Mycelium SME Fund: A New Model for SME Equity Funding | Mycelium SME Fund posted on the topic | LinkedInBuilding Y-Combinator for SMEs
(TL;DR: The objective is not to mirror Y-Combinator's tech startup-focused risk-return profile but rather to establish standardized deal terms to accelerate execution speed)
SMEs across South Asia (particularly beyond India) are grappling with widening funding gaps. Despite generating and sustaining a significantly large portion of jobs and making sizable contributions to national exchequers, SMEs in the region face severe constraints in accessing both debt and equity capital. Notably, Bangladesh, Sri Lanka, Pakistan, Nepal, and Bhutan—expect for Dolma Capital in Nepal—are devoid of SME venture funds with dry powder (uninvested capital).
This funding gap is further exacerbated as impact investment firms increasingly pursue larger funds and aim for "impact alpha"—meaningful financial return beyond the social impact outcomes. Such firms, competing with tech VC funds for allocation, are often engaging in venture-style investments, which leads to portfolio construction blending tech and social impact sectors like EdTech, AgriTech, and ClimateTech leaving the SME funding landscape further deserted. Even mainstream VC funds such as Sequoia have co-invested alongside impact investment firms, validating this trend.
At Mycelium SME Fund ("MSF"), we aspire to empower SMEs across South Asia by providing risk capital, mentorship, and a valuable businss network. Our equity fund seeks to bridge the funding gap by delivering "smart capital" to SMEs. One of the challenges in SME funding lies in the typical 5-year (out of the 10 year fund life) investment horizon, during which diverse SME pipelines must be evaluated, and funds to be deployed. Although Limited Partners (asset/fund owners) may extend this period, identifying suitable pipelines and negotiating bespoke/customized deal terms poses a significant hurdle.
Given the scarcity of SME equity funding and tightening monetary policies to counter inflation across South Asia, the SME funding gap keeps widening. MSF is therefore facing a favorable backdrop and can offer standardized deal terms applicable exclusively to SMEs aligned with this model. While replicating Y-Combinator's singular valuation and ticket size may not be feasible as it focuses on early-stage tech startups, MSF aims to offer range-bound, standardized deal terms across various strategies: an approach that can significantly reduce execution timelines.
The question remains: will this framework continue to thrive if SME-focused funds proliferate in the future? Only time will tell, but for now, we stand committed to redefining SME equity funding in South Asia.