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Malaysia has the highest Government backed capital injection portion for VC and PE for the country when compared to other Asean countries
VENTURE CAPITAL (VC) AND PRIVATE EQUITY (PE) are not new investment methods in Malaysia. Practitioners of those methods have been around more than 2 decades ago. In fact, we (Malaysians) are quite active in this field, only 2nd to Singapore in the South East Asia (SEA) region in terms of monetary magnitude as well as volume of deals.
Yesterday (17 May 2017), the Malaysian Venture Capital and Private Equity Association (MVCA) held its signature annual event, the SEA VC and PE Conference (SEAVCPE) involving almost 100 attendees from VC and PE practitioners pool from SEA. They came to discuss amongst them the various aspects of their industry (VC and PE industry) in the current "uncertain" time - making reference to the economic turmoil that the World economies are facing.
To many entrepreneurs, VC and PE are alternatives for fund raising, particularly for start ups and growing companies, respectively. They are one step above the funds from angels and one step below public listing or strategic investments by public funds like pension funds.
Whilst banks may provide cheaper source of funds; or issuance of bonds may be a cheaper alternative as well, no everybody can get them (or achieve a good subscription rate). This is because the due diligence on such entrepreneurs (by banks) does not go beyond credit assessment.
VC and PE companies looks at many aspects paying great attention to potential for growth. They look at the capabilities of the entrepreneurs, the adequacy of knowledge, work force and infrastructure in the company, the attractiveness of the future cash flows (within an acceptable time frame) and the unique selling proposition for such company to have potential stronghold in the market or consumer base.
Many believe that VC and PE investors are only interested in making quick money from capital gains arising from the valuation of the investees. Whilst there may be practitioners who took it that way, the appropriate approach should be to grow the companies first by working together with the entrepreneurs.
Just a week ago a panel of speakers from the industry met to discuss the matter of growing the companies. One of the panelists, Johan Ishak, the Chief Executive Officer of MyCreative Ventures, who is also one of the Executive Committee members of MVCA said, "We cannot be 100% cockroaches as investors will not come in. They want to see potential for capital gains. On the other hand, we cannot be 100% unicorns as this seldom neglect efforts to grow the companies. Perhaps, for start ups, we should become 2 thirds coackroach and 1 third unicorn"
A "cockroach" and a "unicorn", in the VC and PE world, means, a resilient sustainable model for a company and a high valuation company based on potential future; respectively. These terms were used by the industry as cockroaches can survive a nucklear bomb and a unicorn is a state of fantasy esctacy. A unicorn is said to be companies valued more than USD1 billion. In Malaysia, we have Grab and iFlix.
When viewed from cash owners who wants to invest their funds, VC and PE are attractive alternatives to the listed share market, bonds, money market, properties, unit trusts or any other conventional methods. It is attractive because the returns are higher than any of the other methods. In a capital market sluggish economy, these monies may make its way out from those conventional methods and starts filling up the VC and PE bucket. However, 1 big demotivating factor is that, they (investors) must be willing to lock their monies in those VC and PE investments for 5 to 10 years before profits can be realised.
Coming back to the SEAVCPE Conference, and to close our understanding of the industry, it is good to know what our strengths are as a country with respect to VC and PE activities - some of the good points on Malaysia in the VC and PE industry in Asean that was revealed at the conference were as follows:
1. Malaysia is the first in Asean to implement Equity Crowd Funding.
2. Malaysia is the first in Asean to implement Islamic Financing.
3. Malaysia will joint force with other countries in Asean to establish Asean VC Council.
4. Malaysia is 2nd next to Singapore for Limited Partner, (i.e. investors to the VC and PE funds) (LP) sourcing in Asean.
5. There are only 2 Asean LPs in the top 10 list of LPs in Asean as USA LPs dominate the list. Those 2 are Philippines and Malaysia. Malaysia is represented by Government backed MAVCAP that is led by Malaysian manager, Jamaludin Bujang.
6. Malaysia has the highest Government backed capital injection portion for VC and PE for the country when compared to other Asean countries.
(Source: South East Asia Venture Capital and Private Equity (SEAVCPE) Conference 2017 organised by Malaysian Venture Capital and Private Equity Association (MVCA) led by a Malaysian, Shahril Anwar Mohd Yunos)
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