction on such that whenever I talk about marketplace lending or peer-to-peer lending, chances are the first thing that you hear would be Funding Societies or [14:46] in Indonesia.

Alejandro: When you’re looking to raise capital for a business of this nature, what are the typical expectations that investors have. I’m sure that those have varied substantially from where you were at a seed stage to doing your last round, which was a Series C. So how have those expectations shifted and perhaps changed over time?

Kelvin Tao: I think perhaps the biggest shift that happened in recent times is the whole rework episode such that the focus has shifted from growth to what’s profitable. That’s the same shift I was seeing in the U.S. and Europe and China, and the same shift I would see in Southeast Asia. I think when we first started, of course, a lot of the focus is about aspiration, about good founders, and then eventually move on to proper traction and finally market leadership, and in recent times, profitability. That’s why at the same time, also I reckon that Southeast Asia is a much more conducive market for SME financing or peer-to-peer marketplace lending. So we do reckon that we will bring in actually next year even though we are only six years old, while many are single platforms in other parts of the world have struggled to be profitable even after ten years.

Alejandro: Very nice. As you see the space develop and maturing like what’s happening with [16:25] there, and with the ecosystem, where do you think things are heading on the segment as a whole? 

Kelvin Tao: I do think that there’s a consolidation happening in the space primarily because of COVID that has prompted less funding or less-performing platforms to gradually go away. But, also, with seed, the emergence of additional banks. We are one of the three top contenders or as reported by the media for the wholesale [16:56] in Singapore in a consortium with [16:58], the manufacturer as well as the local SP group, the local [17:04] for utilities and that final utilities distribution as well as [17:09] Investment Bank. The emergence of the consolidation of the fintech market as it emerges of the Digital Bank license, it allows a lot of the fintech to serve in a more holistic manner, not just providing financing, but also providing all forms of products and that meets the needs of the SMEs and more holistically. I think this is generally going to be positive and great for Southeast Asia because these SMEs are also the segment that has been generally neglected by traditional financial institutions.

Alejandro: Also, for the size of your company, how many employees do you guys have?

Kelvin Tao: We have 350 people across four countries.

Alejandro: Very cool. Did you see any type of difference or similarities with the mindset in the U.S., or is it harder when it comes to recruiting? I’ll give you an example. I’m originally from Spain where after University, you’re expected to either become a lawyer or a banker, not to really join a startup. So have you seen some challenges as well when it comes to building up a team?

Kelvin Tao: Sure. I think there has been. When we first started off a company – when someone asked me, “Are you interviewing someone? Why are you selling yourself so much?” So I explained, “Startup is brand new in Southeast Asia, not only are you assessing them, but a candidate is also assessing you, and therefore the whole element of sharing your vision can be extremely important.” That episode where the interviewee is really excited about the opportunity, but obviously going home to speak to their spouse, suddenly became a bad idea to join a startup. So, when we first started a company in 2015, that was the scene of Southeast Asia, whereby startups were generally seen as not the first option that people would choose as a form of a career. I think the last few that’s changed quite significantly with the rise of many unique startups and [19:17] in the region making such debt joining a startup becomes something that’s fashionable and pretty cool, which is [19:28] different problem because people may not join a startup, which for the right reasons. Of course, with COVID-19, there’s a potential shift back to what’s safety, whereby some startups may be going through a more troubling time, and therefore, there’s a fight to what’s safe for the typical governmental companies or even SMEs as a form of career choice.

Alejandro: Also, in this case, you very recently did the Series C round of financing. I’m wondering, what is that shift or that change from early stage to the growth stage, especially if you’re in places like Singapore, or Malaysia, or Indonesia where you guys are operating?

Kelvin Tao: The change from an early stage to a growth stage company, the key focus is really in terms of building and scaling a sustainable business. When we first started a company, our other one, the goal was primarily to be a market leader. When we closed Series B about two years ago, which was led by SoftBank Ventures for a round of $25 million USD, we were approximately 40% of our closest competitor. Fast-forward: by the end of last year, we were approximately three times the size of our closest competitor. But as we [20:53] being big and being #1, we have decided it’s not sufficient. Even equally important was how is our unit economics issue [21:03] profitability? That has been something that perhaps marks the biggest change from a Series B company to a Series C company in Southeast Asia.

Alejandro: Got it. For you, too, as you’ve been growing the business and also growing the employee count and yourself as a leader because when you go from one stage or from one cycle to another cycle on the company’s life, you also as the founder and the leader of the business need to, as well, reinvent yourself. So, how have you gone about doing such?

Kelvin Tao: I think that’s extremely important because when I realize the skill sets and the personalities as required for each stage of the company is very different. I think, to me, there are two or three areas that we’re trying to get ourselves up to mark in terms of. From a personal perspective, there’s a lot of reading as well as speaking to people so that you can leverage other people’s lessons [22:04] more costly. At the same time, I think a lot of it is leading by example, leading in the front, especially when a company becomes bigger because one major lesson that we’ve learned is that as a company becomes bigger, you may actually have professional hires of professional arrangements that nothing beats being at the frontline of leading a charge to get everything with your comrades that are closest as cousins.

Alejandro: Got it. For you now, it’s been a pretty incredible ride and a big vision. So, imagine if you were to go to sleep tonight, and you wake up five years later – so an incredible snooze – and you wake up in a world where the vision of Funding Societies is fully realized, what does that world look like?

Kelvin Tao: What that world looks like is that every SMEs who are – even a new company, if they want to start a company, they can signup on our platform, and they can immediately get a bank account as well as a full suite of software to support their operations – making starting a company, running a company, expanding a company across Southeast Asia a lot easier and seamless. And I do hope that Southeast Asia can really follow the path of where Germany is, whereby we can transform the economy from an MNC or a [state-led 23:28] economy to and SME-driven economy. I’m not talking about small SMEs that are not profitable or not doing well, but rather high-tech profitable, highly productive SMEs in Southeast Asia because I do reckon that the window of opportunity to uplead Southeast Asia is relatively shot – that currently the population is relatively young and thanks to digitalization as well as opening of regulations it allows fintech companies like ours to emerge and to reach SMEs and to serve SMEs and develop SMEs in an efficient manner. Digitally, previously, there wasn’t such an option. Generally, we can have SMEs to grow. We can uplead the economy and leading standards of Southeast Asia. That is also why we have insisted on calling ourselves Funding Societies, even though initially when we first named ourselves Funding Societies, the name was rejected by the government because “societies” is a [24:27] word. But we highlighted, “We’re not here to be one society. We’re here to cover the whole of Southeast Asia as [24:34].” I do think in five years’ time we can reach the goal or at least make very huge steps to what’s transforming in the economy.

Alejandro: Very cool. Now, after all this time, now you’ve been at it for about five years, the ups and downs, the lessons learned, everything. I’m sure that there’s a long way that you have come as an entrepreneur, as well. I want to ask you a question that I always ask the guests that come on the show, and that is: if you had the opportunity to go back in time and have a chat with that younger Kelvin, maybe that younger Kelvin that was still at Harvard Business school and envisioning a world where he could launch something and make something meaningful as a business, what would be that one piece of advice that you would give to that younger self before launching a business and why knowing what you know now?

Kelvin Tao: I think I would trust my judgment call a lot more, in all candor because being a first-time entrepreneur in a region whereby there aren’t many entrepreneurs, interestingly everyone has this belief that they can give very good advice to founders, even though they may not have started a company themselves. As a young entrepreneur, at times, we overthink topics or decisions rather than necessarily trusting our own better judgment call. I find that a lot of times that conviction and faith to make a judgment call, even in the absence of data or in scenarios where there’s a lot of uncertainty, I think that decisive visioning can actually be a lot more impactful even if it’s at a cost of something long away because the over-net results of driving a company in a specific direction, which may not necessarily be democratically popular, it allows the company to actually move forward faster and oftentimes it helps everyone to perform better as well.

Alejandro: Very cool. For the folks that are listening, Kelvin, what is the best way for them to reach out and say hi?

Kelvin Tao: You can come to our website, FundingSocieties.com, and if you key into the chatbot, oftentimes, the message will be passed to me. FundingSocieties.com – Kelvin Tao.

Alejandro: Amazing. Well, Kelvin, thank you so much for being on the DealMakers show today.

Kelvin Tao: Thanks a lot. I really appreciate it, and thanks for having me. 

 

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