Malaysian early-stage tech startup influencer Cradle Fund Sdn Bhd targets to raise the funds of its equity co-investment partnership programme to MYR200 million ($50.92 million) this year, with 10 more co-investment partners to come on board.
The fund size currently stands at MYR158.4 million, raised together with 20 co-investment partners since the last quarter of 2014.
The government-driven agency’s co-investment partnership programme works on a one-to-one matching basis, in which Cradle will match the funds raised by co-investors. This means Cradle has committed MYR79.2 million to the total funds to-date.
Of the funds allocated by its co-investment partners, 56 per cent were contributed by foreign venture capital firms.
The agency also said it targets to announce another nine deals this year, under this programme.
Last year, there were three deals announced – a combined $550,000 invested in MauKerja.my and SyncMedia with OSK Ventures International, and a $500,000 deal with Singapore’s KK Fund in Be Malas.
Cradle chief executive officer Nazrin Hassan said the spurt in deal numbers targeted this year was due to the long gestation period foreign co-investors needed to finalise their deals under the programme.
“We had targeted to seal seven deals in 2015, but many of the deals were in the gestation period. What we realised is we underestimated the period needed for regional investors to actually put in money for a deal they like as they only come in once every three months. They take anything between six to 18 months for a deal to happen,” Hassan explained, adding that many of the deals under gestation from 2015 will come to fruition this year.
Cradle is also setting up an outpost in Penang next month, expanding its reach to one of the secondary cities it identified for tech startup growth in Malaysia. The other city is Johor, in the southern part of Peninsular Malaysia, across from Singapore.
“Penang has provided the second largest pool of applicants for Cradle grants, that’s why we have decided to extend our scope of services here. We have noted that Penang has good entrepreneurs who complete their projects on time,” he said, meeting selected media during Cradle’s roadshow to Penang.
Hassan also pointed out that Penang’s main difference from Kuala Lumpur is that it already has an ecosystem of multinational corporations in the technology sector to leverage on, with many B2B opportunities that tech startups can explore.
Grants to private investments
Cradle started out as a grant provider to early-stage tech startups in Malaysia, in 2003. It has approved MYR100 million worth of grants between 2003 and 2010. From 2011 until now, it has approved about MYR175 million worth of grants.
Since its establishment, the agency has approved over 600 prototype funding under its programme, and more than 120 commercialisation funding.
The total amount of funded under the CIP Catalyst grants reached MYR60.55 million to-date, while MYR86.51 million worth of CIP 500 grants were disbursed.
The agency is allocated MYR30 million for grant provision annually, although this is not a fixed amount.
Cradle offers two types of conditional grants-pre-seed (CIP Catalyst & U-CIP Catalyst) and seed (CIP 500). The pre-seed grants offer funding of up to MYR150,000 to teams of individuals to develop their innovative technology ideas into prototypes or proof-of-concepts; whilst the seed grant offers funding of up to MYR500,000 to help Malaysian start-up companies with innovative technology products/services to attain commercialisation.
Of its prototype funding grant recipients, 63 per cent had progressed into commercialisation, which Hassan pointed out is the highest rate among similar government agencies, where the typical rate ranges around 20 per cent.
Hassan also pointed out that 16.5 per cent of the CIP 500 grant recipients have gone on to raise further funding from venture capital firms.
In 2014, Cradle began its move towards an investor role, launching its co-investment partnership programme, under which it also takes a stake in the companies co-invested.
In 2015, it launched the Cradle Seed Ventures, which targets seed funding for local tech startups, with a mandate to allocate 30 per cent of its initial MYR40 million fund, CSVF-1, to foreign investments.
“Cradle’s approach has always been one that is market-driven, we dispense funds via the government but we also build up the private investment side. Most government agencies do not do this as it may not be advantageous to them. For us, we believe in a healthy ecosystem where investments are driven by private players, because if we only have the government funding the early-stage tech space, we will have a net outflow of these startups to Singapore,” he noted, referring to regional ride-hailing company Grab, which was a Cradle grant recipient in its early days and had gone to Singapore for further funding as it grew.