Speech by

Mr. Goh Ching Yin

Director, Strategy & Development Division

at Launch of Virtuous Investment Circle (ViC)

Wednesday 4 August 2010

Distinguished guests.

Ladies and gentlemen.

Good afternoon.


1 .

I am pleased to be here this afternoon to officiate the launching of the Virtuous Investment Circle. Today marks a significant milestone as we celebrate the opening of a new chapter for the angel investment community in Malaysia. Much work has been done by Cradle Investment Ideas’ team to structure a suitable and workable model to formalize a local angel network. It is encouraging to see our very own angel investors stepping out to extend a helping hand to our hardworking entrepreneurs via a professionally managed establishment.

Recognising the importance of business angels for the VC eco-system


As we all know, any form of business start ups, especially technology companies require an unbroken financing chain starting from pre-seed capital all the way to the stock market. The financing chain they say is usually no stronger than its weakest link. For example, high-tech start-ups overseas, typically goes through multiple funding rounds and 2 commonly would begin with family and friends, to business angels, on to venture capital and then on to the public via an initial public offering.


The importance of business angels at the early stage of development is evident. The early stage, being the most critical and riskiest, where from a piece of proposal/prototype the business would start to take its form. Statistics has shown that 80% of new businesses fail within their first year. Hence, with such odds, it is an uphill task for the entrepreneurs to pass the early stages and move to the next developmental stage. Funding is scarce as without track record or collateral, banks will not be able to provide loans resulting in a funding gap at the seed stage. This is where angels come in by filling the gap, by providing the necessary funding for entrepreneurs to kick start and grow their ideas towards commercialization.


In mature markets, angels do not just provide assistance but also expertise to ensure the potential companies grow according to the set milestones. This is also what we hope to see in ViC – an Angel network which is proactive in connecting member angels to entrepreneurs while at the same time offer value-add services and advise to all its members. A BCG’s study on Funding estimated that there are approximately 20,000 households in Malaysia with net investible assets greater than RM4milllion. It was also highlighted that there is a 6.7% growth rate of high net worth individuals in Asia which is among the fastest growing compared to other regions. Thus I am confident that ViC as an angel network has tremendous potential for expansion and would indeed be significantly recognized.


The Global Entrepreneurship Monitor (2009) reported that informal investments1 as a percentage of GDP is still at a relatively low level – United States leads the G7 countries with 1.5% followed by Italy (1.2%), France, (0.8%), Germany (0.8%), Japan (0.7%), and the United Kingdom (0.4%). The Republic of Korea, Japan and Malaysia all put less than 1% of 1 Based Global Entrepreneurship Monitor – 2009 Executive Report, informal investors are individuals who invest their own money in someone else’s start-up business. 3 their GDP into informal investment in 2009. China appears to be different – it has the highest informal investment amounts at 11.3% of its GDP.


Currently, we have CIP500 and MDeC’s Technopreneur seed funds for the entrepreneurs to tap for funds. Now another avenue opens up for them with the establishment of Virtuous Investment Circle. ViC’s role in the funding ecosystem would complement the government’s effort in reducing industry’s dependency on government’s funding. Based on the SC’s statistics, at the end of 2009, 52.92% of funds were sourced from government agencies while local individuals only contribute 2.53% of funding for the venture capital industry. Indeed, there is a need to reduce the dependency on government funding and move towards a private-sector led funding landscape.

Creation of more and quality deal flows and entrepreneurs


It is hoped that a successful angel network will be the catalyst towards creating more quality deal flows forming a solid pipeline for the venture capitalists to take over. The benefit of early exposure to mentoring by the angels helps entrepreneurs to develop their business based on good practices and proper standards which in turn prolongs its lifeline. The value add from angel investors would indeed enhance the potential for value realization making the deal much more attractive for venture capitalists.


A successful angel network not only creates more deals but incidentally could be producing more entrepreneurs. Having all the support under one roof would enable better education and sharing for the angels and also the entrepreneurs on matters like due diligence procedures, valuation methods and risk management strategies. Thus, it is a golden opportunity for the fund providers and seeking companies to benefit and grow bigger and faster.


As we can see in the case of Google, more than 40 ex-Googlers have invested in about 200 fledgling companies since 20052. It is the nature of active angels to always want to add 2 Based on the research reported in Bloomberg’s BusinessWeek dated Febuary 25, 2010. 4 another zero to their bank accounts and another innovative company to their list of accomplishments. Also, at least a half dozen current Google executives, including CEO Eric Schmidt and co-founders Larry Page and Sergey Brin, are also energetically financing young companies.


What we can learn from Google’s success is that angels should be willing to swap investment ideas, back startups together and most importantly be willing to take high but calculated risks for high future returns. The drive should be for innovation and working with people you like and trust to create value and successful companies. We have an excellent starting point with ViC, let’s take the first step to make more successful stories happen.


In addition, it is also a way for the successful entrepreneurs who have gone through the milestones and made their mark to come back wearing the angels’ hat and assist the new entrepreneurs step forward. Angels who have gone through the circle would be more knowledgeable in terms of the practical issues and thus, by coming back with a will and the means/funds ensure the continuity of the virtuous circle and perhaps strengthening it for the coming generation.

ViC supporting the NEM


These all fits in very well with the government’s agenda under the NEM to create and grow the local entrepreneur ecosystem. Entrepreneurism based on innovation should become part of the nation’s culture. In our Prime Minister’s speech at the National Innovation Summit held recently, he stresses the vital need for innovation for Malaysia to achieve its goal of becoming a high-income, high value nation. Angels and entrepreneurs have a role to play in our nation’s drive to push innovation to the centre stage.


The government is aware that the right environment has to be created, from funding and talent to government policies, for the private sector to generate the growth needed to become a high-income economy. However, this ‘innovation infrastructure’ may be stunted if the environment is not conducive. Thus, let us embrace change and work together to make the country and people climb the ladder of improvement.

Closing remarks


The launch of ViC as a professionally managed network is timely and it is hoped that with its success, and as the name suggests, would create a chain of other successes which would put Malaysia prominently on the ‘innovation world map’. With 2010 being Malaysian Creativity and Innovation Year, we must collectively work to reignite our nation’s innovative and entrepreneurial flames and be inspired to transform the landscape for a better tomorrow.


ViC is now is at the starting point and I am certain there would surely be many challenges ahead. But let’s not be deterred, I’m sure the ride though bumpy, would be nothing less than rewarding. Equipped with knowledge, skills and determination, I’m sure the journey would be an enriching one, both financially and intellectually. On this note, I wish all of you the very best in your future.


Thank you very much.