KUALA LUMPUR: The local information and communication technology (ICT) sector faces funding problems, especially at the seed level.
The problem is acute due to a lack of success stories, making it hard to attract venture capital firms.
This was the view of most experts at the inaugural InnoTech.my forum, held with the objective of spurring the creation and development of technopreneurs and a more dynamic ICT ecosystem.
Organised by Multimedia Development Corp Sdn Bhd, this year's theme was “Connecting Innovation, Capital and Technopreneurs”.
Several experts at the forum, that was held earlier this month, said venture capital firms, in particular the local ones, were risk averse and were inclined to evaluate these business start-ups with a view to short-term gains instead of nurturing them to a critical mass.
In an e-mail reply to StarBiz, founder and president of Seattle-based venture capital firm Prosperati LLC Colin Wong, Cradle Fund Sdn Bhd investment consultant Rizal Alwani Nordin and New Entrepreneur Forum president Ashran Ghazi explained the challenges and issues the ICT sector faced.
Wong said local venture capital firms needed to take more risks. “There is an emphasis on risk aversion. They tend to focus on cash flow and the need to be profitable within 12 months with a strong need to 'return' their seed money in a short period,” he said.
The better approach would be the risk portfolio because high reward only came with high risk, Wong said.
It was not a lack of funds that was an obstacle but in the evaluation of the risk portfolio, he said, adding: “Local venture capital firms need to take a three- to five-year view on their portfolio of companies because start-ups with truly innovative ideas will need time to iterate, make mistakes and eventually find the right formula for their service or product.”
Rizal said there must be a clear path for innovative entrepreneurs to raise risk capital. “Due to their unproven business model, this is the hardest form of business position to raise capital,” he said.
Rizal said venture capital firms, Mesdaq and entrepreneurs had to align their strategies to ensure an environment conducive for risky ventures to grow.
“When fund raising, companies must have in mind clear milestones and build value at each stage while mitigating risks by having initial clients that will provide the validation needed for their business venture,” he said.
Wong added that the ecosystem must work tighter and gaps must be closed to enable these companies to flourish, which meant they must be mentored and moulded to compete on a global level. “We need more success stories, more companies that can compete globally,” he said.
Ashran said there was room for improvement in the funding mechanism during the various stages of growth.
“It must be seamless so that companies can move from pre-seed to market quickly,” he said, adding that funding was a two-way thing where technopreneurs would be expected to spend the time to explain their business venture.
Rizal said more exit paths must be created for risk-averse local venture capital firms through bridging programmes with more matured markets in which these firms could tap into global funds.
“If local venture capital firms are faced with an inflexible exit path, they should explore tapping into global funds for further fund raising because the tougher it is for them to exit, the tougher it is for them to invest.”
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