For a few years now, large corporates in Malaysia, like their counterparts elsewhere in Southeast Asia, have been sensing the potential benefits of investing in external startups.
Big companies — from state-owned oil giant Petroliam Nasional Bhd (Petronas) to the Sunway Group — have set up corporate venture capital (CVC) units and committed to investments in startups. The impact of the CVC initiatives, or corporate venturing, however, is still in the making as it’s still early days, say industry observers.
“In the past two to three years more startups have been working with corporates,” noted Malaysian Venture Capital and Private Equity Association (MVCA) former chairman Victor Chua. “Corporates are also showing interest in investing in startups,” he added.
Besides Petronas’s Petronas Ventures, and the Sunway Group’s two CVC units — Sunway Ventures and Sun SEA Capital — other notable CVC funds in Malaysia include Axiata Digital Innovation Fund, a technology venture fund founded by telecommunication firm Axiata Bhd; AirAsia Digital (formerly RedBeat Venture) set up by budget carrier AirAsia Group; and the Malaysian gaming firm Genting Group’s Genting Ventures.
Notable CVCs in Malaysia
|Parent Company||CVC||Size ($)||Year||Portfolio companies||Focus areas|
|OSK Holdings||OSK Ventures International (listed on ACE Market)||-||2000||4xLabs, Blue Planet Environmental services, Gogobli.com, Involve Asia, Jirnexu, Little Uns Education services, Little Uns, Sync Lab, Tru Rating, Turnkey lender, WeConvene, Willowglen||Venture capital and private equity affiliate of OSK Holdings.|
|MYEG services||MyEG Capital||-||2012||Croakun, Agmo Studio, Card biz, Eat Drink KL, fashion valet, Tiny Giants, Volare, Ximmerse||Startups and IT companies|
|Axiata Group||Axiata Digital Innovation Fund (ADIF)||24.11m||2015||Signature Markets, Serunai, Aerodyne, Happy Bunch, SoftInn, Katsana, Kfit, Easyparcel, Supahands, Slurp, Tripfez, maideasy, Easyuni.com, The lorry, avana, Holidayme||Series A onwards. |
e-commerce, location-based services, big data analytics, IoT, cloud services, fintech.
|Sunway Group||1. Sunway Ventures||-||2017||Monumental Studios, Sunway Credit, Popbox, Sunway Pharmacy||Seed funding for startups, venture building, partnership benefits for startups, entrepreneurs.|
|2. Sun SEA Capital||50m||2018||The Lorry, Intrepid, Wise AI||Series A, early Series-B startups across Southeast Asia, Northeast Asia.|
|Petronas||1. Petronas CVC/Petronas Ventures||350m||2018||Braintree Technologies, SOLS energy, Iraya||Tech startups in industry 4.0, advance materials, specialty chemicals, future of energy.|
|2. PTV International Ventures America (PIVA)||250m||2019||Worlds.io, Velo3D Inc, urbint, Solidia, Sense photonics, Menlo micro, Joywell Food, Boston Metal, Anuvia||Early stage investments in AI, robotics, machine learning, advance materials, existing/new sources of energy start-ups in North America, Europe.|
|AirAsia Group||1. AirAsia Digital (previously RedBeat Ventures)||-||2018||AirAsia.com, Teleport, Big Life, BigPay, Santan, Eko||Venture builder (spin-offs of AirAsia - platform, logistics & e-commerce, financial services), Data Centre.|
|2. RedBeat Capital||60m*||2019||-||Post-seed startups seeking to enter/expand in SEA.|
|Genting Group||Genting Ventures (corporate venture arm)||37.6m**||2020/2021||Gaming Analytics, Hoolah, PlayStudio, TabSquare, Sightline, Bukalapak||Early growth stage start-ups with disrupting technologies synergistic to group's core businesses ,|
|*target close, ** first fund, Source: media reports, companies' websites, annual reports|
To be sure, the entry of conglomerates into venture investing is happening across Southeast Asia.
“We see regional conglomerates getting more involved in the startup space. These include Sinar Mas from Indonesia, CP Group from Thailand, and Vingroup from Vietnam. They will be more focused on seed-stage to Series A companies,” said David Lim, co-founder and CEO of Wise AI, an AI platform specialising in facial recognition with offices in Singapore, Malaysia, and Thailand. Wise AI is a portfolio firm of Sun Sea Capital in which the latter invested an undisclosed amount in 2020.
Lim added that startup accelerators are also increasingly connecting startups with large corporations for proof of concept projects and investments.
What’s in it for corporates?
To get a sense of the potential of CVC for corporates, one only has to look at the success of Intel Capital, the strategic investment arm of the US chipmaker Intel. Since its establishment in 1991, Intel Capital has clocked 948 successful exits and made 1,870 investments, according to Pitchbook data.
Conglomerates in Malaysia are now modelling their CVC strategy along the lines of Intel. Sunway Group chief innovation officer Matthijs van Leeuwen in a recent interview with DealStreetAsia said the group’s CVC business is inspired by Intel Capital and also GE Ventures, the VC arm of General Electric.
“Intel and GE have taken a long-term view and have done well in the last 20 years. In China, Alibaba and Tencent have done well. We’d like to be seen as one of the pioneers, at least for Malaysia,” said Leeuwen, adding, “We’ve only started to make the first investments, and are trying to understand how CVC can be like one of the tools in the toolbox to drive innovation.”
Leeuwen said the group has not dabbled into CVC looking for a quick buck. “The strategic fit [into the group] is more important,” he said.
Besides providing fundings to startups, Sunway has also taken a step forward in establishing Sunway iLabs, an incubator and accelerator, in a bid to create a conducive ecosystem for Malaysian startups.
The six verticals the group invests in include edtech, digital health tech, smart cities, e-commerce, fintech, and agritech & food tech. Investments in these areas will help future-proof the group’s traditional verticals as it moves into its fifth decade of operations.
For the Genting Group, foraying into venture investing was more of a necessity as its leisure and hospitality division was hit by the COVID-19 crisis. It set up Genting Ventures last year amid the COVID-19 pandemic and has invested in a slew of tech startups engaged in casino analytics, e-sports, and restaurant solutions.
“There is a fast pace of development especially in countries such as Singapore, Malaysia, and Indonesia. It’s a great opportunity for us to invest in companies that can power our business for the future,” said Genting Ventures head of investment Josie Lai to DealStreetAsia.
For Petronas, the reason for setting up its CVC units was future-proofing. The oil giant, while announcing its $350 million CVC fund in October 2019 said it will “drive technology innovation that will support its core oil and gas business”. It planned to invest in startups in North America and Europe, managed by its VC arm PTV International Ventures America (PIVA), and also in the Asia Pacific and Malaysia, to spur local entrepreneurship.
“These investments have the potential to create huge strategic value across the group,” said Arni Laily Anwarrudin, head of Petronas Ventures in an email interview to DealStreetAsia. “Corporate venturing has become a key component in many corporations’ quest for growth. By investing in innovative companies, they can access cutting edge technologies, discover novel products and experiment with different business models,” she added.
Since its inception, Petronas Ventures has sealed investments in three Malaysian startups and nine US startups, as well as two VC funds — Canada’s Chrysalix RoboValley Fund and 500 Startups’s The 500 Durians II Fund.
What’s in it for startups?
For startups, too, allying with corporates brings many benefits.
Genting Ventures-backed ‘buy now pay later’ startup hoolah pointed out that younger companies get access to business partners through the CVCs’ network and business. Genting Ventures invested $1.81 million in hoolah through its affiliate Resorts World Inc in 2020 in two funding rounds, showed data from DealStreetAsia’s Data Vantage.
“The support from CVCs such as Genting Ventures has been tremendous. The significant difference is the alignment and opportunity that a relationship presents [as compared to VCs],” said hoolah co-founder and CEO Stuart Thornton.
Wise AI’s Lim said that in a corporate venture deal, apart from funding, startups need to be clear abouy what they want.
“Perhaps a few key questions to ask are: Can I leverage the corporate’s ecosystem to execute pilot projects fast? How fast can the corporate deploy them? Will I be tied down by corporate bureaucracy? How much are they willing to pay for my product? Is the corporate willing to commit the above-mentioned scenarios in the term sheet?” he said.
“Ultimately, it’s about the synergy both parties can create and being able to add value to one another. WISE AI brings to the table advanced digital identity technologies that will help drive the next phase of business growth, and its CVC partner Sunway is able to help us identify the most potential segments within their ecosystem, comprising of 13 business units from education, financial, healthcare, to retail and township development,” he added.
Sun SEA Capital invested an undisclosed amount in Wise AI in 2020.
There’s more to a CVC investment than the capital, said Petronas’s Arni. “We provide more than just capital to startups. Our objective is to create synergies with promising companies by providing access to our technical and business experts as well as potential access to test sites, which eventually should lead to value creation for both startups and Petronas.” said Arni.
For all the hype, CVC is still in its infancy, particularly in Malaysia. “Compared to our [Malaysia’s] peers in Thailand, Indonesia, and Singapore, we are definitely in need of more effort to push for the interest in setting up CVCs,” said Chua.
He feels there can be a greater impact if the CVCs seek better support. “I would encourage CVCs to work more with venture capitalists (VCs) as the combination provides the right capital and skillsets,” he said.
One of the challenges in Malaysia’s startup ecosystem is funding, according to Sun SEA Capital’s director Raymond Hor. “There’s always a relative lack of funding in Malaysia, compared to Singapore and some other countries in the region. Right now the hot market is Indonesia. So a lot of foreign funds go directly to Indonesia, even bypassing Singapore,” he said.
“This issue has been here for almost 20 years. Malaysian market size is always smaller than others [as compared to Indonesia, Vietnam]. Our startups can grow until a certain stage and they may face saturation. By the time they hit series B, they’d better start getting out of Malaysia,” he noted.
But when these startups try to enter Indonesia or Vietnam, they face rivals who may have a better presence in these markets, and may even be better-funded. The relatively slow performance, revenue, valuation growth, and return will then affect the portfolio return of the Malaysia-focused VC.
And if the portfolio return of these Malaysia-focused VCs is not as attractive as the foreign ones, it will be difficult for them to raise funds from limited partners, he explained. That is also the reason why the industry tends to depend on the government to dish out money.
“The challenge is how to break this cycle. We [Sunway] want to help the government solve this funding constraint. Besides investing directly into startups, we are also adopting the fund of funds approach,” Hor said.
Another key challenge is the sustainability of the CVC, he said. There is a need to form a long-term view when setting up CVC and not merely focus on clocking high growth within a short-term. “The question is ultimately how can we do this sustainably. How are you going to do it sustainably so that you have a reasonable return that you can recycle and reinvest into your funds, into your ecosystem. That’s a key challenge,” he said.
Meanwhile, Petronas sees differences in corporate cultures and mindsets as one of the challenges faced when corporates set up a CVC arm. “Startup and corporate cultures and mindsets are often very different, which is a challenge for collaboration,” Arni said.
MVCA’s former chairman Chua, too, sees CVCs facing challenges related to culture and know-how.
Chua, who is also the managing partner of the Malaysia-based VC firm Vynn Capital, said a CVC will act differently, compared to the M&A teams in large companies. There must be elements of friendliness and collaborative appreciation when it comes to running a CVC.
“One simple way that would be the most effective is to work with VCs. Corporations shouldn’t jump into something just because it is trendy. Work with the professionals,” he suggested.
Working with other VCs is one of the strategies adopted by Genting Ventures. Lai said the CVC prefers to co-invest into startups alongside institutional VCs. “We like to co-invest with other VCs. So in a lot of the deals so far, we let the institutional VCs lead and then we participate alongside institutional investors,” she said.
An example would be Genting Ventures’ investment into hoolah’s Series A investment round, which was led by Allectus Capital – an Australian VC firm.
More corporates and conglomerates joining the VC space will help to break the vicious cycle of lack of funding for startups in the country. “With more funding, there will be more capital that can be channelled to startups for them to scale faster. Then they can have a better performance. The VC fund would have a better portfolio return. It will allow them to find more private LPs and even from oversea LPs,” said Hor.
“The conglomerates or corporates can also acquire startups. Then the entrepreneurs can go back and build a new startup. This is like recycling of talents and good CEOs,” van Leeuwen added.