Thailand-based banks have been reluctant to extend venture capital (VC) funding to the small and medium enterprises(SMEs). Citing lack of receptivity (from business owners), delayed returns and shortage of support infrastructure, the banks say that the VC funding has not really been very successful in the country.
While many banks have not set up VC arms, others have slowed down the funding activities due to the higher risks involved.
Bangkok Bank does not provide VC services. According to the bank’s executive chairman Kosit Panpiemras, the business owners are not receptive to idea of letting an outsider hold stake in their companies. In fact, the loan service has been enough to support SMEs business expansion in the country. “I’ve met a plenty of startups and found that the lack of investment capital is not their main problem. Many of them can be successful with the capital fund of only one-million baht ($30,000),” he said.
Similarly, Kasikorn Bank, the only commercial bank to have a VC arm (“Khao Kla Venture Capital Management), says that the bank’s SME VC initiative has not been very successful.“It is difficult to select the right companies for investment. In fact, we hardly have a chance to get our money back because we are not involved in the decision making process (in those companies),” said Kasikorn Bank’s executive vice president Patchara Samalapa.
According to him, extending a loan was less risky and more profitable. “In the VC funding process, we have to wait for the companies to list so that we can exit and make profits. This can take years,” he explained.
Khao Kla has invested 200 million-300 million baht ($6.1 million-$9.2 million) in SMEs, in the past seven years.
While the private sector is withdrawing from VC funding activities, Thailand’s public sector has picked up pace in this sphere. Thailand’s Finance Minister Sommai Phasee has announced that the cabinet might be discussing a tentative plans for 50 billion baht SME-focussed seed fund.
According to the new scheme, the Finance Ministry will hold 10% share in the fund; the rest will come from co-investors in the private space. He added that the fund will focus on modest returns. “If the general rate of return on investment is 15%, we may aim to achieve 8%, which is a medium rate of return. It will be difficult to help them (SMEs),if we focus on high returns,” he explained.
Similarly, the National Science Technology and Innovation Policy Office (STI) is planning to get a clearance from the Securities and Exchange Commission (SEC), to set up a technology-focussed 10 billion baht VC fund for SMEs.
Explaining the lack of enthusiasm by private sector, Sayam Prasitsirigul, head of SME banking, Bank of Ayudhya said that while the VC funding is immensely beneficial for the SMEs, it might not be so viable for the commercial banks. “It is easier for banks to give loan. For extending venture capital services, we will need more infrastructure, more number of professional staff and we need to get involved in the management (of the SMEs), which is not our core competency,” he added.
Meanwhile, the private VC investment firms are facing a different set of challenges, which includes identifying the right potential investment.
Currently, there are around 200 private venture capital firms in Thailand, says Chatu Mongol Sonakul, chairman of MTR Asset Manager Company, which also provides the venture fund for startups. “We have the money and a professional management team. Our main issue is to find high-potential firms,” he said.
The company has recently signed the memorandum of understanding (MOU) with SME Bank to provide fund for SMEs. This MOU will help identify small-sized enterprises, who cannot apply for a bank’s loan but qualify VC funding.
“The new generation will be more receptive to venture capital funding. They will be able to understand better that VC will help their business to grow aggressively. I believe the VC funding will become more popular in Thailand in the next five years,” Sonakul predicted.