An interesting observation was made by the CEO of Malaysia Venture Capital Bhd (Mavcap), Norazharuddin Abu Taib or Jap as he is known. When announcing the launch of its Second Outsource Partner programme, he said the number of deals Mavcap had seen had dropped.
That may be no big deal as it could be a blip, or it could be a sign that there are fewer entrepreneurs coming out, worrying if true.
For supporters of the latter theory, the fact that the Cradle Investment programme had lost much of its steam over the past two years has something to do with the lack of deal flow (see page 6, An update from Cradle).
The story of Cradle, the idea fund that was supposed to be a seed fund, is one of passion, selflessness, and of being loved and then neglected by the same reluctant parent.
Its turbulent journey as a programme conceived to help fan the dreams of entrepreneurism in Malaysia will now be coming full circle. A company called Cradle Fund Sdn Bhd has been established, and will be run as an independent set-up, as was originally conceived in 2003. According to sources, it will be allowed to give out grants of RM100,000, up from the current RM50,000. This is pending a Ministry of Finance (MoF) decision.
For the Technopreneurs Association of Malaysia (TEAM), it fuels hope that Cradle will soar again. Its wings had been clipped the last two years, resulting in little activity and a trickling of applications, and subsequent approvals for grants.
But let's start with the passion. "There is no glamour in running a developmental programme like Cradle," says a source familiar with the programme. "There is no excitement of an exit strategy or listing," he says. "As a result, one needs a different skill set and passion because it cannot be seen as just a job," adds the source, who was key to its early success but did not wish to be quoted for this article.
Indeed, passion was what drove TEAM to unrelentingly lobby the government, even though many did not understand the need or even concept of developmental funding then. The core group that helped create Cradle was Tengku Farith Rithauddeen, Christopher Chan, Renuka Sena, Dr Wilson Tay, Nazrin Hassan and Roslan Bakri Zakaria of New Economy Forum, another industry group.
There was also a strong streak of selflessness among them as, being entrepreneurs themselves, they would have loved to get their hands on the money for their own ventures. But these entrepreneurs saw that in the fledgling Malaysian ICT venture capital ecosystem, there was a greater need for money to support entrepreneurs at the seed level, which they defined as being anywhere from RM100,000 to RM1 million. The premise being that these people, at least the successful ones, would have moved the business to the next level and be ready for the next stage of funding that would run into the millions.
In mature and more risk-receptive markets, high net-worth individuals or angel investors, together with supportive government tax measures, fill the gap where few venture capitalists (VCs) are keen to go. With Malaysia clearly not being ready for this, they had to turn to the only other viable source, the government.
But as with many things in Malaysia, especially when dealing with government, compromises had to be made once they got approval for their RM100 million development fund.
From Cradle being a fund that would grant entrepreneurs up to RM250,000, it was agreed that the amount be set at RM50,000 to give more people a chance. But it was also implied that Cradle would in, Phase 2, go back to its original plan of granting up to RM250,000.
Alas, there was no specific time frame set for Phase 2 and Cradle was also put under a MoF company to pilot the programme. Mavcap, set up in April 2001 with RM500 million by the MoF to help create a vibrant venture capital industry, was asked to oversee Cradle. "Mavcap was supposed to be a caretaker with the understanding that Cradle would eventually run on its own," says the source.
This worked out fine while Mavcap was under the leadership of former CEO Mohd Azwar Mahmud, who believed developmental funding was part of his mandate to grow the industry.
Indeed, in an interview with netv@lue2.0 in 2003, he acknowledged the important funnel role Cradle could play to help create entrepreneurs that Mavcap would be able to fund.
But a pivotal moment came when Azwar was sacked in April 2004 and current Mavcap CEO, Jap, came in. Industry observers and TEAM say Jap did not share Azwar's interest in Cradle as he believed Mavcap should stick to developing the venture capital industry development and not be a technopreneur developer. As it was only in August that Jap took over from Azwar, many things were left hanging during the four-month lag and sorting them out and adjusting to the new role consumed Jap's time. According to insiders, Mavcap's chief financial officer then took charge of Cradle.
According to former Cradle staff, the CFO did not believe in developmental funding, nor the independent running of Cradle, which, by then, had formed a strong team and was moving fast. "He started putting in so many procedures which slowed us down," says a former Cradle member. The CFO even attempted to convert the Cradle grant into a loan.
Another pivotal moment came in December 2004 when it was decided that Mavcap would take over the running of Cradle. Subsequently, many members of the core team left as there was no clear indication what Mavcap wanted to do with Cradle. Another push factor was that their two-year contracts, which were up, were replaced with rolling one-to-three month contracts while Cradle's future was being sorted out.
Almost nothing moved for a full year after. A programme that was acknowledged as working, bold and innovative almost came to a halt, while many of its key people left.
There were other issues as well. Money for one. According to people familiar with the situation, while Cradle was promised RM100 million, it took almost two years before MoF gave the programme RM30 million. In the interim, Mavcap had used its own funds to start Cradle and allow it to operate for the first two years. "People can't say Mavcap was not supportive when it was the one that actually gave life to the plans that Cradle had. The operating budget and grants that were given out came from them and, strictly speaking, Mavcap funds were not meant for this," says the person familiar with the situation.
And then, within MoF itself, there was a lot of transition. Officers were either transferred while others retired, and it took time to gain buy-in from the new officers overseeing Cradle and an understanding of what it was doing.
But hopefully, once MoF gives the go-ahead, Cradle can operate independently and regain the momentum it had in its first two years and hopefully start to funnel some deals the VCs will want to bite into.