Keynote Address at 2005 Asian Venture Forum
22 September 2005 |   By : YBhg Dato' Zarinah Anwar, Deputy Chief Executive, Securities Commission
Keynote Address

YBhg Dato' Zarinah Anwar
Deputy Chief Executive
Securities Commission, Malaysia

at the
2005 Asian Venture Forum
22 September 2005
Kuala Lumpur

1. Let me first congratulate the organisers of the Forum for this very significant event in the Asian venture capital calendar. It is an honour to be invited to deliver a keynote address to a large group of experts in the field of venture capital. I wish foreign speakers and participants a warm welcome to Malaysia and I sincerely hope that members of the venture capital community would capitalise on this opportunity to learn and to exchange ideas and experience. I also strongly believe that the powers of networking derived from forums such as this would be the best tool to bind us together as a community.

2. Let me start with some facts and figures with respect to venture capital. I am sure these are not new to the venture capital community. Even so, I think they will set the background for discussions at this Forum.

3. The first set of fact and figures is from the US, the cradle of the venture capital industry. According to Venture Impact 2004, a report on Venture Capital Benefits to the US Economy;

  • venture capital-backed companies employed more than 10 million workers and generated $1.8 trillion in sales in 2003.
  • between 2000 and 2003, employment by venture backed companies jumped by 6.5% while national private sector employment shrank by 2.3%. Venture capital backed company sales grew by nearly 12% compared to an overall rise in US company sales of 6.5%.
  • The venture capital industry supports growth of breeder industries especially those with heavy emphasis on R&D like Biotechnology and healthcare, and
  • Underpins leading edge Research and Development.

4. The second set of facts and figures is from a 2004 report on The Vital Role of Venture Capital in Life Science Innovation, commissioned by the US National Venture Capital Association. According to the Report;

  • More than 100 million (1 out of 3) Americans have been positively affected by venture backed medical innovations during the past 20 years.
  • More than 70 million Americans have had their lives extended or quality of life improved as a direct result of venture backed diagnostic and therapeutic innovation.
  • Product revenues provide a return of over $50 for every venture dollar invested in recent launched products and as much as $750 for products introduced 10-15 years ago.

5. In 2003 APEC released a report on Venture Capital in the APEC Economies;

  1. It was reported that Venture capital funds raised and invested in this region increased dramatically in the period following the Asian Financial Crisis of 1997. Total funds raised more than doubled in the three years after the crisis.
  2. However the role of venture capital financing in Asia differs somewhat from the typical role played in the US. While venture capital funds in the US are typically employed to finance start-up and growing firms in high technology industries, in Asia, more venture capital funds are directed towards economic restructuring of traditional industries. The study found that many Asian economies have one or more of their five highest concentrations of venture capital in financial services, consumer services, agriculture, infrastructure and heavy manufacturing. Except for China, Malaysia, Chinese Taipei and Singapore, all the economies invest more than 50% of the venture capital in these traditional industries.

6. These data demonstrate the importance of restructuring in venture capital financing in many economies of the Asia Pacific region. The compelling case for promoting venture capital not merely as a necessary source of early stage funding for innovation, but as an industry of national strategic importance which can contribute significantly towards nourishing the economies of most developing countries, is clear.

7. It is encouraging to note therefore that developing countries particularly in Asia have undertaken radical reforms to facilitate the growth of the venture capital industry, including introducing new legislation to facilitate venture capital investments, reviewing the tax framework to provide special incentives and relaxing restrictions on foreign investments in certain focus areas. External changes such as technological innovations, have also helped make these countries more attractive arenas for investment.

8. However as mentioned in the APEC Report, the level and effectiveness of government involvement in the venture capital industry varies from country to country. Let me take a moment to share with you Malaysia's efforts in this regard. Of course ours is only one of many approaches - but one that is considered appropriate given our needs and circumstances.

9. The Malaysian Government has always played an instrumental role in supporting the growth of the venture capital industry in Malaysia. In this respect, the Capital Market Masterplan, a 10-year strategic blueprint for the development of the capital market introduced in 2001, contains strategies and specific recommendations with respect to the development of the venture capital industry. Many of the specific recommendations have been implemented. Among others, venture capital companies have been granted the status of exempt dealer under securities laws, and a facilitative tax framework for the venture capital industry has been introduced. Significant allocation for VC financing has been made while the liberalising of listing rules on the MESDAQ Market has facilitated the listing of technology incubators.

10. The Malaysian Government also recognised the need to have a one-stop body to ensure a coordinated implementation of the relevant strategies and initiatives for the industry. This led to the formation of the Malaysian Venture Capital Development Council early this year under the chairmanship of the Securities Commission.

11. 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 early this year, 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.

12. There is still more work to be done. The issue of funding for seed and start-up companies need to be addressed. Intense global competition for market share means speed is essential in getting products to the market, thus the need to reduce the gestation period from discovery to commercialisation. But while there is still a lot more room for growth, I am pleased to say that as a result of proactive government involvement and facilitative policies, coupled with the enthusiasm and efforts of the venture capital professionals, the Malaysian venture capital industry has seen considerable growth over the past few years. As at the end of 2004, the number of registered venture capital companies and venture capital management companies operating in Malaysia stood at 72, an increase of 18% over 2003. The number of venture capital professionals increased from 153 to 195 while the number of companies receiving venture capital funding increased from 298 to 332 over the same period. Total committed funds also grew from RM2.11 billion to RM 2.27 billion over the same period.

13. Given favourable policy-driven initiatives to promote venture capital and the expectation of inflow of venture capital funds into the region, clearly the Asian venture capital industry can be expected to see strong growth in the near future. However it is also clear (and particularly so from the APEC Report), that favourable government policies alone will not be enough to take the industry to greater heights.

14. While the challenges are many, perhaps the most difficult ones are those that require a change of mindset and cultural mores. For instance, in a society that is still very concerned about the stigma of failure, how do we promote a culture that accepts failure? According to the Malaysian Venture Capital Association (MVCA) - out of 100 ventures being reviewed for funding, 20 will be short-listed and only 2 or 3 will be offered funding. How do we balance this stringent (and, I should add, necessarily so) evaluation process and the need to keep the entrepreneurial fire burning in the remaining 98 cases? In an environment with stringent bankruptcy and insolvency laws, and a culture that has little tolerance of failure, how do we promote acceptance that in venture capital, failure is a rite of passage? In contrast, in Silicon Valley it is sometimes said that one cannot be considered a serious player there until you have had at least one or two failures behind you!

15. The other challenge is the need to promote both an R&D as well as an entrepreneurial culture. The success of venture capital requires a convergence of these two capabilities so that the probability of research reaching commercialisation can be enhanced.

16. Yet another challenge is to encourage more institutional funds particularly those with longer-term investment horizons like pension and provident funds, to allocate more for venture capital investment.

17. Barriers like regulatory impediments can be removed, but the challenge is one of mindset again. In this regard, our own provident fund the EPF whose fund size now stands at RM250 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. 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 organisations can be emulated by others.

18. Finally as with other new areas, finding the appropriate human capital will continue to be a challenge. Efforts to promote the industry need to be complemented by efforts to enlarge the pool of human capital. In this regard, my call for industry is to invest in new talent, in providing appropriate training and development programmes to build capacity and enhance competencies. The Securities Commission through our Securities Industry Development Council stands ready and willing to work with industry in this effort.

19. I believe the collective wisdom of those present at this Forum will be able to address some if not all of these challenges.
On that note, I should end my speech and let your deliberations begin!

Thank you.
about the SC
The Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993 (SCA). We are a self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market.

General Line: +603-6204 8000
General Email: [email protected]
© Copyright Securities Commission Malaysia.  Contact Us   |    Disclaimer   |   The site is best viewed using Microsoft Edge and Google Chrome with minimum resolution of 1280x1024
Generic Popup