PETALING JAYA: To enhance the venture capital (VC) ecosystem and outpace competition from Singapore and Indonesia, it’s vital to promote private sector involvement and establish business-friendly policies which create a conducive environment.
Malaysia Venture Capital Management Bhd (Mavcap), the country’s largest VC firm, says changes must include incentivising foreign venture capitalists to invest in the local market.
Its chief executive officer (CEO) Shahril Anas Hasan Aziz said such an approach can also eventually increase the pool of available funds and unlock new pathways for growth prospects.
“Important factors to facilitate VC growth include business-friendly policies, favourable tax regimes, an efficient legal system and high-quality infrastructure,” he told StarBiz in an interview.
Shahril said factors that facilitated ease of doing business could help attract global funds to set up their South-East Asian operations in Malaysia, as evident in the case of Singapore.
“The Singapore government is actively promoting private equity (PE) and VC activities through various schemes such as tax incentives and introducing a new act specifically for the fund management industry,” he said.
Shahril pointed out that in 2022, more than US$395bil (RM1.75 trillion) PE and VC assets under management were held in Singapore, a year-on-year increase of 42% as a result of the policy response.
In comparison, Malaysia had about US$3bil (RM13.28bil) of PE and VC assets under management in 2022.
“Other markets such as Indonesia are favoured by investors due in part to the sheer market size, with a population of 274 million, compared with a 34 million population in Malaysia,” he added.
Shahril believes another differentiating factor was the rapid digitalisation and aggressive growth of the digital economy in neighbouring countries through higher capital injection, mainly driven by private sector participation.
“Indonesia remains highly unbanked, with 90 million people in the country not having bank accounts.
“Hence, serving this unbanked population is a priority in the market, putting financial technology services in higher demand,” he noted.
Shahril cited the Securities Commission’s 2021 annual report, which reported participation from corporate investors in VC had declined to only 19.73% in 2021 from 37.6% in 2007.
In 2021, the bulk or 45% of VC funding in Malaysia came from government agencies and investment companies, while sovereign wealth funds contributed 27.9%.
Other challenges facing the VC funding spectrum in Malaysia, Shahril said, is the strong focus on pre-seed to series A stage funding, and a lack of funds for beyond series B, after companies have passed the initial startup stage.
“As a result, promising entrepreneurs turn to markets outside Malaysia to seek out funding,” he noted.
In regards to this, Shahril has called out public and private companies to come together and support growth funding to help make Malaysia a hub for startups in the region.
“We need to look into growing and developing growth funding for series B, C, and towards initial public offering (IPO), to help our startups and entrepreneurs unlock their growth potential,” he added.
Commenting on the VC industry outlook, Shahril fears there might be a shift in behaviour by investors towards greater discipline in deploying capital, thus affecting fundraising at VC firms and startups.
“Subsequently, this will see a readjustment of valuation for deals, where mega rounds and valuations are unlikely, and startups need to show a clear path to profitability,” he justified, adding it may result in fewer deals in 2023.
To ramp up the VC industry in Malaysia, Shahril said Mavcap has pivoted its direct investment model to the fund-of-funds approach, called the “Strategic Funds” model.
“This enabled us to open up new avenues, joining hands with both local corporates and global VC partners to create new VC funds with the likes of established VCs across the world, from the United States to the Asian region, such as 500 Global, AliBaba, Gobi, GS Retail, Axiata and Sunway, among others,” Shahril said.
According to him, these funds have had a positive multiplier “smart money” effect, increasing availability of funding and reducing dependence on government funding, while facilitating market access on a global scale.
Additionally, Mavcap aims to drive up foreign direct investment into Malaysia by attracting more funding from global partners.
It is also working on assisting local startups with their overseas expansion, as well as attracting foreign start-ups to expand their operations to Malaysia.
“Reflecting Mavcap’s sound investment strategy and acumen, we are en route to record a total fair value of RM1bil for our portfolio of investments from 2013 to 2022,” Shahril said.
Based on trends in recent years, Mavcap expects to see more startups in the agritech and food tech sectors that can play roles in solving food security issues facing some nations.
“The Internet of Things will continue to trend upwards as it evolves and becomes more integrated into our daily lives, with an increasing focus on advanced technologies such as deep tech,” Shahril added.