Local venture capital industry reaching an inflection point

(The Edge Markets, Dec 2020) The venture capital industry in Malaysia is reaching an inflection point, says Singa­pore-based private-equity firm CMIA Capital Partners and Malaysia-based Bintang Capital Partners Bhd.

They see a great deal of activity in terms of demand for capital. “The challenge now is to identify suitable sources of funding for these innovative ideas and shape them into a business that can achieve significant scale and impact in the country,” they said in a joint reply to The Edge.

Pandu Sjahrir, founding partner at AC Ventures — an early-stage technology venture fund that focuses on investing in Indonesia’s digital disruptors — concurs, noting that the local venture capital market has roughly doubled in size in the last decade in terms of capital inflows to just over US$2 billion (RM8 billion), with about half of this amount disbursed to investments.

“This is encouraging progress from a growth perspective, with the Malaysian government contributing about 60% to the market and making headway with regard to tax incentives in the industry,” he says.

Pandu points out that, in the first half of 2019, the amount of venture capital raised was US$1.4 billion in Southeast Asia, with outsized funding flowing to unicorns and aspiring start-ups in the financial technology (fintech), online travel, e-commerce and ride-hailing space.

And venture capital fund managers say initiatives such as the Dana Penjana Nasional programme are expected to further drum up private-sector participation in the local venture capital industry. Dana Penjana Nasional is a matching fund-of-funds programme, which is part of the Short-term Economic Recovery Plan (Penjana) launched in June. Under the programme, the government will match up to US$149 million, on a 1:1 basis, in funds raised by venture capital fund managers from foreign and private local investors, with a target allocation of RM1.2 billion. The fund now stands at RM1.57 billion after the venture capital fund managers secured an additional RM370 million in investments.

The fund managers also believe the new generation of entrepreneurs who practise innovative business models will require financial backing for growth and expansion. In this regard, they expect demand for private equity and venture funds in the education and healthcare sectors to gain momentum.

The Hive founder and managing director TM Ravi and Tuas Capital Partners managing partner Datuk Syed Haizam Jamalullail say that historically, Malaysia has seen successful companies in the e-commerce and marketplace sectors. Consequently, these companies have benefited from increased interest from potential investors.

Venture capital firms are also expected to make more investments in the fintech space, owing to Bank Negara Malaysia’s imminent announcement of its digital banking licensing framework, with added interest in the edutech and digital health sector also forecast amid the Covid-19 pandemic.

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