Malaysia Venture Capital Management Bhd (MAVCAP) plans to announce a $50 million first close for two of its funds that will be launched this year — Asean Growth Fund (Meranti Fund) and Global Islamic Economy Fund, and the combined size of the two vehicles will be about $450 million, a top executive with the government-owned venture capital firm told this portal in an interaction.
MAVCAP, whose model involves partnering established VCs is currently on the road raising money, and is on track to hit the first close for the $200 million Asean Growth Fund, a vehicle it is jointly launching with China-based Gobi Partners, MAVCAP CEO Jamaludin Bujang told DEALSTREETASIA in an interaction.
This vehicle, that will be termed Meranti (the tallest known tree in the tropical rain forest), will focus on later stage funding for technology related growth stage companies in Malaysia and the Southeast Asia, and follows Asean Growth Fund III that MAVCAP had raised with Gobi, he said.
“The target size is $200 million. We are very confident that we will be able to raise that $200 million,” Bujang added in an interaction with DEALSTREETASIA.
Further, MAVCAP is also on track to launch a second fund 2017 – a $250 million global Islamic economy vehicle for which it is partnering with Silicon Valley-based Elixir Capital, and it expects to see the first close of this vehicle by third quarter of this year, a little delayed from the earlier target of middle of the year amid discussions taking longer, Bujang added.
In fact, MAVCAP is weighing options for the Islamic fund that is looking to invest in Shariah compliant and Halal sectors. “We are also considering options of doing it alone by ourselves. I don’t know if we can find a new partner. We are more fluid when it comes to the Islamic fund. I am targeting to launch hopefully by third quarter of this and worst by end of this year,” Bujang said.
MAVCAP, that is one of the oldest VCs in Malaysia and had been given the task of developing the venture capital industry in the country gets an allocation from the government. However, with a move to reduce this allocation, MAVCAP has started raising its own funds in recent years. Earlier it had jointly raised an Asean Growth Fund III with Gobi and ECM Straits Fund I with Elixir. It also an Limited Partner (LP) in funds like Axiata Digital Innovation Fund and 500 Durians, the Asean-focused fund from 500 Startups.
“We realize that eventually they (government) will stop (funding) so we have to go out and raise our own funds. Actually, it is timely as well because after being around for over 10 years, we cannot to rely on the government for money anymore,” Bujang said.
Scouting for a Clean-tech fund
Apart from the Asean Growth Fund and the Islamic fund, MAVCAP is also working on a clean-tech fund that will look to invest in companies that help reduce environmental stress or negative effects.
The clean-tech fund could have a targeted corpus of anywhere between $50-$100 million and it could be even higher, Bujang said.
“We are trying to talk to potential Limited Partners (LPs) from China on the clean-tech fund. So far the response has been good. We will manage that fund,” said Bujang.
According to a study from KPMG, globally, the clean-tech industry is worth about $3 trillion and is expected to grow further. Moreover, with many Asian cities being hailed as most polluted, clean-tech industry is expected to further grow in the region.
“If I can do $50 million, I will be very happy…the structure is such that we may put some equity but we may put more on the debt side. So we can leverage and work with banks. We went to China in January to meet some Limited Partner (LP) and they were very interested,” Bujang noted.
As MAVCAP started partnering with other VCs for investing, many in the industry regard it as an LP for all practical purposes instead of a venture capital firm itself. That said, it is in fact true that MAVCAP has reduced its direct funding now.The arrangement, according to Bujang was based on a strategy where they could build on the regional experience of other VCs and do not end up competing to invest in the same companies.
“Whether we want to become a Limited Partner or a General Partner is a perception that we want to repair a bit. We are not going to put money in a fund as an LP only. We want to be a Co-GP…so we want to make sure we are Co-GP as well unless the fund is very specific,” the MAVCAP CEO pointed out.
He explained if a firm were to come to MAVCAP just for money, chances are that it would not partner with it.”That is a perception that we want to correct. Eventually when all these funds close and we have a lot of money, we can focus on just being LPs”.
According to Bujang, the first round for MAVCAP was when it would get funded by the government, and the second was to develop the venture capital industry in the country. Now, the firm is looking at being successful in its investments.
However, social obligations will remain a part of their activities but eventually, the firm hopes to be self sustained. “Whether you are owned by the government or not, you have to be a true VC. You cannot keep destroying your value. Very least, is to maintain the capital,” he said.
The firm is looking at IRR between 5 to 10 per cent for its investments. Even though the number does not sound very attractive, Bujang said that a practical target would be at that level.With this he added there was always a concern about exits as in Malaysia and the region, exit is always a challenge and that is where the firm could get its IRR boost.
“Situation where you can exit very easily at good valuation will come in five years. Malaysian corporates and many others, even now they do not invest in tech companies. We will see that in 5 years time and then we can get good valuation,” he said.
Noting that the Asian tech industry is in a transition period at the moment, he added that the next few years are going to be interesting and there was no reason why the regional tech firms should not do well.
Meanwhile, MAVCAP is also mulling to set up an office in Jakarta followed by other active destinations in the region in a bid to expand regionally. “We are considering setting up in other countries as well where they can raise independently. That office has a source of deal-flow for the fund,” Bujang said.
Valuations and Capital
With regard to valuations, the MAVCAP chief executive said that it could remain at the current levels for this year. At the same time, he also noted that since last year, the valuations have become more sober and were plateauing currently.
“We have some example on companies that got stuck on valuation. It is invested by some of our partners before. If you had raised at very high valuation two years ago, good luck. When I joined this company five years ago the average investment for a series A was MYR 3 million, now it is the same amount in US$. We have seen a lot of companies where matrix could not support the valuation,” he noted.
On this region’s prospects, Bujang said that capital from China and US would find its way into Asean, and added that VC firms here were expected to do well, if they picked the right startups.
“I think SEA with its 600 million population provides and opportunity. Good thing is Indonesia will also provide the growth story,” he added.