The Mitsubishi UFJ Financial Group-backed firm leverages artificial intelligence to make speedy credit decisions on mature start-ups that need working capital. India’s Infra.Market is the latest addition to the portfolio

More than USD 100bn was pumped into Asia-based growth-stage technology companies in 2020 and 2021. This fell by more than half over the next two years, and the running total for 2024 is USD 5.7bn. Markets that relied on global investors to lead these rounds – notably India and Southeast Asia – have been especially hard hit. Mars Unicorn Fund wants to fill the gap, though not in a conventional sense.

“Growth capital is a huge problem in Asia, more so than in most other regions. In India, even though there are strong domestic VC markets, raising capital from Series C all the way up to IPO is difficult,” said Navas Ebin Muhammed, a managing director and head of Asia Pacific at Liquidity Group, which established Mars Growth Capital with support from Mitsubishi UFJ Financial Group (MUFG).

“With the SoftBanks of the world toning down their activity, there is a huge need. We want to play a role, giving growth capital at scale in a sustainable manner to companies that have sufficient growth.”

Most recently, Mars Unicorn Fund, which provides funding to businesses globally that have pre-money valuations of at least USD 350m, committed USD 50m to Infra.Market, an India-based B2B marketplace specialising in construction materials. It follows a commitment of the same size in 2022.

The company previously rode the growth capital wave in 2021, securing rounds of USD 100m and USD 125m led by Tiger Global Management, its valuation climbing from USD 1bn to USD 2.5bn in the space of six months. But those investments were in the form of equity; Mars Unicorn Fund is supplying debt.

Growth agenda

Most of the fund’s deal flow is driven by referrals from VC investors and bankers. Companies typically request highly flexible revolving facilities – in the USD 20m-USD 75m range – that are used to supplement working capital and support organic or inorganic expansion.

“We are financing growth, not really runway. If a company is running out of capital, we would not be able to support it. If there is a proper business model with receivables, we can always finance receivables,” Muhammed explained. “We call what we do growth capital for this reason.”

B2B marketplaces are relatively frequent counterparties because they tend to be working capital intensive. Infra.Market appealed because of its disciplined approach to onboarding customers and collecting payments, which Mars Growth monitors monthly. Multiple product lines was another plus point: tiles have a longer cycle than cement, for example, so there is diversification in financial profile.

The core business model is based on removing layers – and costs – from supply chains by matching buyers and suppliers more efficiently. Infra.Market has broadened its scope, notably through the acquisitions of two suppliers, RDC Concrete and Shalimar Paints, but Mars Growth is delivering working capital to another expansion area: exports.

“If you look at tiles, most of the manufacturing has left Europe for India and Vietnam, and the India market is highly fragmented with lots of small and medium-sized enterprise (SME) suppliers. For European buyers to procure inventory at scale, Infra.Market is helpful because it takes the orders, collates them with SME suppliers, and provides the quantities needed,” said Muhammed.

In taking exposure to the offshore business only, Mars Growth is pushing a broader agenda around Asian companies using Singapore as a platform for global expansion. Infra.Market has taken orders from Europe, the Middle East, Asia, and Africa since its international unit was relocated to the country.

The AI angle

The credit facilities offered tend to have a two to three-year tenor – although up to five years is feasible – and Mars Growth takes senior security charges on receivables and sometimes other assets as well. Enforcement situations are rare. This is attributed to a monitoring mechanism that flags developments like deviations from budget, allowing proactive engagement on potential resolutions.

Technology is central to the Mars Growth proposition. Liquidity Group started in 2017 as a financial technology company and has since morphed into an artificial intelligence-enabled (AI) asset manager. Mars Growth claims AI helps its analysts make investment decisions speedily. The firm can respond to requests for capital within a week, rising to 10 days for more complex situations.

AI is hardwired into due diligence and portfolio monitoring as well. Mars Growth runs revenue projections under different scenarios to establish the likelihood of default – not an easy task when working with start-ups that, though mature enough to qualify for investment, are still navigating the uncertainties of scaling at speed.

“The more difficult the revenue projections, the more complicated the structure of the facility,” said Muhammed. “We can tweak different things at different times to understand how a company might be able to pay, which gives us confidence the structure will work. This would be difficult and time-consuming without the help of the platform.”

Liquidity Group initially raised capital from family offices for its credit products. The tie-up with MUFG – currently the sole LP in Mars Growth – in 2020 represented a step into the institutional space. Assets under management (AUM) now total USD 1bn in debt and USD 500m for a recently launched equity fund focused on mid to late-stage technology companies in Asia Pacific.

Mars Unicorn Fund has deployed about USD 600m out of a USD 750m corpus, with more than two-thirds of the capital going to Asia-based businesses. Muhammed has ambitions to move far beyond USD 1bn in terms of debt AUM, reasoning that Mars Growth can become one of four or five significant players rather than one of hundreds in the equity space.

“I don’t see many players that can write USD 20m-USD 75m. For large private equity and credit firms, it must be USD 100m-plus, and then early-stage venture debt providers usually can’t go above USD 10m,” he said. “There is a huge white space. Sometimes it is filled by banks, but they cannot be as flexible as us with certain transactions.”

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