Seven angel investors descended on Phnom Penh last Friday as part of the launch of a new investment initiative that aims to tap into Cambodia’s growing startup culture and support entrepreneurial endeavours with guidance and early stage risk funding.
The investors, hailing from the US, Australia, Vietnam and Slovakia, were members of the Mekong Angel Investment Network, an angel investor network established by the Asian Development Bank (ADB) and Vietnam-based fund manager Lotus Fund, with financial support from the Australian government.
Steve Landman, managing partner of the Lotus Fund, said the network will create business incubators and provide financial lending services for startups in the CMLV (Cambodia, Laos, Vietnam and Myanmar) region.
“Over the next three years we want to see 30 companies successful at some state, with hundreds of thousands of dollars invested into Cambodian startups,” he said. “One of the biggest goals is to get 1,000 angels coming through the region every year.”
According to Arjun Bisen of Australia’s Department of Foreign Affairs and Trade (DFAT), the importance of the angel investor network is underscored by the fact that a lack of available credit continues to hamper the growth potential of Cambodian start-ups and SMEs.
“Access to finance, particularly the right kind of finance, is a critical issue in Cambodia,” he said. “In Cambodia, lending for SMEs stands at some 220 per cent collateral-to-loan ratio, which is higher than most comparative countries. So if finance is hard to access at the top end of town, imagine how difficult it is at the bottom end.
“We have started this initiative to bridge this financing gap and provide tailor-made paternalistic finance to nurture entrepreneurs,” he added.
Dominic Mellor, regional head of the ADB’s Mekong Business Initiative, explained that angel investor networks bring together local and foreign investors that are not adverse to high levels of risk. He said the private sector approach allows for quicker lending not tied to governmental approval.
“We are flexible and rapid, not by private sector standards but definitely by government and development standards,” he said. “We are loaning to some programs that may not work, but if they do work they can have an amazing impact.”
Adrian Stone, founder of Australian venture accelerator AngelCube, one of the seven angel investors attending Friday’s launch, said that his company had funded nearly 30 startups and entrepreneurs since its establishment in 2011. While not every startup is a success, he said that for angel investors it is important to have a diverse base.
“Angel investing is very financially rewarding, but the catch is not to put all your money into one business,” Stone said. “If you invest in at least 20 startups, you have a 90 per cent chance of getting a 25 per cent compound return on investment.”
Tom Moyes, MBI project director and senior access to finance adviser, said that angel investors can help build ethical and professional lending capabilities. But he also explained that establishing a formal network allows for the ADB to better evaluate the angel investment industry.
“A lot of angel lending has been really informal and because it is not registered with the central bank there are no good statistics on its impacts,” he said. “One of the things we want to do is analyse angel investment trends so that we can promote it more.”
On Friday, investors met with nearly a dozen startups and small businesses at the WECREATE Cambodia Centre, which supports female entrepreneurs. The group’s next stop is Vietnam.