What are Cradle Fund’s overall objectives?
HASSAN: Cradle is one of the agencies under the Ministry of Finance. We are a wholly owned subsidiary of the Ministry of Finance. We provide technology grants for companies at the very earliest of stages, at the ideas level, and at the commercialization level. Currently, we are the grant provider with the highest commercialization rate in the country, at about 55%. Our commercialization funds are doing fairly well. We have also been successful with funding companies that are gaining the next round of investments, with 15% of our commercialization grant recipients being able to secure the next round of funding. For an Asian country where sources of private funding are still scarce, it’s a healthy rate of success.
What are some of the success stories from companies that you have been involved with?
HASSAN: We have had many success stories. One that I am particularly keeping my eye on is a company that is focused on recycled rubber. This company is able to take rubber waste and convert it back into almost virgin compound rubber. This will somewhat revolutionize the tire industry. They are currently in talks with a few international venture capitalists in the United States. We are looking forward to hearing some investment news from them soon.
What is you annual level of investment and how do you see this evolving over the next 2-5 years?
HASSAN: Currently, we are investing roughly MYR 20m ($6.2m) per year and we expect that the growth rate will remain quite constant. We are not really chasing for larger funds. At the end of the day, for us, it is more about the quality of the outcome after we fund them and the quality of the deals that we fund. We must take into consideration how far companies can go after commercialization, if they are able to raise the next round of investments, and if they can venture into new markets. As of right now, I think we have the right amount of funds to ensure that enough quality deals come through every year. For us, this is important because we are the earliest stage funder and we are a very important pipeline to the venture capital industry in the country.
Where are the best opportunities for investment in Malaysia?
HASSAN:I think that it is difficult to say which sectors are the best for investments. Each company that we invest in is different. We must take into account what it is that the company does and if it will be able to execute with the opportunity that we give them. I do not think that you can say one particular sector is stronger or weaker than another for investments. Having said that, there is a natural tendency in the country for deal flows to be based in ICT, biotechnology, or life sciences. These are natural strength areas in Malaysia. Furthermore, we see a lot of entrepreneurs in this space. In fact, most of our success stories stem from companies that are from one of these areas. Our deal flows are not only getting interest from local investors, but also regional investors too – from Singapore, Hong Kong and India.
To what extent does the hard and soft infrastructure that is in place in Malaysia enable entrepreneurs to succeed?
HASSAN: I believe that the government has played a key role in providing the hard infrastructure for the country. We would not have the building capability if it were not for the government’s technology initiatives. We must acknowledge the fact that, in any developing country, the government does play a role in moving some of the new sectors. However, there comes a point in time when government intervention must be balanced out with private sector participation. This will help us achieve a better growth rate. The government can seed new industries but at the end of the day, we must bring in more private sector participation in order to help the quality of growth. I believe that the quality of successes will be far better with the participation of more angel investors. These investors bring with them a certain expertise, network, and resources that can add value and help companies grow.
The venture capital space itself is weakening globally. A lot of the venture capital companies in Malaysia have also migrated to private equity. At the moment, there are less than 10 venture capital companies in the country that are still active in the venture capital space. Majority of these companies and funds are government owned or at least, partially Government-funded.
From a private sector perspective, are there enough angel investors and venture capitals present in the region?
HASSAN: Right now, there is a challenge globally when it comes to venture capital. The days of venture capital being able to easily get money from pension funds are over. In fact, in our conference many of the speakers from the western countries have stated that venture capital is either half dead or dead and that they have now migrated to private equity. The venture capital space itself is weakening globally. A lot of the venture capital companies in Malaysia have also migrated to private equity. At the moment, there are less than 10 venture capital companies in the country that are still active in the venture capital space. Majority of these companies and funds are government owned or at least, partially Government-funded. To a certain extent, the flow of funding in the venture capital space will be sustained by the government. In fact, we are seeing the same thing happening in the UK, where they are beginning to provide direct Government support to their venture capital space. The point to note is that angel investors will play a more prominent role with funding in the early stages, the growth stage, and even the expansion stage. We have seen these patterns happen already as more venture capital companies start to roll back their involvement into the much later stages or into private equity. More of the angel investors are syndicating their funds together as well as providing larger funding by themselves. This is the new trend. I believe the angels will take over, at the very least, the earlier half of the funding ecosystem.
Why is the Asian Business Angel Forum (ABAF) significant?
HASSAN: I think the ABAF (Asian Business Angel Forum) is important because it brings together most of the regional players in Asia. Given that a lot of the countries in Asia are still in a developing stage, I believe that there is a need for an international platform where we can share our common issues on growing innovations and high growth companies. We need to head towards a regional strategy. The days of everyone implementing their own national strategies and hoping to compete with each other are over –we all need a better overall growth strategy, to bring us to the next level. As ASEAN heads towards 2015 and the liberalization of the markets, we must find a way to make it work for us. We have to find a way to work together so that we can all be further enriched by the opening of the markets. Unless these relationships are put into place, total enrichment will not happen. We have to construct linkages with each other and build on our own mutual strengths. Furthermore, we must also eliminate our mutual weaknesses. I believe that we will perform better on a regional strategy as opposed to a stand-alone national strategy.