Dexterity Talks with Shawn Li

I recently had the pleasure to interview Shawn Li, Investment Analyst of One Ventures (https://one-ventures.com.au/) to discuss all things growth credit in 2024.

Can you tell us a bit about yourself and what you do?

I’m an Investment Analyst with One Ventures in the growth credit team.  We focus on providing debt funding to start-ups that complements more traditional equity financing routes.  Our portfolio is focused on tech businesses doing $3m+ ARR, and we offer cheque sizes ranging from $1m to $20m.

Growth credit seems to still be a relatively unknown option in Australia, is that true or have we just been sleeping on it?

It is relatively new here, OneVentures launched its first credit fund back in 2019 because we saw an opportunity to help startups grow with less dilutive capital in Australia and New Zealand.  Because it is newer, we enjoy taking a bit of extra time when speaking to other founders and investors to explain the credit product, when it might be right for their business and what terms to expect. The great thing is that we have seen a growing amount of interest in the product, even in just the last 2 years since I’ve been with OneVentures.

I understand traditional lenders used to have a lot more subjective lending criteria for businesses and you may have had branch managers signing off on loans.  A lot of that is automated now, meaning whole sections of the business market don’t have access to credit.  How do you assess applicants?

We are a VC-first and lender second so we are interested in a relationship with the start-up that goes much deeper than just reviewing financials with an algorithm.  We speak with founders early, often before they’re in our scope to really get to know them and their team. From there, if we’re undergoing due diligence on a company, we look at things such as team, traction, technology, business model, competition and financials. Whilst this sounds like a lot, it’s actually a lighter and faster process than traditional equity which can be handy given how rapidly things move in the startup world – we can go from first meeting to term sheet in about a week!

What does that ongoing relationship between lender and borrower look like in this context?

It’s very different to traditional lender / borrower.  We’re committed to supporting and helping our portfolio companies grow, and to do that we leverage our network of potential investors, customers and employees. As with any relationship, communication is also important to us so whilst we don’t take board seats, we often sit as observers just to streamline the flow of information and remove needless admin work. Since we typically follow or invest alongside equity rounds, we also cultivate strong relationships with other investors and have worked with most other VCs across Australia.  Just like an equity VC, we’re invested in the overall success of our portfolio companies and so our relationship is geared towards doing what we can to help the business grow.

What are the main challenges for venture debt investors?

Similar to equity investors, the challenge is typically around the allocation of time and capital. We track and screen hundreds of companies before landing on a handful of deals where we think it’s the right time and place for growth credit.

Alongside that, given the fact that it is a nascent industry, there’s still a bit more to do when it comes to educating the market on growth credit and when it’s best used.

Do you see common issues arising that prevent start-ups from obtaining venture debt?

It really varies and decisions are made on a case by case basis.  One common piece of advice we do give founders who are considering debt is to ensure they plan well in advance.  The best time to raise capital is when you don’t need it! Ideally, we like to speak to companies whilst they still have 9-12 months of runway available. Other than that, we look at cash flow in a bit more detail than most, so having a good handle on things like runway and burn rates can prevent any slow downs in the due diligence process.

Do you have to deal with lawyers or other advisors as part of your role?  If so, what do you think makes an advisor particularly useful?

Yes definitely, lawyers and advisors play a part in helping us find deals and close them. The advisors that stand out are those that are really across the unique features of our industry.  They understand start-ups, VC, growth credit and how they are different.  If they have that knowledge then it’s a much smoother process in working with them.

What’s your favourite thing about your role?

I love seeing tech change norms and even how we go about our day-to-day. If we think about the most well-known companies like Uber, Airbnb, Google etc. (not only did they all take credit as part of their start-up journey) but they also have fundamentally changed the way we move, stay and find information. Being able to see and invest across such a wide scope of tech not just across consumer but also medtech, agtech, edtech etc. makes the role super interesting and an invaluable experience.

Shawn Li, thanks for talking with us!

Dexterity Talks is a web series of interviews with founders, investors and advisors in the Australian start-up scene.  This interview was conducted by Pippin Barry (BA, JD), an Australian lawyer and the principal of Dexterity Law.