Thailand
Early stage
Seed investment
Initial investment in FinTech businesses may be provided by family and friends of the founders and other high-net-worth individuals (often known as business angels) in return for an equity stake. Such seed investment is often used to fund the establishment and early growth of the business before larger investment is available. The investing individuals may also provide know-how and expertise to assist in the company's development. The seed investors would typically not require the same controls over the business as, for example, venture capital (VC) providers.
Crowdfunding
Crowdfunding platforms are currently available under the supervision of the Thai Securities and Exchange Commission (SEC). The funding portal used for screening the offering company, disclosing information and educating investors must be approved by the SEC. Moreover, the approved funding portal must also categorize its members as either retail investors or non-retail investors (eg VC, private equity trust and qualified investors). Retail investors will be subject to a limit on investment while non-retail investors will not be subject to such a limit.
Currently, both equity and debt crowdfunding are permitted in Thailand.
Crowdfunding offers a large number of private investors an opportunity to make small-scale investments in early-stage businesses to which they may otherwise not have had access.
Accelerators
There are various incubators or accelerators in the Thai market which offer support, facilities and funding for startups, often in return for an equity stake.
Venture capital and debt
VC funding is a type of equity investment usually targeted at early-stage FinTech companies with an established business and some trading history. VC provides a viable alternative to traditional lending given that the business is unlikely to have the tangible asset base or long track record needed to attract traditional debt funding from financial institutions.
Corporate venture capital (CVC) is a type of VC and involves an equity investment by a corporate fund, examples of which include Beacon Venture Capital (being a CVC vehicle of Kasikorn Bank PLC) or Digital Ventures (being a CVC vehicle of Siam Commercial Bank). Both CVCs are targeting FinTech startups. The benefit of having a CVC as an investor for a FinTech startup is that the fund is able to share its knowledge and expertise of the FinTech sector with the company and act as an advisor.
VC debt is not available in the funding market as the corporate laws in Thailand do not allow conversion of debt to equity or the issuance of convertible debt instruments by a private limited company (which is the form of business vehicle commonly used by startups in Thailand). However, we have been working with the relevant authorities to amend the relevant laws and regulations to facilitate the funding market for startups in Thailand, including amendments to allow debt-to-equity conversion and the issuance of convertible debt instruments by private limited companies in Thailand.
In addition, proposed amendments to corporate law to promote and facilitate the funding market for startups include changes to:
- allow the offer of shares in a private limited company to employees / directors under an Employee Stock Option Plan (ESOP) and creditors under debt-to-equity conversion programs or convertible debt instruments;
- enable the rights attached to preference shares to be amended by special resolution of shareholders; and
- enable a private limited company to buy back its shares, subject to certain requirements and criteria being met.
Warehouse and platform funding
The SEC is currently actively monitoring the SEC FinTech regulatory sandbox relating to investment advisors, private funds, clearing and settlement activities and electronic trading platforms (ETP).
In addition to the FinTech regulatory sandbox, there is also a know-your-customer (KYC) regulatory sandbox which enables temporary rules to apply to business activities which do not need to be supervised by the FinTech regulatory sandbox. Temporary rules for Limited Brokerage Dealing and Underwriting (LBDU) are now also available.
To participate in the SEC FinTech regulatory sandbox, FinTech companies must fulfil the requirements set out in relevant SEC regulations. Generally, to enter into the FinTech regulatory sandbox, businesses need to:
- involve innovation in financial services;
- be operationally ready in terms of capital, work systems, human resources, risk management processes and customer contact processes; and
- have an exit strategy.
Please see FinTech products and uses – particular rules.
Senior bank debt and capital markets funding
Senior bank debt
Once a FinTech company is established and has a track record, bank debt becomes a more viable source of funding, either on a secured or unsecured basis depending on the creditworthiness and asset base of the business. In contrast to capital markets funding which is often covenant-lite, bank funding will generally involve the imposition of financial covenants and controls that will apply over the life of the facility. Bank finance may be particularly important for working capital, overdraft, accounts management and general liquidity purposes.
Capital markets funding
Thailand has both debt and equity capital markets which are accessible to businesses (usually of a certain size).
Raising finance by way of an Initial Public Offering (IPO) can be done in the SET and MAI, depending on applicable criteria and requirements. However, IPOs are not a popular funding arrangement for FinTech companies because FinTech is an emerging sector with numerous applicable regulations and with incentives which are less favorable when compared to other jurisdictions in the region such as the Singapore market.
Incentives and reliefs
Thai Revenue Department (RD) has continuously provided tax incentives and reliefs to qualified startups and SMEs including its investors, e.g. VC and angel investors. The conditions and qualifications of eligible person/entities under the tax schemes granted are amended periodically.
In respect of startup itself, the key conditions and qualifications to be eligible for 5-year corporate income tax exemption are, e.g. being incorporated during the prescribed period, having at least THB5 million of registered capital, having the income not exceeding THB30 million in the accounting year whereby 80% of which is generated from the operating targeted business, and applying for an approval with the RD.
Further to the foregoing, the startup must operate the targeted business as specified by the National Science and Technology Development Agency, including businesses in the following industries:
- food and agriculture;
- energy saving, renewable energy and clean energy;
- biotechnology;
- medical and public health;
- tourism, services and creative economic;
- advanced materials;
- textiles, fabrics and accessories;
- vehicles and auto parts;
- electronics, computers, software and information services; and
- research and innovation.
VC and angel investors are also subject to certain requirements in order to claim for tax privileges e.g. participating in an investment during the promoted period, and retaining the investment within the minimum period, etc.
Waranon Vanichprapa
Partner, Country Managing Partner
[email protected]
T +66 2 686 8555
View bio