VC funding - Comparisons btw Singapore and Malaysia

originally posted at
http://bleongcw.typepad.com/simple_is_the_reason_of_m/2008/07/barcamp-malaysi.html

To make this discussion really interesting, I still draw out the three sections of "Invest", "Value" and "Fund" and broke it between Malaysia and Singapore, so that I can sketch out some notes from the discussion. Of course, since I am here to learn more about the Malaysian venture funding for technology companies, I started off with asking William questions about various funding schemes available and the features of funding in Malaysia, then supplement the significant differences between both countries. Of course, the same discussion extends to seeking the funding sources and finally the valuation of the companies. Of course, together with feedback from the floor helps to mold the discussion that can be of value to everyone. Here are some of the interesting points of discussion:

• The nature of funding for technology start-ups: First of all, the funding situation in Malaysia is slightly different from Singapore. In Malaysia, there are designated funds for the ICT entrepreneurs namely, (i) Cradle Investment Program, (ii) MIRC - MCA ICT Resource Centre and (iii) MDEC Technopreneur Pre Seed Fund. The range is from RM$50K to RM$150K. A good summary of these funds can be found in this blog. It is pointed out that these funds except for (iii) are on reimbursement basis. In fact, it is difficult to get access to the funds with only the ideas. While the nature of the micro-financing fund run by IDM office (MDA, Singapore) together with the business incubators (for example, Thymos Capital LLP which I am part of) is focussed on turning ideas to prototypes, the direct disbursement of funding to the entrepreneur gives us a different perspective from our Malaysian counterparts. The interesting note is that in Malaysia, funds can be easily accessed through networks where the entrepreneurs have access to prominent Chinese businessmen. One interesting thing about the Malaysian funds is that they used the physical infrastructure from CyberJaya to support the ICT entrepreneurs. For Singapore, the upcoming Fusionopolis will have incubator for the entrepreneurs to seed ideas as well.
• Criteria for investment: Venture capitalists from both countries share very similar sentiments about funding a company. The Malaysian investors preferred companies which are profitable, pegged with a good team but with the additional notion that the entrepreneurs are also good at selling. I don't think the Singaporean side defers that much except that in most of my encounters with the venture capitalists, the profit margins & business models are extremely important. In fact, contrary to the opinions of developers and technologists that an idea is worth a million dollars, investors from both countries thinks that the execution of the team for the business is more important. As I put it later after the discussion to a group of young Malaysian entrepreneurs, I prefer less talented entrepreneurs with good execution and passion to complete a project than talented entrepreneurs with a bad dose of not meeting deadlines and poor execution.
• The mindset for seeking funds past and present: I thought that one investor from the audience made a very good point about the past and present views of young entrepreneurs about venture funding. I have encountered similar comments from older private investors in Singapore, but this investor made a very astute observation about the difference in attitudes between young and older entrepreneurs. Perhaps, two to three decades back, an entrepreneur will seek funding from their family, gathering funds from their parents and relatives, and then go all the way with the notion that they must succeed. Today, the younger entrepreneur do not seek funding from family but from external sources and put it in a way that they are less liable if they screw up. It is almost like the investors bearing the risk. In some sense, this is attributed to the rising affluence for the well-educated people in countries. In fact, I press the argument that the ways of seeking financing in Silicon Valley do not work in southeast Asia, and talking to a few investors in Malaysia reinforced my point, even the more established foreign venture capitalists who prefer to go for companies looking for growth financing rather than something innovative that can change the world.
• Rapid strategies for start-up growth: Young entrepreneurs can be talented and driven, but they don't think hard enough to ensure a positive cashflow. In fact, a more experienced entrepreneur will attempt to find ways of raising capital that is outside the traditional venture capital format. I have been talking about finding ways to list companies in places like AIM which is more commonly used in the West. Of course, a lot of entrepreneurs I have encountered have no idea of how to transition the start-up into a growth stage company or even make attempts to acquire or merge with their competitors. Both investors from Singapore and Malaysia lamented that the entrepreneurs only think about their domestic markets but not further out. I find this quite ironic but I think that expanding the horizon of entrepreneurs in southeast Asia is important for a robust entrepreneurial scene to grow.