While the capital access for budding entrepreneurs and industry disruptors is opening up, Malaysia still needs more funds channeled towards smaller companies and for large government-linked investment companies (GLICs) to better support them, CIMB Group Holdings Berhad chairman Nazir Razak says.
Addressing corporate leaders and policy makers at the closed-door Khazanah Megatrends Forum on Monday, Razak delivered some key points about the capital available to underpin innovation and creative disruptions.
“As a 25-year banking veteran, I would be the first to admit that banks have been poor at supporting not just innovation, but many creative ideas,” he said, “Banks are by definition conservative, highly-regulated and staffed with bankers.”
Where banks and the capital markets fell short, Razak noted that the government has availed funds for technology and startups. However, he highlighted the allocation of funds needed to be improved.
“Funds like Malaysia Technology Development Corporation and several venture companies were seeded by the government. Money itself has never been the problem. The problem was that we never had the institutional capabilities to allocate the money effectively, bias as we were to local intermediaries who lacked experience and networks, and prone as we were to proliferating agencies rather than building large institutions with economies of scale and partnerships with international experience and networks,” he pointed out.
From a capital standpoint, there is much less frustration on the part of budding entrepreneurs and creative disruptors, currently, he said.
“Ekuinas, for instance, has scale and leverages professional fund managers well. GLICs have evolved to apply best international standards in investing and now hire – and pay – a much better cadre of professionals for themselves and at investee companies,” Razak commended.
“There has also been a proliferation of private equity (PE) and venture capitalists to supplant banks and offer more effective risk & reward structures.”
Razak not only looked forward to seeing more funds made available to smaller companies and more focus on encouraging large GLICs to better support small companies or small deals, he also called on relaxing the access for banks to invest in PE funds.
“I would also urge that we look at how to make it less punitive for banks to become investors in PE funds given the difference in the needs of our emerging economy versus the more developed markets where these new rules are being written.”
Chasing capital offshore
Although capital access has improved for local entrepreneurs, Razak is quick to stressed that Malaysia has much more to do in retaining its top innovators, who all look beyond the money factor.
“When I asked several entrepreneurs whether if given the choice they would choose to be based in Malaysia, most said no, and those who said yes tended to strongly espouse their nationalistic sentiment. Even though it is just my crude dipstick survey, it is worrying because we are at risk of losing the best companies that we nurture,” he noted.
When asked of those who said they would move away what their concerns are, Razak found that the entrepreneurs thought beyond economics to the big picture, and “relate not just their own concerns but perception of their potential international financiers and partners”.
He added: “If we define access to capital and ecosystems as economics, then I would say we have over the years largely addressed the economic issues, but there is still no real breakthrough.
Recent data shows national productivity growth slowing down from 2.7% between 2006 and 2010 to 2.1% between 2011 and 2014. And other worrying data points include the story of two recent big Malaysian innovation success stories – GrabTaxi and HappyFresh – they started in Kuala Lumpur but have effectively moved to Singapore and Indonesia for various reasons.”
Addressing the importance of mentoring the next generation of entrepreneurs, Razak commented on the lack of an international perspective.
“I feel that one thing lacking has been the international element to mentoring. It is unrealistic to think of building sustainable businesses based purely on domestic dynamics in this era of Asean economic integration and an increasingly borderless world,” he said.
Alongside other established entrepreneurs, Razak has set up Endeavor Malaysia in 2013, in partnership with Endeavour Worldwide. Endeavor Malaysia is the local affiliate of the global non-profit organisation Endeavor, which searches for Malaysian entrepreneurs across all industries with the potential to scale up their businesses globally.
“I hope that we can rapidly add to the 6 Endeavor companies that we have so far, but overall Malaysian entrepreneurs now have reasonable choice of ecosystems to help them,” Razak said.