The Malaysian conglomerate Sunway Group — whose interests span real estate, construction, education, healthcare, retail, and hospitality — is currently in the midst of bringing about synergies between its various verticals and its relatively nascent corporate venture capital (CVC) business.
In 2017, the group launched its wholly-owned venture capital arm Sunway Ventures, and Sunway iLabs, an incubator and accelerator. This was followed by the establishment of the $50 million venture fund Sun SEA Capital in 2018.
Sunway Ventures focuses on venture building through partnerships with startups and entrepreneurs, providing access to capital, shared services, and an eco-system. The VC firm provides seed capital, growth capital, and also structured loans.
Sun SEA Capital invests in Series A and early Series B startups with ticket sizes in the range of $1-3 million.
Sunway iLabs, meanwhile, is a non-profit partnership between Sunway Group, Sunway Ventures, Sun SEA Capital, and the group’s Sunway University, based in Selangor, Malaysia’s west coast.
Sunway Group chief innovation officer Matthijs van Leeuwen, in a recent interview with DealStreetAsia, said the group has not dabbled into CVC looking for a quick buck. “The strategic fit [into the group] is more important for the conglomerate,” he said.
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 since its establishment as a tin mining business in 1974.
“CVC must adjust to, or be customised for, the special ecosystem that corporates have built,” said van Leeuwen.
“We are looking at agritech & food tech [to bring synergies] with the urban farm innovation hub we’ve set up. Fintech is another as we have plans to set up a digital bank,” he said.
Sunway is taking both an inside-out as well as outside-in approach when it comes to investing, according to van Leeuwen. It looks into the group’s existing capacity and invests in opportunities that the group can leverage. The group also looks into investing in startups that have the agility, ideas, and technology that Sunway doesn’t have internally.
Sun SEA Capital eyes 15-25% IRR
Sun SEA Capital is eyeing an internal rate of return (IRR) between 15% and 25% for its investments in Malaysia.
“For the Malaysian market, 15% IRR is a market standard average. We want to push beyond 25% because we are also looking at investing overseas, partnering with some strategic VCs, for overseas markets like Indonesia,” Sun SEA Capital’s director Raymond Hor told DealStreetAsia.
The fund’s focus is on Malaysia as many international borders remain closed due to the pandemic.
COVID-19 has also impacted the overall business of the group. Sunway posted a net profit of 359.6 million ringgit ($86.8 million ) in 2020, down 49.3% from 709.17 million ringgit a year ago. Revenue fell 19.9% to 3.83 billion ringgit from 4.78 billion ringgit in 2019.
“In 2019-20, we invested in e-commerce and e-commerce related logistics. Two portfolio startups [The Lorry, and Intrepid], took a dip for about two months during the COVID-19 period. After that, both recovered. Intrepid, grew 10 times. We are going to continue to invest in this space. And also in fintech — the AI part of it. Not general AI, but AI in regtech (regulatory tech), eKYC (electronic know-your-customer) and digital ID,” Raymond Hor said.
Sun SEA Capital invested an undisclosed amount in the lorry rental platform The Lorry in 2018. In 2019, it invested in Intrepid, an e-commerce services provider.
With more clarity on the market and sectors that will thrive post-COVID, Sun SEA Capital will continue to invest in e-commerce, logistics, fintech, and regulatory tech. “We foresee eKYC and digital ID will be embraced by Southeast Asian countries. Because of COVID, we anticipate it will grow further, 2021 forward. It is an emerging trend, but it’s going to become mainstream in three years’ time.”
On the deployment of the $50 million Sun SEA Capital fund, Hor said there has been a delay. “The initial target was to invest between 20% and 25% of the fund per year but Sun SEA Capital did not invest much due to the market condition in 2019 and last year when the pandemic hit,” he said.
“In fact, during this uncertain period, we doubled down and invested in our current portfolio. We may continue to do so if the economic crisis continues to prolong. Unlike typical VC funds which will cap the exposure to certain startups by 20% of the fund size, we don’t have to. We can invest in two rounds or even a third round, or fourth round,” he added.
Besides The Lorry and Intreprid, Sun SEA Capital’s portfolio includes the facial recognition technology company WISE AI.
Sunway iLabs which has been linking students, researchers, entrepreneurs, corporate players, and venture capital, will continue to nurture digital talent in the country, through its various accelerator and pilot programmes and courses, according to van Leeuwen, who is also the director of Sunway iLabs.
Sunway iLabs looks to create, co-create and invest in new startups, run more pilot projects between startups and the group’s business units, and drive more industry-academic partnerships and build a pool of robust digital talents.
“We’re looking into creating, or co-creating and investing in new startups. We also want to run more successful pilot [projects], between startups and our business units. And ultimately, those pilots, we want to turn into real innovations that we embrace within a group,” he said.
“We would want to drive more industry-academia, partnerships. We believe we have a very strong base of R&D within the university. And I think there’s an opportunity for industry with SMEs or corporates to tap into that right as a sort of an extended R&D lab. And a final thing is to build a robust, digital talent,” he said.
The group’s CVC business is inspired by Intel Capital, the strategic investment arm of US chipmaker Intel, and GE Ventures, the VC arm of the US conglomerate General Electric.
“Intel, and GE have taken a long-term view and have done very well in the last 20 years or so. [Similarly,] in China, Alibaba and Tencent have done very well. Only recently, we have started seeing more CVC units being set up. We’d like to be seen as one of the pioneers, at least for Malaysia,” he added. “It’s a very early stage, where we’ve only started to make the first [few] investments, and trying to understand how CVC can drive innovation within a corporate setting,” van Leeuwen said.
Sunway’s entry into CVC comes at a time when Malaysia is trying to encourage more corporates to create a conducive ecosystem for startups in the country.
Many of Malaysia’s homegrown startups have moved their headquarters or registered their businesses in neighbouring Singapore in recent times, due to better funding opportunities, and favourable tax laws. Singapore-headquartered super app Grab is a classic example of this. The Malaysia-born unicorn moved its headquarters to Singapore in 2014.