AirAsia Investment Note – The Market

Market Positioning

  • Competition Market: Short-haul Low-cost Carrier within 4 hours flight radius from the hub
  • Market: Malaysia, Thailand, Indonesia, Philippines, India, Japan, China
  • LCC Market leader in the Globe: Southwest (US), RyanAir (Europe) & EasyJet (Europe)
  • LCC Market leader in Asia: IndiGo (India), Cebu Pacific (Philippines), VietJet (Vietnam), SpiceJet (India) and privately-held Lion Air Group (Indonesia)


Performance Benchmark (Global)

Southwest RyanAir EasyJet Average (Top 3) AirAsia
Passenger Carried (Million) 152 120 73 N/A 57
Aircraft Fleet 723 341 257 N/A 217
Staff Size 53,536 13,026 10,000 N/A 16,067
Founded 1967 1984 1995 N/A 2002
ASK (Million) 239,022 157,569 87,724 N/A 80,200
Load Factor 84% 94% 93% 90% 85%
Average Revenue Per Passenger $135 $59 $85 $93 $51
RASK USc 8.55 4.98 7.08 6.87 3.43
CASK USc 6.97 3.83 6.32 5.71 2.68
Cask Ex-fuel 5.45 2.4 4.63 4.16 1.73
Operating Profit Margin 18% 23% 11% 17% 17%
Core OPEX over Sales 69% 77% 83% 76% 77%

Excluding the Full-Service Carrier (FSC), there’s around 30 LCC in the world carried more than 1 million passengers on an annual basis. Southwest is the largest LCC in the world by carried 152 million passengers while AirAsia ranked 4th largest LCC in the world by carried 57 million passengers.

While AirAsia can maintain a profitable operating profit margin at 17% which is the average industry operating margin, AirAsia remains the cost leader in keeping the operating expenses low to offer low-cost fares to passengers and achieving the industry load factor benchmark of 85%.

Performance Benchmark (Asia)

AirAsia IndiGo JetStar Cebu VietJet SpiceJet Nok
Passenger Carried (Million) 57 44 24 19 14 12 9
Aircraft Fleet 217 131 95 57 41 42 32
Staff Size 16,067 14,604 Unknown 4,123 2,435 5,360 1,400
Founded 2002 2006 2004 1996 2011 1983 2004
ASK (Million) 80,200 54,583 48,703 25,989 16,498 12,916 6,264
Load Factor 85% 85% 83% 82% 88% 91% 85%
Average Revenue Per Passenger $51 $67 $117 $65 $86 $66 $59
RASK USc 3.43 5.16 5.77 4.76 4.35 6.06 6.06
CASK USc 2.68 4.56 5.10 3.82 3.89 4.30 7.53
Cask Ex-fuel 1.73 2.82 Unknown 2.60 2.43 2.68 6.21
Operating Profit Margin 17% 11% 12% 20% 12% 29% -19%
Core OPEX over Sales 77% 80% Unknown 75% Unknown 83% 105%

In Asia, AirAsia is the largest LCC by passenger carried. The main contenders in Southeast Asia are the Indonesia-based privately-held Lion Air Group which have 272 aircrafts by the end of 2016. AirAsia achieved the best unit cost (CASK) compared to Asia rivals and gave them the advantage of offering lower fares on expanding more routes and destinations.


Target Market

Country AirAsia Market Share

(Passengers carried)

Air Passengers Market Size 2016








LCC Competitors
Malaysia 49% 68 31 38 Lion Air Group
Thailand 22% 122 69 67 Nok
Indonesia 8% 90 261 305 Lion Air Group
Philippines 11% 46 103 131 Cebu Pacific
India 4% 131 1324 1585 IndiGo, SpiceJet
Japan Nil 141 127 117 Vanilla Air, JetStar, Spring, Peach
Vietnam Nil 52 93 108 VietJet
China Nil 490 1379 1408 Spring


Malaysia – A Small Cash Cow

Malaysia is a cash cow market (dominating at 49% market share) for AirAsia, but it has the smallest population among the target market and Malaysia also experiencing slightly slower growth regarding passengers carried 3-years-CAGR of 7%. The future of AirAsia is out of Malaysia, namely Thailand, Indonesia, Philippines, India, Japan, Vietnam and China.


Thailand – Nice-to-have Market

Zooming into AirAsia’s second largest market by profit – Thailand. Although Thai AirAsia achieving passengers carried 5-years-CAGR of 20%, the population is not increasing (is shrinking by 2035) and not big enough like other major Asian countries. Two of it’s LCC rival in Thailand – Thai Lion and Nok are facing operational difficulties. Thai Lion has low utilisation of current fleet and excessive order of aircraft. Nok is suffering a 19% operating loss margin and carried 9 million passengers in 2016 (Thai AirAsia carried 17 million passengers in 2016).


Indonesia – Tough Market

Indonesia is AirAsia’s third largest market yet facing intense competition from Lion Air Group. Indonesia AirAsia achieves a slow growth: passengers carried 5-years-CAGR of 5%. In the back of Lion Air Group aggressive fleet expansion plan, this will be a tough market for AirAsia on commanding a bigger market size. In 2012, Indonesia AirAsia deployed a total of 22 aircraft fleets and since then increase and reduce throughout the years. In 2016, Indonesia AirAsia still maintaining the fleet size at 22 aircraft fleets. Regarding market size, AirAsia achieved peak at 11% in 2014, reduced to 9% in 2015 and further reduced to 8% in 2016. In FY2016, the operating profit is only 3%, but the 1Q17 and 2Q17 did showing positive results that Indonesia operation had the turnaround. Despite the pullback from the Indonesia operation, this market will require some time for its competitors to be rational on the aggressive expansion. At the meantime, AirAsia strategy will be focusing on profitable international route from Thailand and opening of unique routes to stay away from Lion Air Group in the meantime.


Philippines – Too Early To Say, Keep In View

Philippines AirAsia commenced first flight in 2012 and later acquired Philippines’ Zest Airways. In 2016, they achieved an 11% growth in passengers volume while Cebu Pacific grew only 4.1%. This market is yet to see fruition as it still at early stage of growth.


India – Big Market For Many Players

India AirAsia is the star market for AirAsia in the next decades with a whopping 1.324 billion population, almost double the size of Southeast Asian populations. The competition is intense too with 2 LCC, IndiGo carried 44 million passengers, and SpiceJet carried 12 million passengers. India AirAsia only managed to carry 2.45 million passengers in 2016 on the back of result that they first commence flight in 2014. Investors should take a close eye on how IndiGo and SpiceJet are performing to decide whether AirAsia can rely on this market as the catalyst market. SpiceJet is a smaller LCC rival and currently achieving only a 2% passenger carried 5-years-CAGR. IndiGo is the India’s largest LCC which achieving 28% passengers carried 5-years-CAGR. As of 2016, IndiGo has 131 aircraft fleet, and India AirAsia has 8 aircraft fleet. However, IndiGo has a much higher CASK and lower operating profit margin at 11%-13% which gives AirAsia an advantage to leverage on the strength of low CASK on offering lower fare as compared to IndiGo.


Japan – Unknown Market With Intense Competition Among LCC

Same like Thailand, the Japan population is shrinking from 127 million (2016) to 117 million (2035). At the same time, this market has more prominent LCC such as Vanilla Air, JetStar, Spring and Peach. Japan AirAsia had yet to commence the flight but expecting to commence within 2017.


China – Soon-to-be Largest LCC Market In The World

China is having a large population of more than 1.379 billion people but still having a low LCC adoption rate of 10.4% in 2016. This indicates there’s huge room for LLC to grab the market share. As of 2016, 488 million passengers travelled through airlines in China while the 7 only public-listed China airlines (excluding Cathay Pacific) command about 83% of the passengers volume at 407 million passengers. At the meantime, Vietnam, Indonesia, Malaysia and Thailand are having at least 50% LCC adoption rate. The competitors are entering into this lucrative market as well. Spring Airlines is the largest LCC in China with 74 fleets to date and carried 14 million passengers in 2016 which is still in the early growth stage. Investors should keep all eyes on the execution of the joint venture progress between AirAsia with state-backed financial firm Everbright Group and Henan State Government. However, AirAsia is expecting a long 5 to 10 years to produce significant results from this market.

Growth Rate, Thrive! or Dive?

Before you read this, first check what your historical compounded monthly revenue growth rate is.

Got your growth rate figure ready? Let’s continue.

To evaluate an investment opportunity, investors will be looking at all areas of your startup such as business model, addressable market size, team profile, traction, etc. The growth rate, which is under the “Traction” section of your pitch deck, plays a big part in how an investor will evaluate your valuation.

So, the question is how much does growth rate affect your valuation?

Here’s an example:

Assume there are two competing B2B SaaS startups (A and B) with the same monthly revenue of US$10,000 a month but with different historical growth rates. Startup A was able to achieve a 10 percent revenue MoM growth while Startup B achieved 20 percent.

  • 10 percent revenue MoM growth for the next 12 months = US$31,000 per month or an annualized revenue of US$400,000 (rounded up for simplicity)
  • 20 percent revenue MoM growth for the next 12 months = US$89,000 per month or an annualized revenue of US$1 million (rounded down for simplicity)

Generally, SaaS startup valuations tend to apply a revenue multiple on top of the annualized recurring revenue (ARR). The range of revenue multiples is between two and 10 times and is determined by four core elements:

  • Growth rate
  • Market size
  • Revenue size
  • Churn rate

The average revenue multiple is four times, in general.

Let’s get back to the above scenario.

  • Startup A, with 10 percent MoM growth and US$400,000 in annual revenue, will multiply with a revenue multiple of four times and have a valuation of US$1.6 million.
  • Startup B, with 20 percent MoM growth and US$1 million in annual revenue, will multiply with a revenue multiple of six times and have a valuation of US$6 million.

When both startups raised series A at the same time with 20 percent dilution, Startup A got only US$320,000. Startup B, on the other hand, was able to raise US$1.2 million, which they can spend on scaling up customer acquisition, executing faster technology enhancement, and onboarding more expensive talent.

Eventually, Startup A will be losing clients to Startup B due to the latter’s better product features. This will lead to Startup A managing to break through at only 15 percent MoM while Startup B is aggressively growing at a higher rate of 30 percent.

By the end of another 12 months with those growth rates, Startup A will have monthly revenue of US$166,000 or an annualized revenue of US$2 million. Startup B will have monthly revenue of US$2 million or an annualized revenue of US$24 million. That’s a revenue gap of 12 times!

Guess what their valuations are by then? For simplicity, just apply the revenue multiple of four times to both startups. Startup A will have a valuation of US$8 million while Startup B will have a valuation of US$96 million. Startup B could literally make an acquisition offer to Startup A with 9 to 10 percent equity or an all-cash deal.

Of course, the investor who invested in Startup A’s A round would still be happy, as they invested at a valuation of US$1.6 million and the valuation grew to US$8 million. But what if there was no acquisition offer or investors willing to fund their next round and the startup was forced to pivot? That would be a nightmare.

Dear startup founders, growth is what all investors care about in the end. Not your fancy achievements, key recruits, growing but not paying user base, beautifully designed app or pitch deck, and groundbreaking features. Revenue is the king to stay ahead of the curve.

If growth strategy is not working, fine-tune and change! If you are growing, don’t just be comfortable; escalate the growth to the next level! If you’re not careful, you’ll end up like Startup A.

In the case where there’s no competitor in the country or region, having a first-mover advantage does give you a fantastic head start. But a late-comer startup with a better growth rate will still overtake you in a matter of time.

Malaysia Startup Valuation – The Angel Investor’s Perspective

When an early stage startup approaches angel investors for fundraising, the founder should know how angel investors compute the valuation in their mind.

First, lay down the funding stage definition first.
“Angel” or “Pre-Seed” stage defined as the startup have no up and running business or the business is in Alpha or Beta stage, the valuation is around RM2.2 million (or US$500k).

“Seed” stage startup defined as generating minimal revenue or none, the valuation is around RM4.4 million (or US$1 million).

“Pre-Series A” stage startup are not ready to go into full-scale commercialization or yet proven a consistent growing revenue and thus need to raise fund on completing the R&D, the valuation is RM11 million (or US$2.5 million).

“Series A” stage startup is emerged into a full-scale commercialization path and generating consistent (+growing) revenue monthly, the valuation is RM17.6 million (or US$4 million).

What about Series B? Series B is which the startup had figured out a winning formula to scale up the revenue rapidly and plan to expand the market. The size of funding required is so huge that it need a sizable number of angel investors to participate with large ticket size. Hence, startup often approaches VCs for post-Series A funding stage instead of angel investors. In this discussion, we will ignore Series B and above scenario.

The earlier the startup stage, the higher the risk that angel investors would expect the investment get wiped off. Early stage startup investment is a very high-risk asset class which often have a higher risk than private equity investment and hedge fund. The liquidity level in this risky asset class is extremely low and the time it takes to exit is long as well. The angel investors would always expect one or a few of their early stage startup investment wiped off. Given its risky nature, angel investors would only invest if they expect a minimum IRR of 18%-25% depends on the vertical. An IRR of 25% is indicating a startup is doubling it’s valuation within 3 years or tripled its valuation within 5 years.

Series A stage startup carries less risk than Angel stage startup and hence angel investor expects a lower IRR. Angel stage IRR should be around 25%, Seed’s IRR 22%, Pre-Series A’s IRR 20% and Series A’s IRR 18%.

Angel investors know that not every startup can achieve an exit as an Unicorn ($1 billion valuation), nor Centaur ($100 million valuation) or even reaching Pony ($10 million valuation). However, reaching Pony stage is reasonable to expect. Hence, the angel investor is often expecting a RM44 million (or $10 million) valuation when the startup exit via IPO or trade sale. Trade sale opportunity is too uncertain to be treated as exit strategy as compared to IPO.

Screen Shot 2017-04-26 at 6.51.37 PM

In Malaysia, the lowest barrier to execute an IPO is ACE Market. ACE Market currently has 114 listed companies and more than half of them are having a market cap of below RM100 million mark. 67 companies (60% of ACE) having a market cap of below RM100 million, 34 companies (30% of ACE) having a market cap of between RM100 million to RM250 million, 10 companies (9% of ACE) having a market cap of above RM250 million.

For the 67 companies which market cap is below RM100 million, the average valuation is RM55.6 million, median valuation is RM49.6 million, average turnover is RM62.54 million, average revenue multiple is 4.4 times, and average PE ratio is 31.6 times.

In the previous paragraph mentioned that investors are expecting a RM44 million (or $10 million) exit valuation, this is further echoed by the fact that majority of the ACE companies valuation is around RM50 million.

So, we are now clear that what’s the valuation range should a startup falls into. If a startup wants to raise at a higher valuation despite it’s asking at a stage which it doesn’t belong to, Angel investor might think one question repeatedly: “Can this startup gonna beat ACE-listed companies?”. Let’s look at the examples below.

Example A
“Startup A” approach angel investor with a valuation of RM30 million and turnover of RM3 million, consider it a “Series A” funding stage. Just to be clear, the RM30 million valuation is almost half of the exit valuation of RM50 million.

Angel investor who wishes to achieve at least 18% IRR from this Series A investment would expect this startup can achieve an IPO on ACE market at RM50 million as an exit strategy within 3 years timeline. It sounds too aggressive when investor look at its current revenue of RM3 million. If the startup wants to garner RM50 million valuation during IPO with revenue multiple of 4.4 times, the revenue at IPO year gonna be hitting RM11.36 million.

From revenue of RM3 million scale up to RM11.36 million within 3 years, the revenue CAGR is 55.87%. How realistic is 55.87%? One of the Malaysia most successful tech company MYEG is achieving a 5 year revenue CAGR of 36.8% and MYEG is constantly recognised by Forbes as one of Asia’s “Best Under A Billion” companies. Angel investor gotta be thinking if this startup asking at RM30 million valuation, the startup gotta shows that they can perform better than MYEG (RM7.8 billion or US$1.8 billion market cap company).

In this example A, clearly a number of angel investors would walk away from this deal due to its current revenue is too low and asking at a high valuation.

Example B
Using the same startup A as the reference, the changes now is the valuation lower to RM22 million instead of RM30 million. The startup is targeting a 5 years timeline to achieve revenue of RM11.3 million and list on ACE market at RM50 million valuation. This derives from the same revenue multiple of 4.4 times, gives an IRR of 18% with revenue CAGR of 30.51% (revenue RM3 million increase to RM11.36 million within 5 years).

In example B, the angel investors are now seeing a reasonable valuation with realistic CAGR and finally a good balance of risk and reward at IRR of 18% with 5 years timeline.

Have a word to say? You are welcomed to join the discussion below.

Disclaimer: Although I’m from Crowdo Malaysia (Malaysia’s licensed Equity Crowdfunding platform), the point of view above doesn’t represent the platform’s view. It’s solely my personal view and a collection of views by my personal interaction with angel investors.

Peer-to-business Lending



According to World Bank, 200 million businesses globally are unable to get the credit they need, both for working capital and for investments. The estimated global credit gap exceeds $2 trillion. Entrepreneurs are always eager to seek capital to grow their business, but banks can’t meet their needs. Small business loans also are not as profitable for banks, because they cost the same amount to originate as larger loans. For this reason, banks tend to put less emphasis on lending in the sub-$500,000 range. This creates a large funding gap for small businesses, which tend to seek out significantly smaller loans.


Peer-to-peer (P2P) lending platforms have evolved to solve the funding gap issue for small businesses. P2P platform is an online platform to allow small businesses to borrow a loan from a pool of investors who are seeking an interest repayment with an interest rate between 9-14%.


In 2015, an estimated amount of $23 billion was lent to borrowers globally via P2P platform whereby China accounted for 85% of the loans borrowed and the UK accounted for $4.4 billion of lending. Morgan Stanley predicts the P2P loans will exceed $150 billion to $490 billion globally by 2020. Given the huge opportunity, there are 60-80 countries that now have at least one P2P platform operating or lined up to launch in 2015/16. Governments around the globe are aware of the phenomenon and have assigned their relevant agencies to regulate the alternative finance activities.


Alternative finance activities such as equity crowdfunding and peer-to-peer lending are now regulated by the Financial Conduct Authority in the United Kingdom and have been from 1 April 2014. Two years later on 13 April 2016, Securities Commission Malaysia (SC) announced the introduction of a regulatory framework to facilitate peer-to-peer financing and allow P2P platforms to be operational in early 2017. In this particular announcement, Malaysia will only plan to launch the peer-to-peer financing option to business loans instead of personal loans. To put it into perspective, a Federal Reserve (US) report states that debt consolidation loans account for more than half of all peer-to-peer loans, followed by credit card payoffs (17%) and home improvement (8%), while small business loans account for an estimated 3.5% of all funded loans.


The big players in the P2P lending industry are Funding Circle, Lending Club, Prosper and Zopa. Interestingly, the big 3 US players even formed their own alliances: Marketplace Lending Association which sounds similar to UK’s Peer-to-Peer Finance Association. Here’s a snapshot of the big 4 players:


  Funding Circle Lending Club Prosper Zopa
Founded 2010 @ UK

2013 @ US

2007 @ US 2005 @ US 2004 @ UK
Loan Funded since operational £1.3 billion $18.7 billion $6 billion £1.5 billion
Side Notes Funding Circle is a pure peer-to-business lending platform and not accepting individual as borrower. UK Government putting £20m in Funding Circle to fund small businesses along with investors Largest player with most available loans for investors at all time and rate usually better than Prosper Prosper only allow individual as borrower and the loan limit is $35,000. In 2013, Zopa changed its model to let consumer feels more like putting money in a fixed-saving account. Lender don’t get to choose who to lend to. More details can refer to


Most of the P2P portals are focusing on personal loans instead of business loans. My writeup focus will be geared towards peer-to-business (P2B) portals.


Here’s the 5 key elements which businesses should know about P2B lending:

  1. Speed & Simplicity

On Funding Circle, the online application for loan eligibility can be completed in 10 minutes without visiting any physical office. Within two hours, the business owner should hear from a loan specialist, who will ask them to submit documents for the application verification. If approved for a loan, the business should be funded within 10 to 14 days. It shows how businesses can now bypass a much complicated bank lending process.


  1. Access to funding

Based on a Nesta survey, 33% of SME borrowers from P2P platforms were convinced that they would have been unlikely to get funds elsewhere. In the UK, close to 50% of the SME loan applications were rejected. P2B portals quickly become the go-to place for these SMEs.


According to Bank Negara Malaysia (BNM) statistics, non-household loans approved in 2014 and 2015 were RM 160 billion and RM 180 billion respectively, while loans outstanding in 2014 and 2015 were RM 578 billion and RM 624 billion. The BNM statistics included listed companies, large private companies and SMEs. SME Bank had provided a brief statistic for SME lending: it states that SME loans outstanding in 2013 and 2014 were RM 199.6 billion and RM 225.9 billion of which borrowed to a total of 693,115 SMEs. RM67.3 billion worth of loans were approved in 2014 to 140,815 SMEs.


Referring to 2 tables below, it could clearly show the funding gap in Malaysia. Although the loan amount is not equivalent to the number of SMEs loans rejected, it does show how many business expansion opportunities were rejected due to loan rejection.


Year 2012 2013 2014 2015
Loan Applied RM mil 372,118.7 358,947.3 386,192.9 396,783.3
Loan Approved RM mil 186,326.9 154,814.2 160,017.1 179,865.5
Loan approval rate based on loan amount 50.07% 43.13% 41.43% 45.33%

Source: Bank Negara Malaysia. Non-household loan, including listed companies, large private companies and SMEs

Period 2012 Jan-Aug 2013 Jan-Jul 2014 Jan-Aug 2015 Jan-Aug
SME Loan Applied RM billion 123.8 111.1 119.9 126.6
SME Loan Approved RM billion 54.8 42.4 42.5 43.6
Loan approval rate based on loan amount 44.26% 38.16% 35.45% 34.44%

Source: Ministry Of Finance. SME only


The SME Bank report also stated the key reasons for SME loan rejection in Malaysia were insufficient sales, income or cash flow (55.2%), too high leverage or outstanding loans (31.7%) and failure in providing sufficient documentation (31.7%)


  1. Eligibility

Peer-to-business lending is suitable for established businesses which have been trading for at least a couple of years and profit generating while the business could offer a favourable interest rate to investors.

  • P2B portals aren’t for large companies. Funding circle allow businesses borrow between $25,000 to $500,000 while Lending Club is between $5,000 to $300,000
  • Isn’t for startup either. Lending club requires the business to be in business for more than 24 months and to have made at least $75000 in annual sales. Funding Circle requires the business to have made at least $150,000 in annual sales.


  1. Interest Rate

Interest rate on P2B portals are not necessary cheaper than banks.  Annual Percentage Rate (APR) represents the true annual cost of borrowing, including interest and fees. The advertised APR for Lending Club business loans ranges from 8% to 32% while Funding Circle’s APR is between 8% and 33%. According to analysts, the typical APR ranges from 14% to 19% among 2 portals. Commercial bank’s SME loans are significantly cheaper with APR ranging between 6% to 8%.


Goldman Sachs reports that the average APR on loans charged by OnDeck was 51.2% in the fourth quarter of 2014. Granted, banks take a lot longer to issue loans than P2B portals, but if businesses can wait and can qualify for an SME loan, that will be the less expensive option. However, as bank credit is not available for SMEs in many cases, P2B appears to be the only option.


Term Interest Rates
12 months 5.49% – 23.29%
24 months 7.99% – 25.79%
36 months 8.99% – 26.79%
48 months 9.79% – 27.79%
60 months 10.49% – 21.29%

Source: Funding Circle


  1. Fees


Generally, the fees on P2B platforms can be classified into the following 4 types of fee:

  1. Origination Fee: Applied when the P2B loan is approved, businesses do not need to pay it if loan is disapproved and the fee is deducted from the total loan proceeds. Lending Club charge between 1% to 7% of the loan proceeds, Funding Circle is between 1% to 6%. On Lending Club, 80% of the borrowers pay 5% while 20% of the good borrowers pay only 1%.
  2. Late Payment Fee: Funding Circle charge 10% of missed payments.
  3. Non-sufficient Funds Fee: Funding Circle charge $35 when businesses don’t have sufficient funds in their account to make monthly repayment.
  4. Early Settlement Fee: some platforms do charge, but Funding Circle and Lending Club don’t have this fee.



P2B Lending For Investors

For the first time in history, the ordinary investor is now able to invest in the business credit market just like big banks. In 2015 alone, $23 billion was lent by thousands of investors via P2P platforms.  Why were investors attracted to this new asset class? How much return and risk does this asset class consist of?


Before going into details, let’s take a look at the UK’s top 4 P2B players who had collectively lent about £1.7b since operational and it’s dominating around 80% of the entire UK P2B lending market share (excluding property financing)

  Funding Circle ThinCats Assetz Capital Folk2Folk
Founded 2010 2011 2012 2013
Numbers Lent £1.3 billion to 15000 businesses from 50000 lenders Lent £175 million to 644 businesses from 5000 lenders Lent £116 million to 200 businesses from 12500 lenders Lent £104 million
Loan offering Secured Loan between £100,000 to £5 million; Unsecured loans up to £250k Secured Loan between £5,000 to £1 million Secured Loan between £50,000 to £2 million Secured Loan between £25,000 to £5 million


Here are the 6 reasons why P2B Loan is an attractive asset class for investors:

  1. 7% Net Return + Cash Monthly Repayment

Funding Circle had disclosed investor’s average return after fees is 7.1% which 50% of the investors are earning 6.4% and above. ThinCats’ weighted average return after fees and before losses and tax is 11.24%. Assetz Capital’s earning gross rates of return between 3.75% – 18% per annum with an average gross interest rate of 10.6% (before fee). Folk2Folk didn’t disclose their average rate but their advertised rate of return is 6.5%. Hence, it’s safe to say that the net return is 7% and above. Investors are able to receive cash repayment on monthly basis. It empowers the investor to reinvest the cash repayment into new loans and compound it on monthly basis.


  1. Simple Fee: 1%

Same as mutual funds and stocks, there are fees involved when investing in P2B loans. Unlike the stock exchange, there’s no transaction fee for every purchase of a loan. P2B platforms practice a relatively simple fee structure: 1% annual servicing fee. On Funding Circle, the 1% is charged based on the amount outstanding on any loan, payable on the capital only, not interest. It is included in the interest rate payable by the business and taken directly from loan repayments. Yes, that’s only one fee: the 1% annual servicing fee, nothing more.


  1. Liquidity

The P2B platforms provide the liquidity option to investors too. On the platform itself, there’s a secondary market for investors to trade loans. 0.25% sales fee is applied on Funding Circle when a loan is sold to another investor; the fee is based on the outstanding loan amount. Interestingly, investors can also add a premium or a discount to the loan which they are selling, just like a bond.


  1. Secured

The majority of the UK P2B loans which investors lent to are secured against something solid, tangible and recoverable in the form of property, equipment, inventory, account receivables or other equivalent worth considerably more than the loan. The Big 4 UK P2B platforms practice a maximum loan to value (LTV) ratio of 60%-65%. For example, when the business borrow a £600,000 loan, the business must provide the platform a charge over asset which worth at least £1,000,000. When the loan is declared as bad debt, the P2B platforms will recover the debt by selling the assets and return the principal plus interest to investors. In some cases, the platform might not fully recover the principal due to the liquidity of the asset, the investor losses could be up to 5%. You might wonder how much is the default rate in reality.


  1. Low Default

Funding Circle’s current bad debt is 1.6% and expected annualised bad debt is 1.8%, ThinCats’ current bad debt is 5.02%, Assetz Capital’s current bad debt is 1.41%, Folk2Folk is still achieving a record of zero default as to-date. Let’s zoom into Funding Circle’s statistics. Since operational, there are 259 bad debts worth £21 million against a total of 19,479 loans worth £1.3 billion. In terms of percentage, 1.33% of the loans are bad debts and the monetary amount is 1.63% of all loans. To put it into local perspective, major commercial banks in Malaysia are getting a non-performing loans (NPL) rate between 0.95% and 3.15% while SME Bank once stood high at 12.3%.


  1. Simple Diversification Strategy

How do P2B loan investors achieve high returns while safeguarding against default? Diversification! Diversification simply means spreading the lending across hundreds of different businesses, which means investors have a small amount lent to each one (instead of a large amount to just a few). For example, investor can lend as little as £20 per business, so by lending £2,000 in total, an investor can lend to 100 businesses and be diversified. While doing that, an investor should retain a maximum of 1% of their total amount lent to any one business. This becomes important when a business is not able to fully repay its loan as the impact on overall return will be less. On Funding Circle, diversification can be done by filtering risk grade (interest rate), location, industry sector, the business’s financials, loan purposes. Here’s an example of the interface:

Screenshot 2016-06-14 00.25.59


Different P2B lending model between the West and Singapore

The majority of the UK’s P2B platforms and the US’s largest P2P platform Lending Club operate on the auction model and the majority of the loans are secured. Every business loan will be funded through a live auction. Investors participate by placing a ‘bid’. The bid is the amount of money that the investor wants to offer the business and the interest rate he/she set for them to pay back. Just as with any auction, the bid is final and can’t be withdrawn – but other investors offering lower rates can knock it out. If this happens, the investor can bid again at a lower rate. Only lowest rates offered in the auction are accepted into the loan. If the business chooses a fixed interest rate auction, there’s no bidding needed and thus the loan is filled on a first-come-first-served basis. All platforms have the auto-bid feature hence it’s not that complicated for new investor.


You might wonder how investors are going to know how much interest rate should they bid for. It’s based on risk grade. Funding Circle’s credit assessment model consists of 2,000 variables including company performance, credit history and existing loans and debts. Every business that passes their credit assessment process is given a grade from 6 risk levels (A+ to E). Here’s the weighted average interest rate offered by investors to each risk band: A+ is 8.3%, A is 9.4%, B is 10.4%, C is 11:8%, D is 14%, E is 18%. Lending Club even provide 25 risk grade with a specific interest rate ranging between 5.32% to 30.99%.


While the majority of P2B loans are secured in the UK and US, Singapore’s P2B platforms are offering P2B lending on a no-collateral-required basis. However, the platforms do require the business’s director to be personal guarantee on the loan. The only 3 peer-to-business platforms (MoolahSense, Capital Match and Funding Societies) in Singapore have collectively raised more than S$10 million for SMEs in 2015 and a collective total of S$24 million was lent to businesses since operational. To know more about the P2B space in SG, you may read more about The Straits Times’s reporting here. It mentioned that an investor managed to earn an average return of 17%. Among the 3 platforms, MoolahSense is the leading P2B platform with S$11.42 million lent to 65 loans while Capital Match is catching up with S$9.53 million lent to businesses.


If you wish to know about a more detailed real world example of how much can you earn from a P2P portal, you can read this blog: He shared his investment return on a quarterly basis starting from Q1 2011 until Q1 2016 for 18 quarters. His latest annual return is 9.28%.


Personal Reference

The Parenthood (Fundraising on Crowdo)


The Parenthood

The Parenthood is Malaysia’s first one-stop parenting concept based on a London Street-themed indoor family park that offers a comprehensive range of products and services catering to both the needs of parents and children alike. Visit their official website at and their Facebook Page at
Funding Update: According to Leroy’s Facebook post, The Parenthood had raised RM2.5 million from a group of investors and transferring to Crowdo. Adding the RM0.21 million which recorded on Crowdo campaign page, The Parenthood had raised a total of RM2.71 million as at 22nd March 2016, which still require RM0.29 million to reach RM3 million target.


Pitch: The Parenthood Equity Crowdfunding Campaign Video


The beauty of the business idea



According to government statistics, there were 511,865 live births in 2014 alone. Let’s multiply it by 5 years, that gives us 2 million babies and children who need to be fed, educated and to play. Every day, there’s an average of 1,400 babies born. That’s an evergreen business which The Parenthood is tapping into.



Parents want their kids to be happy, want to have fun with them, socialize with them. Hence, a children’s playground is a no-brainer idea to attract parents to getting into The Parenthood outlets.



The parents will be there as long as the kids want to stay there. The longer they stay, the more money they will spend, more time to do shopping. That’s great, more revenue for The Parenthood!



The Parenthood will always acquire a megastore retail space and subpartition it to 20-50 mini stores within the mega stores. The Parenthood welcomes the merchants’ consignment of their product in there, just like the way Parkson and Aeon are doing it. Some merchants would rent the space to promote their newly-launched products as well.



There’s one more great reason why parents should bring their kids to The Parenthood. Education! Parents want their kids to have talents that they can show others, want their kids to know better stuff. The Parenthood would organize weekly weekend classes like drawing, DIY, creation, language classes, cooking, role playing, and science etc. The usual talent classes outside require at least 4-8 weeks fees commitment, while The Parenthood could do the walk-in style where parents choose to go when they are free over the weekend. The more activities happening at the outlet, the more money will be spent there. So, more classes, more visits, more chances to get parents to buy kids’ products! It’s like gym classes—the instructor arranges many types of classes and any patron can choose which to join. Aha! The Parenthood could charge a membership fee on the classes and I would call it “Genius Pass”: pay a whole year’s membership fee of RM299 to join unlimited classes in The Parenthood. The walk-in price would be RM19. The idea is to encourage parents to bring their kids to the outlet at least twelve times a year, educating their kids while shopping at the same time. In future direction, The Parenthood would have 10% of the group revenue contribution from the school sector.


About Leroy

Ever wonder whether an identity as parents makes a good entrepreneur and CEO of The Parenthood? You would need more than that! The experience of ventures is what is required to make a good CEO of The Parenthood. Prior to The Parenthood venture, Leroy had been running baby-product-related businesses such as baby product sales fairs and baby product retail shops. 2009 was the first attempt; Leroy and Lilian set up a baby product retail shop in Jaya One and relocated to Kuchai Entrepreneur Park in 2010 while setting up their online shop – which also focuses on baby products. They once set up a booth at the infamous Parenthood Expo 2009 & 2010 in Mid Valley. I assume this was the first Ah-Ha! moment for Leroy to get into baby product sales fairs. Back then, had organised a couple of workshops and classes for parents on several parenthood-related topics. In 2011, the shop was relocated to a 4,000 sqft retail space at Pearl Point Shopping Mall. You can see their venture is getting larger and larger every year! In 2013, Leroy’s second attempt was the Malaysian International Parenthood Fair, the sales fair which aggregates multiple brands in one place for a week and moves from mall to mall. In 2014, Leroy’s third attempt was upgrading their retail shop size to a 15,000 sqft megastore – Malaysian International Parenthood Superstore at The School, Jaya One. The one-stop shop was just like The Parenthood now, but back then it was just pure retail. In 2015, the Parenthood Superstore was expanded to The Shore Mall, Melaka and Klang Parade which gives them three outlets running at the same time! In 2014, Leroy even considered expanding the idea into Malaysian International Parenthood Education (MIPE). All of us shall see The Parenthood idea didn’t happen overnight. Leroy had taken a long journey to accumulate his experiences.




#1: Online purchase trends

There’s 2.5 million monthly Google searches made about baby products by Malaysia internet users. It gives a strong indication that parents are purchasing baby products online. No doubt more and more parents are making purchases online nowadays given its convenience of staying in the comfort of their own home while comparing product prices between sites. In the industry, there are a lot of mini-baby-product shops and also top e-malls like Lazada, 11street, Mudah, Lelong, Tesco online, Aeon’s Shoppu, Anakku’s online shop who also owns retails shops, and Chinese-language media group’s who have a great exposure to their massive readership. According to research by eCommerceMILO, the average monthly web visits of the top 10 kids and baby stores in Malaysia is only 10,800. This is a small amount, but the report didn’t manage to include the statistics from the e-malls like Lazada, Tesco Online and 11street.

The Parenthood not only need to secure great merchants but also great discounts to drive in-store sales in the long marathon run against online shops.


#2: Price War

Just like Tesco, Aeon and Giant, The Parenthood would need to engage in a similar discount war to encourage parents to visit the stores to shop. The key to price war is to scale up tremendously with multiple outlets throughout the cities. It gives them the purchasing power on lower cost of purchase. If you could visit The Parenthood outlet now, most of the products can be bought at other places at a significantly cheaper price.


#3: Too many ideas at once

To give parents a reason to visit the The Parenthood, education could be one, leisure could be one, and play could be another one too. The Parenthood is focusing on too many sectors to begin with: Education, Play, Shopping, Relaxation, Leisure, Dining and probably more. There is too much hiring involved and too many resources needed to do one thing well at a time. You could imagine the initial setup capital is incredibly huge on making the one roof concept.

The core idea is to buy baby and kids’ goods at the store. The question is whether The Parenthood is able to give a compelling reason for parents to visit the outlet and spend money in the store. Clearly, the one hub idea is to generate a reason to visit. Another explanation to why The Parenthood focuses on many sectors at once is – Activities! Activities will drive foot traffic to the outlets.


#4: Outlet location

Prime location is an important factor for a huge amount of visitors and drives in-store revenue. The outlet also  needs to have huge store space, which means high overhead costs including staff salaries, utilities and shop rental.

But this is not a bad concern given that Leroy had managed a couple of megastores prior to The Parenthood.


There’s some strategy that has yet to be implemented:

A membership card to collect email and mailing address for maintaining customer relationships, sending a newsletter to invite the customer back into the store. This is an extremely important part of the team effort on maintaining every single customer relationship. Yes, they do have the newsletter form on the website. But did they offer the membership signup over the counter when the customer made their purchases?


Assumptions for successful business model

  • Prime location with huge floor space, location with high velocity of visitorship
  • High inventory turnover to maintain healthy promotion activity
  • A proven management team to manage multiple outlets



  • The initial capital investment of RM3 million was invested by Leroy, not taking any debts and other shareholders yet prior to this equity crowdfunding campaign on Crowdo.
  • Since the outlet launched in December, The Parenthood has a RM100k turnover each month which is impressive!
  • Retail is not their major revenue contributor in the future. The parenthood will have five evenly distributed revenue contributors: 35% from Playzone, 31% from Retail, 13% from Dining, 11% from Service and 10% from School.



Given Leroy’s journey since 2008 in turning a small retail shop lot into 4,000 sqft, 15,000 sqft and three mega outlets, and right now a 16,000 sqft megastore which houses 33 retail merchants, I would bet that Leroy is one of the few who could make The Parenthood a success story in the retail industry. When investing in the company, the founder is the key to everything and in this case Leroy has it. Regarding execution, The Parenthood is doing RM100k turnover a month as a start and in the middle of launching second outlet. On a higher level, baby business is an evergreen business and would survive an economic downturn too. Let’s invest in The Parenthood!



List of grow hacking reading materials





The 6 Idea Generation Approach (Part 1)

If you are seeking a startup idea, here are my first six favourite approaches for you to generate that next billion-dollar idea.


Idea Approach 1: Dis-intermediation

– What is intermediation? It is the middleman, agent, or third party between a transaction. They charge a fee and jack up the price to make a profit. This idea is to eliminate the need for a third party between a transaction.

– If Xiaomi were to rely on a reseller but not via online sales, the price wouldn’t be that cheap either.

– Organisations used to pay headhunters a high fee to find relevant talent with required skill sets. Now LinkedIn has significantly reduced the business size of headhunting firms.

– Before Uber, taxi drivers were unable to drive their own car and were required to pay a fee to a licensed taxi operator to get their certified car. Uber has dis-intermediated the need for taxi drivers to pay that fee, and now they can become an UberX driver with their own car.

– In Malaysia: and will soon eliminate the need for local banks to hire more credit card salespeople. (Idea giveaway: There are so many unit trust agents and insurance agents out there. What if you could build a compelling platform that convinces the consumer to buy directly with the insurance company without paying commission to an agent?)


Idea giveaway: The speedy transfer and low or close to zero transaction rate of Bitcoin allows user to do cross border transfers faster and cheaper. It will soon make a big impact on Western Union and MoneyGram, who both charge a fee. If you could make the user experience good, people would start adopting your system to transfer money via Bitcoin back to their home city. That’s your opportunity to dis-intermediate both Western Union and MoneyGram.


Idea Approach 2: Curing Pain

Refer to

– If you could choose to pursue something, choose an idea that is a painkiller instead of a vitamin. It has to cure the pain and not just be a “nice to have” value to the consumer.

– The common questions to help cure the pain are the followings: Is it better, is it significantly cheaper, is it faster, is it easier?

– What is better? Storing and transferring files over a USB thumb drive is a pain and the worst is it often goes missing. Dropbox cured the pain for this.

– What is significantly cheaper? Business owners used to pay a huge fee to freelancers or programmers to develop an E-commerce storefront. Shopify allows businesses to pay about 100x less to achieve the same purpose.

– What is faster? Instead of hiring five staff to do a repeated job that is slow, CloudFactory and Mechanical Turk distribute the repeated tasks to more than 10 people and very often, this works five times faster. was my favourite; if it didn’t exist, I would open multiple tabs to check a flight price. It indeed has saved a lot of my time.

– What is easier? Evernote built a lot of awesome features to make you store all your notes in one place. Ticketing sales were hard to keep track of in messy excel or other forms, so Eventbrite saved the day, allowing event organisers to make it easier.


Idea Approach 3: Commission-based Model

– If you could build a platform that could increase the sales for others, they would be willing to pay you a fixed fee or commission. Companies that are spending marketing dollars to acquire a customer can spend some time to get the deal. There’s cost involved for every transaction. If your idea could bring them sales and eliminate the need for spending huge marketing dollars, they would pay for it.

– Marketplace: Marketplaces spend a huge amount of marketing dollars to acquire users who will stay with the Marketplace. Marketplaces generally have a high volume of visitors and hence, it make senses for companies to give out commission to the Marketplace in return for lower marketing dollars spent.

– collects a 10% commission fee by getting jobs for local service providers.


Idea giveaway: What if, in the future, companies no longer need to hire so many permanent sale forces and even ordinary people can be their sales people? I came across this startup that is yet to launch:


Idea Approach 4: Under-utilised Inventory

– Inventory in this context means the things which have the potential to generate income. It could include services like taxis. The idea is to find out what are the inventory items in this world that are under-utilised and aggregate them into one platform.

– Have an extra seat in your car? Why not share it? See: Lyft

– Have extra space in your office? Why not share it? See: sharedesk

– Have extra room in your house? Why not share it? See: AirBnb

– Have extra money that you’re able to lend out? Why not lend to people in need? See: LendingClub

– Have free time after 9-5pm? Why not do some work for others? See: CrowdFlower, Mechanical Tucks

– Want to share your moment or photos? Why not post in a place where people are? See: Facebook, Youtube, Instagram, Pinterest


So, now you should look around and identify what are the inventory items that are under-utilised. Although there can only be so many Airbnb’s or Uber’s for anything, keep looking for the ones that have great demand and supply.


Idea Approach 5: Targeting Millennials

– Most of the startup ideas are targeting Generation XYZ, so it’s a crowded and competitive market. Why not set your target on solving a different set of problems — creating solutions specifically for the Millennial generation?

– The Millennial’s lifestyle is easily shaped by technology. Hence, let’s think out loud — what do you think their future lifestyle will be?

– What are the differences in the Millennial lifestyle compared to our generation? Think deeply about their life stage cycles, daily activities, spending preferences, and job preferences.

– I would guess they have high spending power, and they always want everything while also wanting to save big bucks.

– Yet, Millennials are also very competitive among their generation in every aspect. It could be in terms of jobs and home purchases.


Idea Approach 6: Connecting the people with the platform

Let’s identify what platforms are lacking globally and build them.

– Connecting friends to keep in touch with each other: Facebook

– Connecting professionals to extend business relationships: Linkedin

– Connecting shoppers to buy things from businesses: Ebay, Rakuten, Alibaba

– Connecting private drivers with consumers: Uber

– Connecting service providers with customers: Zaarly

– Connecting teachers/trainers with learners: Udemy, Lynda

– Connecting wedding related services to couples: theknot

– Connecting home renovation related services to homeowners: houzz

– Connecting content writers with readers: Medium, Tumblr


What is lacking in the market? Identify it and launch it!


Idea giveaway: Connecting financial planners, unit trust consultants, insurance agents, and investment product consultants with people.


I will stop here with these six approaches first and do stay tuned for my upcoming post for the rest of the approaches.


Disclaimer: I’m a business developer at I haven’t launched a successful business yet but am just a humble guy who always loves to pitch random ideas in pitching competitions (and win some). I love to help people bounce ideas off and generate awesome business models for their ideas. Email me at if you need my help on your pitch, getting your idea more solid, and generating a business model for it.

Manifesto – Startup Journey

What I believe in the future:

  • The world need more Problem Solvers: Engineers, Scientist and Entrepreneurs
  • Salesforce-less, lesser repeated task base job
  • Happiness / achievement is defined by how much innovation can a person bring to the world

There are 7 billion populations in the world and problems are everywhere. It causes sadness moment for everybody. We should be act on it to solve the problems.

Business model generation, technology breakthrough and innovation are needed to solve the problems.

To the millionaires or billionaires who are spending unnecessary dollars on luxury stuff, they should invest in startups instead. People should be proud of funding a startup instead of owning a Lamborghini.

My future journey would begin with an exit of $150k in cash and form a tech lab which constantly builds tech products and grow the snowball way up to Unicorn level. The tech lab is a mixture of software outsourcing company and accelerator. It will constantly fund early stage idea to help it launch in market to gain traction to growth for million dollar valuation. The next step will be exit it with a huge pill of cash and the money will be further invest in multiple early stage ideas again. And there goes the snowball. I will call the tech lab as FREAK LAB in future. Because what it does is turn idea into reality rapidly and crazy enough to shock the world.

I’m a strong believer of sharing economy and I believe that talent could also be a commodity in a sharing economy. In Freak Lab, there will be several consulting team consist of 2-3 people each which startup teams. These consulting teams would be top-tier in their expertise area. In my mind, there would be 3 consulting teams: Growth, Engineering, Business Development. Growth consulting team would be consists of growth hacker, marketer and market expansion experts. Engineering consulting team would be consists of computer scientist, researchers, programming experts and data scientist. Business development team would be consist of business analyst, business researcher, lean startup practitioner and entrepreneur.

When a 2-person team come to Freak Lab work on an early-stage idea, the consulting teams will assist them along. Yes, you see it right! That’s how a startup should be. The startup don’t have enough expertise or capital to get a proper team with fully complimentary skill sets. Each startup spends lesser overhead, get the best help they ever had, the consulting team can keep improving internally as they have the chance to work on various ideas with same skill sets.