YBhg Dato’ Zarinah Anwar
Chairman, Malaysian Venture Capital Development Council
Venture Capital Investors Forum 2006
Monday, 21 August 2006
Securities Commission, Kuala Lumpur
Ladies and Gentlemen,
1. Welcome to the inaugural Venture Capital Investors forum organized by the Malaysian Venture Capital Development Council (MVCDC). Today’s forum marks the first public foray by the Council and it is indeed an honour for me to speak today as the Chair of a Council represented by distinguished and experienced professionals from the public and private sector. I am also pleased to see such a great interest among today’s participants, the majority of whom are eminent investment and lending managers from different organisations within Malaysia, on the opportunities available in venture capital investments. I hope this is a testament to the growing interest among institutional investors to identify alternative investment avenues as part of their strategy to attain the added benefits of diversification.
2. We hope to achieve two main objectives at today’s forum. The first, to promote greater awareness and participation of investors and entrepreneurs in the fast growing venture capital industry. The second, and most important, to work with investment managers like yourselves to identify the challenges, difficulties and hurdles faced with regards to venture capital investments. Your feedback today would be an important component in MVCDC’s continuing efforts to develop strategies to promote the venture capital industry.
The role of MVCDC in promoting VC towards developing the capital market and the greater economy
3. In recognition of the crucial role of venture capital for economic and capital market development, the government formed MVCDC early last year under the chairmanship of the Securities Commission. MVCDC operates as a one-stop body to ensure a coordinated implementation of the relevant strategies and initiatives for the venture capital industry.
4. The Council, whose members comprise policymakers and venture capital professionals, is entrusted to provide the strategic vision and direction for the development of the venture capital industry in Malaysia. It also serves as a bridge that connects policymakers and industry professionals to facilitate the creation of an optimal business environment for venture capital activities. Since its formation, the Council has formulated long term strategies to further develop the industry including recommending new measures to enhance the effectiveness of incentives and financial grants and to encourage greater involvement of the private sector.
Increasing private-sector involvement – moving away from Government-financed VC
5. It is this private sector role that MVCDC hopes to cultivate. The Government has long been a supporter and financier for venture capital as an alternative and integral funding mechanism for critical growth areas, directly through subsidies or indirectly through participation in private sector projects. This has been reaffirmed by the Ninth Malaysia Plan allocation of RM1.6 billion, a whopping increase over the RM690 million allocated in the last plan for venture capital to bridge the crucial financing gap at early stages of enterprise development.
6. With the government’s commitment, a facilitative regulatory and tax framework for venture capital companies and venture capital management companies coordinated by the SC and exit opportunity through the exchange-traded equity market such as MESDAQ, we believe that the time is right for the private sector to play a bigger role to augment the government’s efforts in providing the fund flow. 1
The VC industry – tremendous growth and investment opportunity
Ladies and gentlemen,
7. Let me share with you the tremendous growth and investment opportunities afforded by VC investments. The growth of the venture capital industry in Malaysia has been on a positive track. As at end 2005, the number of committed funds has risen to RM2.6 billion from RM2.1 billion in 2003. The number of investee companies have also grown by 30% since 2003.
8. Statistics also show that the private sector is fast taking over the role of Government as the prime source for these funds. It has become more apparent, that we are now experiencing a strong acceptance of venture capital, as an alternative vehicle into the mainstream capital market products of debt, equity and derivative instruments.
9. In Europe and the US, VC funds are financed by large institutional investors and banking institutions, respectively. However, if we look at it on a percentage scale, institutional investors (pension funds and insurance companies) in the case of the US, are the key actors, accounting for as much as 40% of VC finance . 2
10. It is interesting to note that the development of the VC industry in the States has been private sector led even from the beginning. Prior to World War II, venture capital was the purview of wealthy individuals and families before being superseded by specialist small-business investment firms plugging the financing gap for long term funding of high growth small businesses.
11. Back home, Malaysian banks, insurance companies and pension funds accounts for only 17% of the total VC funds as at 2005. Taking this as a benchmark, private institutional involvement in venture capital in Malaysia definitely has room to grow.
Shifting VC financing sources from government to private
13. Institutional investors today are on an avid search for high-yielding investments beyond public equities. Even the most prudent of entities, the pension funds, are already changing their mandates, to include or increase their allocations to alternative investments — primarily venture capital funds, buy-out funds and other kinds of private equity funds to achieve annual return targets in order to meet their obligations to retirees.
14. In this regard, our own provident fund the EPF whose fund size now stands at RM276 billion, has allocated about RM1 billion for investment in private equity. The fund is now developing new multi-channels for investment, in particular into properties and private equities. To date, it has started a broad-based effort to increase its investments by conducting due diligence audit into five more companies that it may invest in.
15. Similarly, it has been reported that Temasek Holdings of Singapore has invested in buyout and growth capital funds, mezzanine funds, debt funds, technology venture capital funds and life sciences venture funds. It is hoped that the example set by these leading institutions can be emulated by others.
16. The market for investments is certainly a market based on information. Although I believe that professional fund managers like yourselves are well versed with the intricacies of evaluating investment opportunities including venture capital investments, the Council has recognized the information gap between investees and investors.
Facilitating information infrastructure for investors
Ladies and Gentlemen,
18. Amateurs see returns, but true professionals see risks. It is fundamental that every fund manager must be able to value the risk associated with each venture capital investment proposals. One of the tools to manage this risk is to be able to obtain updated and reliable source of information on the performance of venture capital companies. For this reason, the MVCDC has set up an on-line portal giving the list all registered VC companies in the country. In due course, the list will be expanded to include detailed information about each of the VC company, their specialties and the latest information they can offer for you, fund managers to make an informed investment decision.
19. Apart from helping the fund managers, the MVCDC portal will also be developed to function as an eco-system to the VC industry, equipped with a search engine that is capable to provide information on research findings ready to be taken up for commercialization by entrepreneurs. By having the list of VC companies with their respective specialties in funding new ventures and matching them with the entrepreneurs desire to set up new business, it is MVCDC’s strong hope that fund managers would utilise this portal as a single reference point in their process of searching for good venture capital investments.
Ladies and Gentlemen,
20. With the ability to manage higher investment risks, we certainly hope to see more private sector investment in venture capital in order to leverage on the potential returns from VC investments. The MVCDC, the SC and the Government are providing and will continue to provide commitment to ensure the necessary support, infrastructure and information flow are accessible to all who wish to be part of this exciting and high growth industry.
21. This forum is the first among many steps to be taken, and I hope you will enjoy this event, and leave with the same enthusiasm that I have in the possibilities and opportunities of Malaysian venture capital. I look forward to the panel presentation as well as outcome of the breakout sessions after that. On that note, I wish everyone a fruitful discussion and let the deliberations begin!
1 Legal and regulatory infrastructure is equally crucial for development of a local VC industry or as an attraction of foreign equity. In this regard, the SC had structured the regulatory framework for VCCs and VCMCs to be in “light touch” mode, through mere registration method. Further, venture capital companies registered with the SC are granted an income tax exemption from the IRB if they invest 70% of their funds in investee companies that are at seed, start-up, or at the early stage levels. This exemption applies to statutory income earned from investments in promoted activities of the Government – such as in ICT and biotechnology ventures.