Cradle Fund has launched its venture capital (VC) arm, Cradle Seed Ventures (CSV), targeting a total fund size of MYR100 million ($27 million) to invest in 15 portfolio companies in the pre-Series A and Series A stage.
CSV’s Cradle Seed Venture Fund 1 has an initial fund of MYR40 million ($10.8 million), and the firm hopes to raise another MYR60 million ($16.2 million) from local and foreign private sector partners.
CSV CEO Aziz Hussein said the firm is aiming to close the fund at MYR100 million in approximately 12 months.
In 2013, Bursa Malaysia listed technology company MyEG Services had announced it was contributing MYR20 million to the fund. This, however, was not confirmed again at today’s launch.
“We did have an memorandum of understanding signed between Cradle and MyEG about 18 month ago. Since then, Cradle has taken a lot of feedback from private parties and other stakeholders in setting up this fund and we had to restructure the whole idea (of CSV) to move forward,” he said.
“Hence what we are starting the fund now and inviting other parties to come in, to make it easier than to talk to multiple parties separately,” he said, adding that CSV was still engaging MyEG.
CSV targets to hold a portfolio of 12 to 15 companies.
“Over the next 24 months, we think we would be able to find six to eight startups to invest in. The fund is a ten-year fund, of which five years will be the investment period. We do plan to stretch it out to year three or year four,” Aziz said.
Prior to this, Cradle had initiated co-investment partnerships through which Cradle invests up to MYR500,000 per deal, and the amount is matched by its co-investing partner.
CSV, however, targets larger investments of between MYR1 million and MYR3 million ($300,000 to $1 million) per portfolio company, mainly in the pre-Series A and Series A space.
Aziz said by having CSV, startups will have more funding options to choose from, “whether they would like to work with the Cradle Fund co-investment partners, or if they prefer to tap into CSV’s skill set”.
“Depending on structure and terms to be negotiated, CSV may co-invest with other investors as and when the need arises, (to) allow CSV to better manage, add value and share the risk, on top of leveraging on each other’s network and expertise,” a media brief for the launch stated.
The investments under CSV are directly injected into the portfolio company for equity participation and is to be disbursed based on milestones that would be pre-agreed.
Cradle will still provide grants and in some cases, equity funding, to companies at the earlier seed stages.
Deals in the works
CSV is looking at 41 companies at the moment, with eight undergoing detailed tracking and two deals targeted for the year-end.
“We have discussed some terms with a couple of companies but have not entered the negotiation stage yet,” Aziz said.
The firm will focus on internet and mobile technology businesses, software and enterprise solutions, and hardware and engineering. Aziz said over 90 percent of the deals CSV is considering now are in the e-commerce marketplace or technology provider segment.
It is open to investing in foreign startups, with a geographical cap of 30 per cent foreign deals in its portfolio.
“Most VCs are specialised in their verticals. We do not plan to focus 100 per cent on e-commerce businesses. E-commerce now provides a lot of targets for investment but hopefully we will manage to find startups that leverage on Malaysia’s manufacturing skills to come up with some hardware,” he said.
Of the 41 deals it is currently looking at, Aziz said two were foreign startups – one was from around Asean and the other outside of the region.
“We found these companies interesting but our strategy will most likely be focused in Asean, for strategic purposes,” he told the press.
He added that CSV will start off investing in local companies.
CSV is wholly-owned by Cradle Fund, but it is distinguished as a separate entity, whose funds from the Ministry of Finance are separate from the funds Cradle uses for its current programmes.
Cradle CEO Nazrin Hassan said this was to enable the venture capital firm to run independently, focusing only on cutting deals and managing its portfolio. This, he said, was to assure the LPs who commit their investments that their funds are deployed for deals.
“Cradle is the strategic influencer in the very early stage. We provide grants, coaching, and all that which LPs are not looking to invest in,” he explained.
CSV will also play a role in plugging the outflow of deals, as many local startups have gone to Singapore in search of Series A funding.
“I would say we are giving them a local option, because prior to CSV’s launch, there is no local option after Cradle’s early stage initiatives. All the other VCs have run out of Series A, they want to do Series B onwards,” he said.
“We believe that by providing this Series A funding, we would be able to retain more deals in the country. If they raise their Series A in Malaysia, they are likely to continue their other rounds of funding in Malaysia. Even if the startups went to Singapore for future fundraising, they would still remain here,” Nazrin commented.