The venture into risk capital

I have now served over 10 years of my life in the early stage development in the technology entrepreneur sphere, starting from plunging myself into entrepreneurship when I was 21 and receiving my first venture capital investment of 1 million Ringgit at the age of 25.

The early years being on the other side of the fence (receiving side) was somewhat different , in contrast I spent the later half of the 10 on the other side of the fence in early stage funding, giving pre seed grants and moved on to facilitating and nurturing early stage companies into the market.

For what its worth there are peers like me , and there are individuals with greater experience building companies out there. how I view things now and how I view things in those early days somewhat differs , the view you have from the entrepreneurial sit at a conference and the view you have from the speakers seat representing Government agencies in early stage funding is never the same.

However both has it weaknesses and strength , as much. I would like to delve into the weakness of our entrepreneurial ecosystem that creates somewhat a lower culture for entrepreneurship , what I will do in this note is to highlight what is wrong about our risk capital ecosystem in Malaysia.

It is all bout understanding what risk capital is all about!

What are we actually dealing with when we plunge ourselves into the venture capital industry, it all started with the Multimedia Super Corridor, we identified that there need to be a financing mechanism for growth in innovation, modeled after the success of Silicon Valley, my bosses and big bosses back then launched a Malaysian Government effort and MAVCAP was introduced together with MESDAQ a replica model of VC and Nasdaq . A great effort although I was to way down the hierarchy of the organization structure to really know how they planned it.



Almost 16 years later today , we have now a government backed Venture Capital ecosystem our one journey took a minimum of 2 cycles everywhere else around the world . friends , individuals and venture capitalist in Malaysia was majority headhunted from banks and private equity firms . the American VC model has gone many cycles , change business models and still we have yet the success that we hope we had. However entrepreneurs and Venture Capitalist will argue about success and quality of deal flows that brings me to my personal observation which I hope to simplify in these few paragraphs below :

Does the industry really understand what risk capital is all about?
have you ever asked a local VC , what is the purpose of their existence and what is their risk appetite?
amazon.com is an example of a venture that benefitted from a healthy risk capital model. It went hyped, busted and went it was black again it was again in the highlights o the media , and why I quote Amazon , is that
1. they did not have a proven business model to begin with
2. it went through a full cycle from seed financing all the way to IPO
3. Only after it is well capitalized that it started to go DOWN
4. but what Amazon have was enough money to hold on to prove their untested
business model
5. Amazon held on with sufficient money until it turn black and the company is
now profitable.

Obviously there are many more factors then what I described , a good team to make it black , a good ecosystem of funders at every stage of the growth and obviously active NASDAQ market and booming mergers and acquisition ecosystem.And off course a sustainable market place to operate.


All the above is the result of a working risk capital infrastructure. Which leads me to some questions we should ask ourselves about Malaysia.
1. have we capitalized a company at the Idea stage and nurtured it into black with sufficient capitalization on a solid financing at different levels of growth?
2. Do we have a solid business model post investment ( which means that the business model needs to be contributed by the investing VC) that we are able to push companies to the black? if we didn't have enough market why isn't local VC investing early into regional game plan from day one?

3. We don't have the talents? Jerry Yang or the google guys did not have the talents to build yahoo or google to where they are right now? the talent came from the VC ecosystem.
4. Do we have funders at every growth stage of the company, If we did do they really understand the whole risk capital game plan?
5. is the Government doing too much? Funding the entire risk capital mechanism? From grants to Venture Capital?
6. is our local homegrown big boys into acquiring talented new startups to create a healthy mergers & Acquisition ecosystem?
7. Is the mentoring done by the local VC sufficient ? Did the companies improved and went onto the black post having a VC in the company?

the point is these are upon many of the crucial points towards risk capital development and till today I learnt that the risk capital infrastructure has a collateral......... Like the bank loans need a collateral from you when you borrow money...... the Risk capital's collateral is somewhat different the collateral is not from the entrepreneur but the collateral is to be given by the VC .....the collateral is .....MENTORING.....

after all these years in early stage development , that was what we did in Cradle we emphasized on developmental nurturing even when we evaluated who to give the grants to and all the way after we gave them the money...we never stop MENTORING....

.....to be continued.......