Importance of Corporate Venture Capital in Malaysia

Typical venture capital businesses are founded with the goal of investing in startups in order to generate good returns for investors. The parent firm is still aiming for a positive return in the case of corporate venture capital (CVC) funds, but there are also major strategic considerations when evaluating possible investments. Investing in startups allows companies to be more flexible in their approach to pursuing growth prospects without having to create new teams and divisions from the ground up. Before making larger investments, they can make minor investments in startups to test new segments or technology.

What Is Corporate Venture Capital?

Corporate venturing, often known as corporate venture capital (CVC), is the practice of investing directly in external startup companies with corporate cash. Large corporations typically do this when they want to invest in small, but innovative, startup companies. They do it by entering into joint venture agreements and purchasing equity holdings. The investing firm may also give managerial and marketing experience, strategic guidance, and/or a line of credit to the business.

The meaning of CVC is frequently clarified by stating what it is not. Even though the investment vehicle is backed by a single investing business, an investment made through an external fund managed by a third party is not deemed to be corporate venture capital. Most notably, CVC is not the same as Venture Capital (VC), instead, it is a specific subset of it.

Characteristics of Corporate Venture Capital In Malaysia

The goal of corporate venture capital in Malaysia and the degree to which the investment company's and the startups' operations are intertwined. Venture Capital (VC) investments typically advance one of two core purposes, despite the fact that corporations have a variety of objectives for their VC investments. Some investments are strategic, they are undertaken primarily to boost the corporation's own sales and profits. A corporation making a strategic investment wants to find and capitalise on synergies with a new endeavour.

The other type of investment goal is financial, in which a corporation is primarily searching for high returns. Due to what it regards as its superior knowledge of markets and technology, solid balance sheet, and ability to be a patient investor, a corporation wants to do as well as or better than private VC investors. Furthermore, a company's brand may serve as a signal to other investors and future customers about the quality of the start-up, ultimately reimbursing the initial investor.

Another distinguishing feature of CVC investments is the degree to which the portfolio businesses are related to the investing firm's current operational capabilities. That is its resources and processes. A start-up with strong ties to the funding firm, for example, might employ that firm's manufacturing facilities, distribution channels, technology, or brand. It may build, market, or service its products using the same business methods as the investing corporation.

Benefits of Corporate Venture Capital Fundings

When seeking their initial outside cash, entrepreneurs can turn to a variety of sources, including friends and family, professional angel investors, venture capital (VC) funds, and crowdsourcing platforms. Corporate venture funds are a source of finance that is often neglected yet can be quite effective. Corporate venture funds come in a variety of shapes and sizes, but they are often funds linked with significant corporations that are interested in capitalising on industry-specific innovation. Investors that are loosely referred to as "strategic" represent a rapidly rising section of the capital market. Corporate VCs are a good alternative for entrepreneurs that want to get the most out of their investors because of the size and scope of these funds.

Validation Of The Market

Corporate venture capital funds can give startup access to established clients and help it find its product/market fit faster. The majority of organisations that create these funds have established client bases and can identify early adopters of new technology. For an unknown startup still trying to establish its credibility, gaining this type of admission can be challenging. The importance of determining product/market fit cannot be overstated because it paves the way for a company's initial set of paying clients.

Increased Revenue

Following market validation, forming a commercial agreement can help a firm generate much-needed revenue in its early stages. This should be a stand-alone arrangement that delivers market value to both parties and is unrelated to the investment agreement. You can reduce the need for outside finance while still demonstrating a sustainable business strategy by obtaining paying clients.

Expertise In The Field

Large organisations offer institutional expertise that can assist startups to think about issues relating to their target market because they have been in business for a long time. Insights gained through daily contacts with clients may have ramifications for a startup's product or marketing approach. In addition, a startup can raise its visibility in a crowded market.

Accessible To Capital

Securing a strategic investor's investment might encourage others to follow suit because if a strategic partner knows the industry and the problem and is ready to invest in a company, there must be value there. Furthermore, many corporate investors will participate in numerous rounds, whether they are investing from the parent company's balance sheet or through a specialised fund. This renewed commitment sends a favourable market signal and can help to alleviate the need for additional funding.

Inherent Exit Option

Investors frequently choose to liquidate their stakes in a company, especially if they purchase new businesses with pre-existing commercial agreements. Dependencies can emerge over time as a connection develops, prompting an acquirer to wish to hold the assets for offensive or defensive reasons. Due diligence is a little easier in these types of mergers because the acquirer is already familiar with the company's business and management team, which speeds up the process.

Stages of Startups Corporate Venturing Corporations Invest in

Corporate venture capital (CVC) firms in Malaysia invest in new businesses at various stages of their growth. Each phase has its own set of funding requirements, and corporate venture capital firm in Malaysia frequently specify the stage of financing required as well as the kind of investments they wish to make. Due to increased company or product valuations, later phases of financing normally entail less risky investments. As a result, investment in these companies typically costs more money. CVCs investing in new companies want to see a return on their investment in 4–7 years, whereas established companies are expected to see a return in 2–4 years.

  • Early Stage Fundings. Startup enterprises that can start operations but are not yet ready for commercial manufacturing and sales. A startup spends a lot of money on product development and early marketing at this stage.
  • Seed Capital Fundings. Money used to fund initial operating expenditures and attract venture capitalists is referred to as initial capital. Initially, the amount of money is usually minimal, and it is exchanged for a share of the company's equity. Investors consider seed cash to be hazardous, which is why some prefer to wait until the company is established before investing substantial sums of money.
  • Expansion Financing. Capital is provided to companies that are expanding by releasing new items, expanding their physical facility, improving their products, or marketing.
  • Initial Public Offerings (IPOs). In the long run, this is the optimum stage for most CVCs to achieve. When the fledgling company's stock is offered to the general public, the investing firm will sell its holdings to make a profit. Earnings will then be reinvested in new ventures with a high probability of future returns.
  • Mergers and Acquisitions. This entails using an investment fund to support a startup's acquisitions, as well as aligning the startup with a complementary product or business line that will help both companies project a comparable brand. When a corporation agrees to buy the startup, the investors will take advantage of the opportunity to profit by selling their holdings. Mergers also benefit the investment firm by allowing the startup to share resources, processes, and technologies. There will be cost savings, liquidity, and market positioning as a result of this.

Corporate Venture Capital Companies in Malaysia

Malaysia's venture capital business is booming. A slew of new venture capital firms has entered the market in recent years. There has also been a significant increase in the number of start-ups and new creative enterprises, which has resulted in an increase in pitching and fundraising activities. Here are a few corporate venture capital companies in Malaysia.

Corporate Accelerator: The Corporate Accelerator assists early-stage startups and scale-ups in achieving explosive growth by leveraging Malaysia's best investors, corporations, and support partners. They believe that deep ecosystem collaborations will lead to a  stronger Startup environment.

They strive to groom strong Startups with the help of their strong partners in order to establish Malaysia's future digital titans. The Corporate Accelerator programme is led by NEXEA and is co-organized with Malaysia's major Startup ecosystem partners.

TuneLab: TuneLabs is a venture capital firm based in Kuala Lumpur that focuses on identifying, funding, and nurturing early-stage firms in the travel, finance, and retail industries. The Tune Group seeks to give value to start-up firms at every level of their growth, from idea validation to eventual commercialization in many countries, by leveraging its large network of industries and substantial entrepreneurial expertise.

Hong Leong: Hong Leong Bank is always looking for new ways to provide fair, simple, personalised, and proactive banking experiences. They want to provide better service to their customers, as well as be a bank that helps the broader community overcome new difficulties and embrace digital solutions. They've worked with over 35 startups to rethink financial services, and they feel that working with the dynamic startup ecosystem is critical to fostering innovation.

Watch the video to understand the type of corporate venturing corporations that is made for you.

Difference Between Venture Capital And Corporate Venture Capital

The most significant distinction is that a Corporate Venture Capital (CVC) is concerned both with financial success and with having a strategic fit with the business in which it invests. As a result, the company can profit from the investment and leverage the CVC's strategic resources, such as its large network and client base. This is very important in the early stages of a startup. The company is also benefiting from the strategic investment because it is trying to enter the market with new and creative products and solutions.

Venture CapitalCorporate Venture Capital
Business angels, institutional funds, and corporations are examples of Limited Partners who supply the money to the Venture Capital, who subsequently invests it in startupsThe Corporate Venture Capital is an (in)dependent investing arm of a corporation that was created and is owned by it.
The benefits for startups is money, connections, and skill in scaling and the venture capital's network.The benefit for startups is know-how in the industry, market expertise, a client base, brand recognition, and a network
They strive for successful exits such as an Initial Public Offering (IPO) or a buyout from a different fund or corporationThey are not financially obligated to campaign for an exit. Instead, they concentrate on strategic synergies and long-term collaborations

Conclusion

A startup company can benefit from the industry experience, prestigious name brand, steady financial status, network of connections, and ecosystem of developed products provided by a large investing corporation. This relationship may lead to a partnership between the corporate venture capital (CVC) and its parent company, which can improve a business's worth immediately.

Reference

What is Corporate Venture Capital

Benefits of Corporate Venture Capital Fundings

Difference Between Venture Capital And Corporate Venture Capital

A very commonly asked question: What is Venture Capital? A Venture Capitalist (VC) is used to refer to an investor who provides capital to firms that exhibit high growth potential in exchange for an equity stake.

Private equity in recent decades has gained much traction in the financial world and currently represents a major component of the alternative investment universe although its functioning is difficult to define and often misunderstood. What is venture capital is an important question that contains many nuances.

Popularity of Venture Capital Funding

The Ernst and Young Global Capital Confidence Barometer illustrate this point in a survey with the question: “What will be the primary source of finance you will be leveraging to fund your growth strategies in the next 12 months?”, a question to which 20% of private company owners primarily named private equity financing, thus making it the second most popular choice behind private debt financing.

This thus indicates that VC is a clearly prioritised and highly sought after form of financing in the world of capital raising these days. Given that the business landscape in recent years has been one of the low-interest rates and technology-driven business models, this will challenge the way private equity firms have traditionally operated.

What does Venture Capital and Private Equity entail?

Private equity encompasses an array of investment and financing activities; activities of which include the restructuring of capital, buyout financing as well as venture capital.

So what is venture capital? For most purposes, Venture Capital is considered a subset of private equity and in its detailed form and definition, refers to an equity or equity-linked investments made specifically for the launch, early growth or expansion of companies. This is why venture capital is almost inextricably linked with start-ups and entrepreneurship.

What do Venture Capital Firms Look For?

What is a venture capital and what do most venture capital firms look for? Venture Capital target firms that are at the stage where they are looking to commercialise their idea, however, because of this factor, Venture Capitals tend to experience high rates of failure due to the uncertainty that is involved with new and unproven companies.

However, venture capitalists are willing to take on the risk associated with investing in unproven and green companies because they will then be able to reap the rewards of a massive return on their investments if these companies turn out to be profitable and a success.

What is Venture Capital and their link with Startups?

Start-ups have a symbiotic relationship with venture capitalists because a primary challenge being faced by small companies or start-up ventures is the inability to access equities markets, meaning markets in which shares of companies are issued and traded either through exchanges or over the counter markets, also known as the stock market.

These markets serve as one of the more vital areas of a market economy as it is instrumental in giving companies the access to capital to grow their business and investors a piece of ownership within a company with the potential realise gains on their investment based on the company’s future performance.

How are Venture Capital firms formed?

Venture capitalists are typically formed as limited partnerships where the partners then invest in the VC fund. A committee is typically tasked with managing the fund and making investment decisions and once-promising emerging growth companies to have been identified, the pooled investor capital that has been collected is then deployed to fund these firms in exchange for a sizeable stake of equity.

Myths and Misconceptions around Venture Capital

What is venture capital and some of the misconceptions surrounding it? A common misconception surrounding the concept of venture capital is that VCs generally do not fund start-ups from the onset. Rather, most venture capitalists seek to target firms which are at the stage where the firm is looking toward commercialising their ideas.

The venture capital fund will then buy a stake in these firms, nurture their growth and development and then look to cash out with a substantial return on investment, a performance measure used to evaluate the efficiency of an investment which is typically calculated by dividing the benefit (meaning, return) of an investment by the costs of an investment.

It is worth noting that contrary to the popular and public perception of venture capital as a major boon for financing new ideas, venture capital plays only a minor role in funding basic innovation. Venture capitalists invested more than 10 billion USD in 1997, but only 6% or so, around 600 million USD went to startups.

Research done by the Harvard Business Review reveals that less than 1 billion USD of the total venture capital pool goes toward Research and Development and the majority of the capital went onto fund projects that had originally developed through the far greater expenditures of governments (estimated to be around 63 billion USD) as well as corporations (estimated to be around 133 billion USD).

Venture Capital

Historical Context of Venture Capital

As a subset of private equity, the inception of private equity can be traced back to the 19th century, where century capital only developed as an industry post World War Two. Pre-WW2, much of innovative technologies or methods of funding were almost exclusively confined to being established within only big companies or wealthy families who had the means independently.

Particularly such circumstances were heightened by the social, economic and political environment of the world. The 1929 stock market crash followed by the Great Depression and World War II all culminated and served to create an environment that was decidedly not entrepreneur-friendly. Following WWII, the generation coming out of war and strife was full of innovation and new ideas as potential entrepreneurs began to arise within global financial market leaders such as the US and Europe whose economies were in a prolonged post-war boom phase.

What is Venture Capital: Roots of VC

The first formal trace of venture capital can be traced back to 1964 where Georges Doriot was responsible for establishing the venture capital cum private equity firm American Research and Development Corporation (ARDC) which raised 3.5 million USD, of which 1.8 million USD came from a variety of institutional investors and higher education institutions such as MIT, Penn as well as the Rice Institute.

How Legislature Impacts Venture Capital

These ventures into new methods of raising capital and finance were encouraged and further systematically structured through the passing of legislature to make the economic environment more conducive and friendly towards small and medium-sized enterprises such as the Small Business Investment Act.

This was particularly significant given that it is the act that is served to give tax breaks to print investment companies and as a result, professionals managed venture capital firms too emerged through licensing private, small business investment companies to finance and manage their start-ups.

Thus, driven by technological developments in ICT, Internet and biotechnology, the venture capital industry experienced extraordinary growth over the decades and is now also broadly accepted as an established asset class within many institutional portfolios worldwide.

Through examining historical trends and data, it becomes clear the significant role that venture capital now plays in emerging new world order and the global financial market. What is venture capital and its relation to any funds committed specifically for them? Funds committed to venture capital had increased significantly from 2.3 billion USD in 1990 to a record of 104.8 billion USD in 2000 within the United States.

what is venture capital

What is Venture Capital and the Impact of VC on the Technology Sector

By the end of the 1980s, venture capital was known to have funded major technology leaders such as Compaq, Intel, McAfee, Hotmail and Skype which then encouraged the growth of and ushered in a massive time of growth for the internet.

Despite as previously mentioned, these ventures having grown from the funding of far greater expenditures from the government and major corporations and so on, this still highly benefited venture capital firms as they provided frequent opportunities for new companies to emerge and go public as toward existing firms.

It also allowed and encouraged financing into the endless streams and groups of internets start-ups that would go on to change the landscape of technology forever such as Google, Facebook, Twitter and Pixa

Venture Capital in Different Geographical Regions

What is venture capital and its correlation with geographical locations? Similar trends have also been observed within Europe, Asia and Australia, where venture capital markets have grown significantly over the last decades. China for instance, at the moment, is leading the market as one of the fastest-growing venture capital markets in the world.

In addition, while the venture capital market has long been a local industry with local entrepreneurs primarily operating and gaining funding through domestic means, the last decade within the 2000s and 2010s has witnessed a significant and remarkable increase and growth in the international flows venture capital worldwide.

As local markets become increasingly competitive, venture capitals have seen the need and pressure to widen their geographical horizons whilst broadening their geographic investment criteria to include international and foreign countries so as to increase their portfolio diversification and search for higher returns.

How has Venture Capital Influenced Local Competition?

What is venture capital and how has it affected or influenced the local economy for good or bad? Individual experiences of past macroeconomic outcomes have been shown to exert a long-lasting influence on beliefs about future realisations, which explains the increasing competitively of local venture capital as well as domestic stock market investment. This can be seen within Europe, where the share of inflows of venture capital from non-domestic sources was just over 50% of the market between 2005 and 2009 and the share of total outflows accounted for by cross border investments equalled close to 35% of the market over the same time period.

Also, by 2013 VC-backed US public businesses capitalised 115 billion USD in research and developments vs a total of zero in the year of 1979, these VC backed businesses now account for a 42% of the research and development spending by US public companies. These show that it not only produces values for those companies on which this research and development budget is expended upon, the positive spillovers arising from the innovation and creativity of research also help and assist in the rest of the worlds technological and efficiency innovation. So what is venture capital? A way to help technology grow.

what is venture capital

Venture Capital in ASEAN

What are venture capital and its presence in the ASEAN region? For more information, click the following for more information on the venture capital within the ASEAN region specifically Singapore, Thailand, Vietnam, Indonesia and the Philippines.

Why does Venture Capital Exist and What Gap in the Market does it Service?

Beyond the need for financing, it has been indicated that the financing of entrepreneurial companies is addressed by primarily traditional sources of financing such as retained profits and owners funds and bank finance.

However, venture capital provides a more specialised set of investors that is unique.

Venture Capital firms as: Financial Mediators

What is venture capital and its role as finance mediators? In essence, venture capital firms exist as separate financial intermediaries, connecting willing investors with promising companies.

The main reason why venture capital firms thrive and exist is due to their superior abilities to reduce the cost of informational asymmetry related to investing in entrepreneurial companies and their ability to display investment strategies that allow them to cope with high uncertainty.

Asymmetric Information and How Venture Capital Combats this Issue

With asymmetric information, this persists as a problem within financial markets such as borrowing and lending because the borrower has much better information about his financial state than the lender. The lender has difficulty in knowing whether or not the borrower will default and to some extent, the lender will try to overcome this by looking at past credit history and the evidence of a reliable salary.

Asymmetric information is inherent in most if not all markets and arises when one party to an economic transaction has more or better information than another and then uses that to their advantage which in turn causes market failures including examples such as adverse selection.

Alternate Solutions to Asymmetric Information

Solutions to this issue include the introduction of regulations, offering warranties or guarantees etc. Free markets only work according to economic models that assume perfect information, the information is given and that is knowable in a way where all parties know all that is available but in reality, this is hardly ever the case.

Advantage of using Information Asymmetries Venture Capital Firms

Hence, venture capital investors have a comparative advantage over traditional financing sources such as banks and public equity investors in working in environments that are characterised by high information asymmetry and high uncertainty.

Within the entrepreneurship world, uncertainty is characteristic and endemic to the field. Spurred by economic liberalisation and the declining cost of communication, entrepreneurs need to turn their financial, technological and human assets into organisational resources that are capable of desired results.

High technology start-ups, in particular, the earliest types of organisations that the venture capital market found success in entering industries with very short technology and product life cycles where constant innovation is a must. Thus, when uncertainty hits, such entrepreneurs are already involved in a rather profound struggle, both to establish their companies and to survive.

Types of Informational Asymmetries

Two types of informational asymmetry typically arise within an entrepreneur and investor relationship, that of hidden information vs hidden action.

Hidden Information

Hidden information refers to the fact that parties hold different information as previously mentioned.

Outside financiers are also confronted with problems origination from hidden information or hidden action when they are investing in young, entrepreneurial companies.

Within the context of venture capital, adverse selection pertains to the risk that outside investors select low-quality projects, which have been presented to them and falsely advertised as high-quality projects.

This occurs due to the fact that entrepreneurs generally have an incentive to misrepresent any information in their possession especially during a task as personally involving as the search for financing. Clearly, as they are themselves involved in the operations of their business and know it intimately, hidden information occurs naturally.

How to Reduce the Risk of Hidden Information

To decrease the risk of adverse selection, venture capital investors engage in extensive information collection in a pre-investment due diligence process.

However, as is frequently emphasised there exists no systematic method of excluding all bias and projections within such delicate proceedings and the processes and instruments to reduce information asymmetries used by more traditional investors such as banks are insufficient to overcome hidden information problems within the context of investing in young companies and start-ups.

How other institutions reduce the risk of information asymmetry

Banks, for instance, employ extensive due diligence processes however much of this information is skewed and has a high focus on historical financial information.

However, many young companies and start-up have insufficient information let alone positive financial information. Without these number, traditional financing institutions can often be at a loss for how to proceed with the screening, valuation and evaluation of the company and start-up.

This remains the biggest obstacle for finance raising for young companies and start-up, the exclusion from traditional business social networks as well as capital and finance raising institutions due to these myriads of factors.

Furthermore, banks typically used collateral to deal with information problems however young companies with high potential often lack assets that may serve as collateral as the majority of their investments have a heavy research and development focus and therefore are intangible in nature.

The Role of Due Diligence

What is venture capital its role in due diligence? In contrast, much venture capital investors perform extensive due diligence prior to investing in order to reduce the nature of hidden information problems; focusing on creating more holistic and big picture reports, taking into account the value of the entrepreneurial team, the technology as well as product market characteristics.

Therefore, the characteristics that define companies that are raising venture capital are high growth, but high risk accompanied high prospects of profitability but that hold little collateral. 

Hidden Action

Other than adverse selection problems, outside investors are also confronted with hidden action problems, since they are unable to perfectly observe the effort and actions of entrepreneurs.

This could lead to a mismatch of exceptions including the fact that perhaps because of lack of communication, the goals of entrepreneurs and investors may not be perfectly aligned.

After the investment, for example, entrepreneurs may shirk effort or invest in pet projects that are aimed at achieving private, non-monetary benefits but that are at the expense of eternal investors.

Why VC's work Better than Banks as Financiers

What is venture capital's reason for being better than banks as financiers? It is acknowledged that venture capital investors have a comparative advantage over banks in order to reduce moral hazard problems because of the method of financing that banks provide.

Banks provide debt finance that involves a fixed claim, which is restricted to interest and principle payments which then gives banks limited incentives to monitor their creditors.

Venture capital investors however typically provide equity and equity-linked securities that entail a claim on the company’s residual wealth creation due to the promise of the return on their investment.

This creates a high incentive for VC firms to more tightly monitor their investment portfolio as well as reduce the risk of hidden action given that whatever actions the firm carries out will have an impact on the returns potential which is in turn impacted by the company’s level of value creation.

Which Firms are more suited to VC

Taking this into consideration, it could be said that raising VC finance rather than bank debt is more highly suited and optimal for companies that face higher risk and positively skewed cash flows, with a low probability of success and low liquidation value.

In addition, venture capital investors write complex contracts that service to align the goals of both entrepreneurs and investors, which then reduces agency risks.

Concluding Thoughts

Overall then it can be seen that venture capital investors have a comparative advantage as compared to other traditional investors such as banks to reduce informational asymmetries and operating in environments that are characterised by high uncertainty.

It has also been seen that venture capital as an industry does positively boost the economy, assist in job creation as well as introduce a new median to the market that could seize the market share for the next generation.

Venture Capital investors fill an important niche in the financing of young, entrepreneurial companies and their comparative advantages as compared to other investors, such as banks and relates to their relative efficiency in selecting and monitoring investments characterised by high informational asymmetries and high uncertainty.

References

What is venture capital? https://www.investopedia.com/terms/v/venturecapital.asp

https://www.ey.com/en_gl/growth/how-can-private-equity-create-new-value

https://www.cbinsights.com/research/report/what-is-venture-capital/

https://hbr.org/1998/11/how-venture-capital-works

Venture capital can be considered as a subset of private equity and a form of financing that primarily provides funds and financing from investors to start-up companies and small businesses that are believed that have high long-term growth potential.

These companies at early stages and emerging ones that have been deemed to have high growth potential or have demonstrated high growth are the ones that have access to a pool of funds and investors. Understanding how Venture Capital works can significantly benefit you, whether or not you are an entrepreneur or not.

How is “High Growth Potential” Quantified in Venture Capital?

This high growth is measured by a myriad of performance indicators which include the number of employees, man force of the company, annual revenue as well as the businesses' general scope of operations.

Some of the more common growth metrics that investors use to measure potential include revenue, customer acquisition cost (CAC), customer retention rate (CRR) and operational efficiency.

Revenue

In the business world where cash is king, if a business is not profitable then the business is considered not viable. As a metric, revenue is simple, measured by the total sales within a given time frame. This varies from business to business e.g. if the product is a subscription-based service, this number is more meaningful if calculated monthly or perhaps a seasonal business would have profits skewed within certain time periods.

Customer Acquisition Cost

Customer acquisition cost (CAC) measures the costs to the business of bringing in new customers and is calculated by taking total sales for a particular time period take away marketing expenses. To ascribe meaning to this number this needs to be cross-referenced with Customer Lifetime Value (LTV) which explains how much revenue the business is bringing in over the time they remain a customer.

The monitoring and retaining of customers is essential for the longevity of the business given that it costs substantially more to attract new customers than to just resell to or maintain an existing customer base.

Operational efficiency measures the ratio between selling, general and administrative expenses and the business’ sales figures and is important as it points out whether or not the costs of running the business are comfortably on par with the revenue being brought in. Related financial ratios may be used here including the gross profit margins, liquidity margins as well as burn rate.

How Venture Capital industry works

Are Ratios Reliable?

From an investors point of view, the primary purpose of using these growth ratios is to not only see and measure how the company is performing but also to pinpoint which companies are being undervalued.

For example, how venture capital works is that a company with high earnings per share is considered more profitable, likely leading investors to pay more for the company whilst consistent increases in return on equity ratio indicates that the company has been steadily and consistently increasing in value and successfully translating that value increases into profits for investors.

What’s In It For the Investor?

Venture capital firms or funds invest in these early high growth stage companies in exchange for equity or an ownership stake and they are willing to take on the risk of financing risky start-ups in the hope that some of the firms they support will become successful.

But because start-ups face high uncertainty, VC investments typically have high rates of failure. Despite this riskiness, the potential for above-average returns is an incentive and an attractive payoff for potential investors.

Within the last decades, for new companies or ventures that have had a short and limited operating history, how venture capital works is that venture capital funding is increasingly becoming a popular and even expected and essential source for raising capital, especially because a challenge of emerging companies is primarily the lack of access to capital markets, traditional lending institutions such as bank loans and other debt instruments.

It has evolved from a niche activity that has its inception post World War II during an economic and financial boom into a sophisticated industry with multiple players that play an important role in spurring innovation, entrepreneurship as well as shaping the future of the financial landscape and methods of capital raising.

For more information on Angel Investors, please click here.

The Four Stages of Funding

Venture Capital funding stages

Seed Funding: What is it and How Does It Work?

How venture capital works is that the typical venture capital investments occur after an initial seed funding round. Seed funding, also known as seed money and seed capital, represents a form of securities offering in which an investor invests capital in a start-up company in exchange for an equity stake or convertible note stake within the company.

Much of the seed capital that is raised by the company typically arises from sources close to its founders including family, friends and other acquaintances but can also include seed venture capital funds, angel funding as well as more recently with the rise of social media, crowdfunding.

How venture capital works is that obtaining seed funding is the first four of the funding stages that are required for a start-up to become an established business.

Why Pursue Seed Funding?

Usually, how venture capital works is that seed funding goes towards a beginning to develop an idea for a business or new product and generally only covers the costs of creating a proposal but can also go towards paying for preliminary operations such as market research and product development. Investors can be founders themselves, pursuing with their savings and/or loans.

How is Seed Capital different from Venture Capital?

Seed capital is distinguished from venture capital in a way that venture capital investments tend to come from institutional investors and it significantly involves more money and is at arm’s length transactions.

Venture capital contracts also generally involve much more complexity in their contracts as well as the corporate structure accompanying the investment.

Besides, how venture capital works is that seed funding also involves an even higher rate of risk in comparison to a venture capital investment since the investor will be unable to view or evaluate any existing projects for funding, which is the reason why the investments made during the seed stage are generally lower but for similar levels of stake within the company.

For more information on seed funding, please click here.

What is the Goal of a Company Seeking Seed Funding?

The primary goal at this point for the company is to attract further financing. Professional angel investors sometimes provide seed money either through a loan or in return for equity in the future company. How venture capital works is that it allows for flexibility of funding, be it seed or angel.

Who Are The Typical Seed and Angel Investors?

The primary goal at this point for the company is to attract further financing. Professional angel investors sometimes provide seed money either through a loan or in return for equity in the future company.

Series A Funding

Following early stages in seed financing, the company would look for expansion funding which would help smaller-scale companies expand significantly in terms of growth. This is known as Series A funding which is when the company (usually still in the pre-revenue stage) will open itself up to further investments.

Series A is much more significant that the funding procured through angel investors, with funds of more than $10 million being procured. This occurs after the business has developed a track record (an established user base, consistent revenue figures or some other key performance indicators). Opportunities may then be taken to scale the product across different markets.

What is Required to Achieve Series A funding?

Within this round of funding, it is essential to have a plan for developing a business model that will guarantee long term profit. The business will publicise itself as being open to Series A investors and will also need to provide an appropriate valuation.

Within Series A funding, investors are not just looking for great business ideas but rather they are looking for strong strategies for turning that businesses' core idea into a successful, profitable and money-making business. At this stage, it is common for investors to take part in a somewhat more political process.

With a significant departure from the participative mentality take on by the time the company reaches series A funding, it is common for a few venture capital firms to lead the pack and a single investor will typically serve as the anchor.

Series B Funding

Following Series A funding comes series B funding and at this stage, the company has already been developed through Series A but now needs to expand further.

A company that is attempting to acquire Series B funding will have already proven itself at the market with high active users and user activity but will need to establish itself to truly begin growing revenue. Hence why Series B funding is centred around the goal of taking the businesses to the next level, past the development stage. Investors help start-ups get thereby expanding market reach.

What is the Aim of Series B funding?

Considering that companies that have gone through seed and already have substantial user bases have already proven their worth, Series B funding is primarily used to grow the company so that it can meet the increasing levels of demand. Series B is similar to Series A in terms of key players in that it is often led by the same investors as Series A. The difference with Series B is the addition of a new wave of other venture capital firms that also specialise in alter stage investing.

Series C Funding

Companies that make it to Series C funding sessions are already acknowledged to be fairly successful and is reserved for businesses that are interesting in upscaling and businesses that are interested in expanding into new markets.

It is sought by companies that have already become successful and are looking toward expanding this success through methods such as the development of new products, expansion into new markets or even the acquisition of other companies.

What is Series C Funding used for?

Beyond this, Series C funding may also be sought after by companies that are experiencing short term challenges that need to be addressed.

Within Series C rounds, investors inject capital into the meat of successful businesses to receive a significant return on their investment and the funding in this stage is generally focused upon scaling the company in a way to ensure the growth of the company be as quick and successful as possible. Series C is significantly different compared to A and B because of the mechanisms involved in scaling a business.

For example, a possible way to scaling a company would be an acquisition. Merger and acquisitions are significantly more complicated processes and indicate a shift in the direction of the business away from the start-up stage and mindset. Similarly, as the operation gets increasingly less risky, the company is also capable of attracting bigger investors.

Groups such as hedge funds, investment banks in addition to private equity firms and large secondary market groups that come into play as the business is looking more and more profitable as the company has already proven itself to be a successful business model. These new investors approach the business expecting to invest significant sums of money into these companies that are already thriving as a means of helping to secure their own position as business leaders within the market.

Therefore, it can be said that Series C investors are significantly more self-interested as compared to seed-stage or A and B investors, given the exponentially lowered rate of risk associated with an already thriving company and business model.

More commonly, a company will end its external equity funding with Series C although some companies can go onto Series D and E rounds of funding as well. For the most part, however, companies that have already gained upwards of hundreds of millions of dollar worth of funding through Series C are prepared to continue to develop on a global scale.

In fact, the majority of companies that are going through and raising Series C funding use this as a means of helping boost their company valuation in anticipation of IPO. Most go onto seeking series D funding as the goals the company set out during earlier stages likely had not been completed yet.

Hierarchical Structure in a Venture Capital Firm

A typical venture capital firm is organised in a dual model as a limited partnership managing legally independent venture capital funds, with venture capitalists serving as general partners and their investors are limited partners.

Most venture capital firms are organised as management companies responsible for managing several pools of capital with each representing a legally separate limited partnership. How venture capital works is that Limited Partners cannot participate in the active management of venture capital funds if their liability is to be limited to the number of their commitments.

Why do Investors Work with VCs?

From the perspective of an investor, how venture capital works is that there are two main alternatives to invest in venture capital besides investing in venture capital funds: through direct investments in private companies or the outsourcing of selection of venture capital funds through investing in funds of funds.

Direct investments in private companies require more capital to achieve similar diversification as investing in venture capital funds.

Direct investments also pose another unique challenge as direct investments within venture capital usually require a different skill set which limits partners in venture capital funds typically lack.

Investors will need to realise that there will be an additional layer of management fees and expenses involved but institutional investors will thereby reduce the costs to the investors of the selection and management of their investments in different venture capital funds. It has been shown that within the world of how venture capital works are that the compensation of venture capitalists plays a critical role in aligning their interests with those of the limited partners.

An Analysts Role in a VC

The most junior level within a VC are analysts whose main responsibilities involve attending conferences to scout deals that might be within the investment strategy of the fund that the venture capital firm is investing out of. Analysts are not able to make decisions and are primarily concerned with conducting market research and studying competitors.

Associates Role in a VC

Next up on the ladder are associates and tend to be people with a financial background with good networking skills. Associates too do not make decisions within a firm but can make recommendations to those in charge.

Principals Role in a VC

Following associates is the role of principals who can make decisions when it comes to investments but have a lesser influence on the execution of the overall strategy of the firm.

Managing Partners role in a VC

The most senior people within the venture capital firm are partners who could either be general or managing. The difference in title varies depending on whether or not the painter has an influence on investment decisions or may also have an influence upon operational decisions.

In addition to investments, partners are also responsible for and will be held accountable for raising capital for the funds that the firm will be investing with.

Venture Partners Role in a VC

Venture partners are not involved in the day to day operations nor the investment decisions of the firm however they have a strategic role within the firm, mainly involving bringing new deal flow that they will then refer to other partners within the firm.

Venture partners are usually compensated using carry interest (a percentage of returns that funds make once they cash out of investment opportunities).

Investors of VC firms are called Limited Partners (LPs) who are institutional or individual investors that have invested capital in the funds of the VC firms that they are investing off of. How venture capital works is that LPs include endowments, corporate pension funds, sovereign wealth funds, wealthy families, and funds of funds.

Other Activities Performed by Venture Capital Firms

Fundraising as detailed above is the first activity that all new venture capital firms have to perform. How venture capital works is that successful venture capital investors usually do not manage only a single venture capital fund, but they also engage in fundraising activities to establish a venture capital fund but they engage in fundraising activities to establish a new venture capital fund some three to five years after the start of their previous fund.

The activities of a VC firm: Deals

Another challenge for a venture capital firm is to secure an adequate flow of high-quality business proposals to evaluate. How venture capital works is that the firms match venture capital investors with entrepreneurs can present some difficulties given market information asymmetries.

How venture capital works and from a venture capital fund’s perspective, it is essential to have access to the best propositions which may be problematic for newly established firms given that entrepreneurs would prefer to team up with investors with already strong reputations.

Besides, rather than generating their own deal flows, how venture capital works is that funds may attract investments proposals through their already existing network of co-investors or educate partners, making funds fairly isolationist and probably difficult to gain access to.

Are deals and collaboration in a VC world biased?

As a result, how venture capital works is that being able to general a high-quality level of deal flow may also depend on being able to enter syndication networks. Research has suggested the high likelihood of venture capital investors only being willing to collaborate with other investors whom they are familiar with through prior investments given that this provides more information about their specific capabilities and reliability, thus reducing the risk of hidden information and information asymmetry.

In addition to these duties, how venture capital works is that firms also must perform extensive checking and due diligence activities are given that VC investors are typically extremely selective. While large venture capital funds may receive hundreds of investment proposals annually, they eventually may invest in a portfolio of only 15-25 companies over a five year period as many investment proposals will in all likelihood not receive more than a few minutes of the attention of venture capital investors.

The activities of a VC firm: due diligence

Quick screenings whether or not a certain investment proposal would fit the spirit of a certain firm given that some investors specialise in certain investment stages, certain industries or certain geographic regions.

How venture capital works is that proposals that pass the initial screening are then subjected to in-depth due diligence tests before an investment decision can be made.

However, research has shown that investment decisions are clouded by local bias. Venture capital investors are known to exhibit preferences for investment in companies within the local home market because this eases information transfer.

This benefits the identification of investment targets, the evaluation of the ventures and then post-investment monitoring and the subsequent addition of value.

To reduce hidden action problems after investment, investors are strongly engaged with their portfolio companies usually with monitoring, assisting as well as certifying their portfolio companies. It has been shown that venture capital investors spend over half their time on monitoring and assisting their portfolio companies.

How investors in VCs lessen risk

Investors often require board seats which are linked with other powers such as veto rights as well as contractual provisions which allow them to directly influence the behaviour of their invested entrepreneurs. How venture capital works are that it is essential to have different prongs governing investments.

How venture capital works are that boards of directors in venture capital-backed companies are smaller and thus more involved in strategy formation and evaluation as opposed to boards where members do not have large ownership stakes.

In addition to this, the primary strategies used by investors include time, stage and sector diversification plus prorated investing over time as well as the number of investments within a portfolio.

Risk Mitigation: Time Diversification

The majority of VC funds are committed over a three to five year period. How venture capital works are that by being committed over a longer period of time and spreading out the commitments, a fund gets time diversity and also theoretically this has a soothing effect on the macrocycles that impacts a business.

Risk Mitigation: Stage Diversification

Certain VCs are specific and have early vs late-stage investing approaches to augment the risks posed by certain investments in certain stages. The goal here is to also smooth out irregularities that may occur during the course of the investments in the portfolio.

Risk Mitigation: Sector Diversification

Historically, VC firms have broad sector diversification, investing from software to life sciences within the same fund. This spreads out the macro and environmental risk associated with certain industries to compensate for others.

Risk Mitigation: Prorated Investment

Many VC firms reserve the right to invest their “pro-rata” ownership within future rounds, which then allows them to maintain their % ownership within the company.

Risk Mitigation: Number of Investments

There is conventional wisdom within the VC industry that each fund ought to have 25-30 companies within the fund to spread out and diversify. How venture capital works is that this spreading out of risk and mitigation of putting all your eggs in one basket will ensure higher certainty of returns in the future.

References

https://hbr.org/1998/11/how-venture-capital-works

https://www.forbes.com/sites/alejandrocremades/2018/08/02/how-venture-capital-works/#5a62b3991b14 

https://visible.vc/blog/startup-funding-stages/. Accessed 28 Sept 2020

https://www.startups.com/library/expert-advice/how-venture-capital-works

The Venture Capital Southeast Asia ecosystem has been growing significantly from previous years as the internet economy rapidly expanding. According to Pitchbook, the venture capital dry power has increased up to eleven-fold in the past 6 years. This shows how competitive the VC landscape is in Southeast Asia as large international investors (Y Combinator, 500 Startups, GGV Capital, etc) start to focus on SEA, while regional VC investors (NEXEA, Asia Partners, Strive, etc) are doubling down.

Master List of Venture Capital Lists in Southeast Asia

Here is a list of articles that talks in detail about the venture capital ecosystem in respective countries across Southeast Asia.

Learn More About NEXEA Venture Capital & How We Provide More Than Just Money

This article talks about the Venture Capital Indonesia ecosystem where it answers the basic questions of what is venture capital, why do companies require a venture capitalist to listing down venture capital companies in Indonesia. Lastly, we provide several tips in helping you find the right venture capital firm for your company.

What is Venture Capital?

A venture capitalist or VC is an investor who either gives funding to startup ventures or supports small organisations that desire to expand but do not have access to equities markets. Venture capitalists are willing to invest in companies that fit in those criteria because they have the potential to earn a huge return on their investments if these companies end up being successful.

Some of the aspects that venture capitalists look for are strong management team, large potential market and a unique product or service with a strong competitive advantage. Also, they seek for opportunities that they are familiar with, and the opportunity to possess an enormous stake of the business so that they can influence its direction. Here at NEXEA, we are interested in tech start-ups as this is our expertise.

Why do companies require a Venture Capitalist?

You may be thinking, "Why do I need a VC? or What kind of value can a VC bring in to my business?" Well, it is true that not many Venture Capitalists are able to bring in much value. This is because they are too busy managing 10-20 companies per partner as well as managing their Limited Partners (investors).

Nevertheless, any VC is more than just providing funds. Since they will become part the owner of your business, they would want to see the company grow as well by providing any necessary help succeed a startup. At NEXEA, we offer to our invested startups ex-entrepreneurs who can guide young entrepreneurs with their business as well as provide some advice to avoid making the mistakes that they have made in the past.

For entrepreneurs and CEO of rapidly growing companies, most of them are inexperienced and they do not always know what to look out for. That is why a lot of startups need venture capitalist and in order to lessen the risk for a venture capitalist, it is important that startup founders are being connected to industry experts.

"You will need to do the due diligence in order to really understand if a VC is going to add value in addition to capital. This value can be introductions for potential partnerships, their network of other successful founders or the infrastructure the firm brings."

Venture Capital Indonesia - Environment

Currently, the ecosystem of venture capital Indonesia is the second-largest in Southeast Asia, with Singapore maintaining its position as the leading market and Malaysia is in the third position. According to Deal Street Asia, Indonesian venture capital companies has raised up to US$582 million in 2019 which is a 79% increase from the previous year.

Being a country that has a large population, Indonesia has the potential to become the fourth-biggest economy in the world, surpassing Singapore. McKinsey noted that Indonesia's e-commerce sales are expected to rise around 17%-30% within the next five years. With such potential for technology disruption and growth especially in the focused industries, such as e-commerce, fintech and halal lifestyle, the Indonesian tech story is just beginning.

venture capital indonesia

Very Early Stage Investment Firms in Venture Capital Indonesia (<US$1m)

Later Stage Investment Firms in Venture Capital Indonesia (>US$1m)

Finding the right venture capital firm for your company

The first step to finding the right venture capital Indonesia firm for your company is to know what stage your company is at right now. After figuring out the stage of your business, you can start applying to venture capital. Remember to prepare an informing pitch deck so that you have a higher chance of getting funded when pitching your company. Here are some examples of how a pitch deck should look like made by other successful companies.

Secondly, in order to find the best VCs, you should look out for their infrastructure and "speciality". It is best to find VCs that specialised in the industry that your company is in because you will then be provided with the best support tailored to your needs. Venture Capitalists like First Round Capital, Y Combinator or 500 Startups have a dedicated team of marketers, recruiters, experts and other necessary resources to bring into the company that they invest in. At NEXEA, we have dedicated lawyers, regional level CFOs, a lot of world-class CEOs that mentor and invest in startups as well as other supportive infrastructure in place.

Lastly, it is important to set some boundaries for yourself. If your company are one of those companies that are founded by multiple people, it is very important that there is a mutual understanding between each other on what you are willing to give away. Giving away is not only in terms of equity but in time as well. When a venture capitalist invests in your firm the whole working dynamic can change as you hopefully transition your company into a fast-growing firm.

Steps to finding the right venture capital firm

Besides that, here are some additional tips on how to find the right venture capital firm for your company. We've made it into several easy steps where you can easily implement through the list of companies in Venture Capital Indonesia to see which ones that fit well with your firm's needs.

  1. Geography: The location of your startup should be in the region which the VC is operating in. At NEXEA, we invest in tech startups in the SEA region. However, for some programs, we prefer companies that are based in Malaysia as our HQ is located in Kuala Lumpur. Thus, do some research on the VC to know if your location is applicable to them.
  2. Sector: Usually VC's only invest in companies that operate in fields of business where they have a lot of experience in. That goes to show why at NEXEA we invest in tech startups because we have a lot of expertise in tech-related companies. For us, a company which has a traditional business model would not be applicable.
  3. Portfolio conflict: A VC will typically not invest in a company which is a direct competitor of a company in their portfolio. So before applying to a VC, you should find out about their portfolio and see if you can identify any direct competitors to your company.
  4. Involvement: There are two types of VC firms. The first group are the VCs that are very involved. These type of VCs typically do not invest in a lot of companies as they do not have the time to be highly involved in all the companies that they invest in. The second group of VCs are the opposite where these firms are not very involved in the companies they invest in. This is usually due to the number of startups they invest in. They simply don't have the time to have a meeting with each startup every week.
    At NEXEA, we are highly involved with each startup due to our startup mentor network. For a startup, it is essential to know from each founder whether they prefer a highly involved VC or less involved VC.
  5. Fund size: A startup has to know beforehand what series a VC invest in. It does not make sense to apply for a pre-seed startup while you are doing your A-series. Furthermore, if you plan beforehand that you want to do your B-series and A series with the same VC to ensure good collaboration, you should check whether or not they invest in both series.

Venture Capital Indonesia Summary

The number of venture capital firms in Indonesia has been growing rapidly which is reflected by the growing number of startups that are starting and growing in the region. For startups wanting a venture capital, it is crucial to first identify the stage of their company is as well as setting boundaries for the company in order to find the right expertise needed for the company.

We hope this article has provided you with a head start on what you should be looking for in a venture capitalist. Let us know in the comments section if there is anything else that you would like to know more about venture capital Indonesia.

If you'd like to know more about venture capitalists in other Southeast Asian countries such as Malaysia, Singapore, Thailand, Vietnam and the Philippines, check out the Southeast Asian Venture Capital article.

Learn More About NEXEA Venture Capital & How We Provide More Than Just Money

References:

This article talks about the Venture Capital Thailand ecosystem where it answers the basic questions of what is venture capital, why do companies require a venture capitalist to listing down venture capital companies in Thailand. Lastly, we provide several tips in helping you find the right venture capital firm for your company.

What is Venture Capital?

A venture capitalist or VC is an investor who either gives funding to startup ventures or supports small organisations that desire to expand but do not have access to equities markets. Venture capitalists are willing to invest in companies that fit in those criteria because they have the potential to earn a huge return on their investments if these companies end up being successful.

Some of the aspects that venture capitalists look for are strong management team, large potential market and a unique product or service with a strong competitive advantage. Also, they seek for opportunities that they are familiar with, and the opportunity to possess an enormous stake of the business so that they can influence its direction. Here at NEXEA, we are interested in tech start-ups as this is our expertise.

Why do companies require a Venture Capitalist?

You may be thinking, "Why do I need a VC? or What kind of value can a VC bring in to my business?" Well, it is true that not many Venture Capitalists are able to bring in much value. This is because they are too busy managing 10-20 companies per partner as well as managing their Limited Partners (investors).

Nevertheless, any VC is more than just providing funds. Since they will become part the owner of your business, they would want to see the company grow as well by providing any necessary help succeed a startup. At NEXEA, we offer to our invested startups ex-entrepreneurs who can guide young entrepreneurs with their business as well as provide some advice to avoid making the mistakes that they have made in the past.

For entrepreneurs and CEO of rapidly growing companies, most of them are inexperienced and they do not always know what to look out for. That is why a lot of startups need venture capitalist and in order to lessen the risk for a venture capitalist, it is important that startup founders are being connected to industry experts.

"You will need to do the due diligence in order to really understand if a VC is going to add value in addition to capital. This value can be introductions for potential partnerships, their network of other successful founders or the infrastructure the firm brings."

Venture Capital Thailand - Environment

Thailand is the second largest ASEAN economy with an expected GDP of 528 USD billion by the end of 2020. Having relatively skilled labor force as well as cheaper business and living costs in comparison to established venture capital ecosystem like Singapore, the Kingdom is in a transition from an industrial and export-oriented economy to a service and knowledge-based economy.

The Thai government has enforced their Thailand 4.0 strategy back in 2018 in order to encourage future growth industries ranging from next-generation automotive, food for the future to digital, developing highly skilled labour force as well as promoting innovation. With such a strategy, the government hopes that it will provide the economy with a comprehensive push towards digitalisation through its 20-year national Digital Economy Masterplan - boosting the ecosystem of venture capital Thailand even more.

venture capital thailand

Very Early Stage Investment Firms in Venture Capital Thailand (<US$1m)

Later Stage Investment Firms in Venture Capital Thailand (>US$1m)

Finding the right venture capital firm for your company

The first step to finding the right venture capital firm for your company is to know what stage your company is at right now. After figuring out the stage of your business, you can start applying to venture capital. Remember to prepare an informing pitch deck in order for you to have a higher chance of getting funded when pitching your company. Here are some examples of how a pitch deck should look like made by other successful companies.

Secondly, in order to find the best VCs, you should look out for their infrastructure and "speciality". It is best to find VCs that specialised in the industry that your company is in because you will then be provided with the best support tailored to your needs. Venture Capitalists like First Round Capital, Y Combinator or 500 Startups have a dedicated team of marketers, recruiters, experts and other necessary resources to bring into the company that they invest in. At NEXEA, we have dedicated lawyers, regional level CFOs, a lot of world-class CEOs that mentor and invest in startups as well as other supportive infrastructure in place.

Lastly, it is important to set some boundaries for yourself. If your company are one of those companies that are founded by multiple people, it is very important that there is a mutual understanding between each other on what you are willing to give away. Giving away is not only in terms of equity but in time as well. When a venture capitalist invests in your firm the whole working dynamic can change as you hopefully transition your company into a fast-growing firm.

Steps to finding the right venture capital firm

Besides that, here are some additional tips on how to find the right venture capital firm for your company. We've made it into several easy steps where you can easily implement through the list of companies in Venture Capital Thailand to see which ones fit well with your firm's needs.

  1. Geography: The location of your startup should be in the region which the VC is operating in. At NEXEA, we invest in tech startups in the SEA region. However, for some programs, we prefer companies that are based in Malaysia as our HQ is located in Kuala Lumpur. Thus, do some research on the VC to know if your location is applicable to them.
  2. Sector: Usually VC's only invest in companies that operate in fields of business where they have a lot of experience in. That goes to show why at NEXEA we invest in tech startups because we have a lot of expertise in tech-related companies. For us, a company which has a traditional business model would not be applicable.
  3. Portfolio conflict: A VC will typically not invest in a company which is a direct competitor of a company in their portfolio. So before applying to a VC, you should find out about their portfolio and see if you can identify any direct competitors to your company.
  4. Involvement: There are two types of VC firms. The first group are the VCs that are very involved. These type of VCs typically do not invest in a lot of companies as they do not have the time to be highly involved in all the companies that they invest in. The second group of VCs are the opposite where these firms are not very involved in the companies they invest in. This is usually due to the number of startups they invest in. They simply don't have the time to have a meeting with each startup every week.
    At NEXEA, we are highly involved with each startup due to our startup mentor network. For a startup, it is essential to know from each founder whether they prefer a highly involved VC or less involved VC.
  5. Fund size: A startup has to know beforehand what series a VC invest in. It does not make sense to apply for a pre-seed startup while you are doing your A-series. Furthermore, if you plan beforehand that you want to do your B-series and A series with the same VC to ensure good collaboration, you should check whether or not they invest in both series.

Venture Capital Thailand Summary

The number of venture capital firms in Thailand has been growing rapidly which is reflected by the growing number of startups that are starting and growing in the region. For startups wanting a venture capital, it is crucial to first identify the stage of their company is as well as setting boundaries for the company in order to find the right expertise needed for the company.

We hope this article has provided you with a head start on what you should be looking for in a venture capitalist. Let us know in the comments section if there is anything else that you would like to know more about venture capital Thailand.

If you'd like to know more about venture capitalists in other Southeast Asian countries such as Malaysia, Vietnam, Indonesia, the Philippines and Singapore, check out the Southeast Asian Venture Capital article.

Learn More About NEXEA Venture Capital & How We Provide More Than Just Money

References:

This article talks about the Venture Capital Vietnam ecosystem where it answers the basic questions of what is venture capital, why do companies require a venture capitalist to listing down venture capital companies in Vietnam. Lastly, we provide several tips in helping you find the right venture capital firm for your company.

What is Venture Capital?

A venture capitalist or VC is an investor who either gives funding to startup ventures or supports small organisations that desire to expand but do not have access to equities markets. Venture capitalists are willing to invest in companies that fit in those criteria because they have the potential to earn a huge return on their investments if these companies end up being successful.

Some of the aspects that venture capitalists look for are strong management team, large potential market and a unique product or service with a strong competitive advantage. Also, they seek for opportunities that they are familiar with, and the opportunity to possess an enormous stake of the business so that they can influence its direction. Here at NEXEA, we are interested in tech start-ups as this is our expertise.

Why do companies require a Venture Capitalist?

You may be thinking, "Why do I need a VC? or What kind of value can a VC bring in to my business?" Well, it is true that not many Venture Capitalists are able to bring in much value. This is because they are too busy managing 10-20 companies per partner as well as managing their Limited Partners (investors).

Nevertheless, any VC is more than just providing funds. Since they will become part the owner of your business, they would want to see the company grow as well by providing any necessary help succeed a startup. At NEXEA, we offer to our invested startups ex-entrepreneurs who can guide young entrepreneurs with their business as well as provide some advice to avoid making the mistakes that they have made in the past.

For entrepreneurs and CEO of rapidly growing companies, most of them are inexperienced and they do not always know what to look out for. That is why a lot of startups need venture capitalist and in order to lessen the risk for a venture capitalist, it is important that startup founders are being connected to industry experts.

"You will need to do the due diligence in order to really understand if a VC is going to add value in addition to capital. This value can be introductions for potential partnerships, their network of other successful founders or the infrastructure the firm brings."

Venture Capital Vietnam - Environment

The ecosystem of Venture Capital Vietnam has been developing since 2004. With the new surge of Vietnamese companies from industries ranging from trucking to fintech and facial recognition has attracted an exponential number of venture capital money, making Vietnam one of Asia's youngest and fastest-growing economies. According to the World Bank, Vietnam's per capita GDP has increased tenfold over the past 30 years.

Currently, one of the big themes that Vietnamese and other Asian venture capitalists are attracted to is the regional expansion of Vietnam's growing companies as well as acquiring any business idea that revolves around young consumers or digital transformation. It is no surprise that Vietnam is pulling ahead of Thailand, its more developed regional neighbour at the rate that the country is growing.

venture capital vietnam

Very Early Stage Investment Firms in Venture Capital Vietnam (<US$1m)

Later Stage Investment Firms in Venture Capital Vietnam (>US$1m)

Finding the right venture capital firm for your company

The first step to finding the right venture capital Vietnam firm for your company is to know what stage your company is at right now. After figuring out the stage of your business, you can start applying to venture capital. Remember to prepare an informing pitch deck so that you have a higher chance of getting funded when pitching your company. Here are some examples of how a pitch deck should look like made by other successful companies.

Secondly, in order to find the best VCs, you should look out for their infrastructure and "speciality". It is best to find VCs that specialised in the industry that your company is in because you will then be provided with the best support tailored to your needs. Venture Capitalists like First Round Capital, Y Combinator or 500 Startups have a dedicated team of marketers, recruiters, experts and other necessary resources to bring into the company that they invest in. At NEXEA, we have dedicated lawyers, regional level CFOs, a lot of world-class CEOs that mentor and invest in startups as well as other supportive infrastructure in place.

Lastly, it is important to set some boundaries for yourself. If your company are one of those companies that are founded by multiple people, it is very important that there is a mutual understanding between each other on what you are willing to give away. Giving away is not only in terms of equity but in time as well. When a venture capitalist invests in your firm the whole working dynamic can change as you hopefully transition your company into a fast-growing firm.

Steps to finding the right venture capital firm

Besides that, here are some additional tips on how to find the right venture capital firm for your company. We've made it into several easy steps where you can easily implement through the list of companies in Venture Capital Vietnam to see which ones that fit well with your firm's needs.

  1. Geography: The location of your startup should be in the region which the VC is operating in. At NEXEA, we invest in tech startups in the SEA region. However, for some programs, we prefer companies that are based in Malaysia as our HQ is located in Kuala Lumpur. Thus, do some research on the VC to know if your location is applicable to them.
  2. Sector: Usually VC's only invest in companies that operate in fields of business where they have a lot of experience in. That goes to show why at NEXEA we invest in tech startups because we have a lot of expertise in tech-related companies. For us, a company which has a traditional business model would not be applicable.
  3. Portfolio conflict: A VC will typically not invest in a company which is a direct competitor of a company in their portfolio. So before applying to a VC, you should find out about their portfolio and see if you can identify any direct competitors to your company.
  4. Involvement: There are two types of VC firms. The first group are the VCs that are very involved. These type of VCs typically do not invest in a lot of companies as they do not have the time to be highly involved in all the companies that they invest in. The second group of VCs are the opposite where these firms are not very involved in the companies they invest in. This is usually due to the number of startups they invest in. They simply don't have the time to have a meeting with each startup every week.
    At NEXEA, we are highly involved with each startup due to our startup mentor network. For a startup, it is essential to know from each founder whether they prefer a highly involved VC or less involved VC.
  5. Fund size: A startup has to know beforehand what series a VC invest in. It does not make sense to apply for a pre-seed startup while you are doing your A-series. Furthermore, if you plan beforehand that you want to do your B-series and A series with the same VC to ensure good collaboration, you should check whether or not they invest in both series.

Venture Capital Vietnam Summary

The number of venture capital firms in Vietnam has been growing rapidly which is reflected by the growing number of startups that are starting and growing in the region. For startups wanting a venture capital, it is crucial to first identify the stage of their company is as well as setting boundaries for the company in order to find the right expertise needed for the company.

We hope this article has provided you with a head start on what you should be looking for in a venture capitalist. Let us know in the comments section if there is anything else that you would like to know more about venture capital Vietnam.

If you'd like to know more about venture capitalists in other Southeast Asian countries such as Malaysia, Singapore, Thailand, Indonesia and the Philippines, check out the Southeast Asian Venture Capital article.

Learn More About NEXEA Venture Capital & How We Provide More Than Just Money

References:

This article talks about the Venture Capital Singapore ecosystem where it answers the basic questions of what is venture capital, why do companies require a venture capitalist to listing down venture capital companies in Singapore. Lastly, we provide several tips in helping you find the right venture capital firm for your company.

What is Venture Capital?

A venture capitalist or VC is an investor who either gives funding to startup ventures or supports small organisations that desire to expand but do not have access to equities markets. Venture capitalists are willing to invest in companies that fit in those criteria because they have the potential to earn a huge return on their investments if these companies end up being successful.

Some of the aspects that venture capitalists look for are strong management team, large potential market and a unique product or service with a strong competitive advantage. Also, they seek for opportunities that they are familiar with, and the opportunity to possess an enormous stake of the business so that they can influence its direction. Here at NEXEA, we are interested in tech start-ups as this is our expertise.

Why do companies require a Venture Capitalist?

You may be thinking, "Why do I need a VC? or What kind of value can a VC bring in to my business?" Well, it is true that not many Venture Capitalists are able to bring in much value. This is because they are too busy managing 10-20 companies per partner as well as managing their Limited Partners (investors).

Nevertheless, any VC is more than just providing funds. Since they will become part the owner of your business, they would want to see the company grow as well by providing any necessary help succeed a startup. At NEXEA, we offer to our invested startups ex-entrepreneurs who can guide young entrepreneurs with their business as well as provide some advice to avoid making the mistakes that they have made in the past.

For entrepreneurs and CEO of rapidly growing companies, most of them are inexperienced and they do not always know what to look out for. That is why a lot of startups need venture capitalist and in order to lessen the risk for a venture capitalist, it is important that startup founders are being connected to industry experts.

"You will need to do the due diligence in order to really understand if a VC is going to add value in addition to capital. This value can be introductions for potential partnerships, their network of other successful founders or the infrastructure the firm brings."

Venture Capital Singapore - Environment

What is the environment like in venture capital Singapore? It is no secret that Singapore originates hundreds and thousands of new startups as a result of their government policies. This makes the venture capital landscape in Singapore is densely populated. Singapore is popular for being one of the largest tech hubs in Southeast Asia (SEA) in terms of VC investments.

According to a study by MDI ventures, Finc Capital and Dealroom.co, VC investments into the sector has grown seven-fold since 2015 and the value of all fintech startups in Singapore is currently US$108 billion in the year 2020. With that much said, Singapore is still one of the top Southeast Asian countries to have headquarters because of the standardised processes, high quality of human capital as well as the educated workforce in the region.

venture capital singapore

Later Stage Investment Firms in Venture Capital Singapore (>US$1m)

Finding the right venture capital firm for your company

The first step to finding the right venture capital firm for your company is to know what stage your company is at right now. After figuring out the stage of your business, you can start applying to venture capital. Remember to prepare an informing pitch deck in order for you to have a higher chance of getting funded when pitching your company. Here are some examples of how a pitch deck should look like made by other successful companies.

Secondly, in order to find the best VCs, you should look out for their infrastructure and "speciality". It is best to find VCs that specialised in the industry that your company is in because you will then be provided with the best support tailored to your needs. Venture Capitalists like First Round Capital, Y Combinator or 500 Startups have a dedicated team of marketers, recruiters, experts and other necessary resources to bring into the company that they invest in. At NEXEA, we have dedicated lawyers, regional level CFOs, a lot of world-class CEOs that mentor and invest in startups as well as other supportive infrastructure in place.

Lastly, it is important to set some boundaries for yourself. If your company are one of those companies that are founded by multiple people, it is very important that there is a mutual understanding between each other on what you are willing to give away. Giving away is not only in terms of equity but in time as well. When a venture capitalist invests in your firm the whole working dynamic can change as you hopefully transition your company into a fast-growing firm.

Steps to finding the right venture capital firm

Besides that, here are some additional tips on how to find the right venture capital firm for your company. We've made it into several easy steps where you can easily implement through the list of companies in Venture Capital Singapore to see which ones fit well with your firm's needs.

  1. Geography: The location of your startup should be in the region which the VC is operating in. At NEXEA, we invest in tech startups in the SEA region. However, for some programs, we prefer companies that are based in Malaysia as our HQ is located in Kuala Lumpur. Thus, do some research on the VC to know if your location is applicable to them.
  2. Sector: Usually VC's only invest in companies that operate in fields of business where they have a lot of experience in. That goes to show why at NEXEA we invest in tech startups because we have a lot of expertise in tech-related companies. For us, a company which has a traditional business model would not be applicable.
  3. Portfolio conflict: A VC will typically not invest in a company which is a direct competitor of a company in their portfolio. So before applying to a VC, you should find out about their portfolio and see if you can identify any direct competitors to your company.
  4. Involvement: There are two types of VC firms. The first group are the VCs that are very involved. These type of VCs typically do not invest in a lot of companies as they do not have the time to be highly involved in all the companies that they invest in. The second group of VCs are the opposite where these firms are not very involved in the companies they invest in. This is usually due to the number of startups they invest in. They simply don't have the time to have a meeting with each startup every week.
    At NEXEA, we are highly involved with each startup due to our startup mentor network. For a startup, it is essential to know from each founder whether they prefer a highly involved VC or less involved VC.
  5. Fund size: A startup has to know beforehand what series a VC invest in. It does not make sense to apply for a pre-seed startup while you are doing your A-series. Furthermore, if you plan beforehand that you want to do your B-series and A series with the same VC to ensure good collaboration, you should check whether or not they invest in both series.

Venture Capital Jobs Singapore

During the first nine months of 2019, there was a 25% increase in investments in early-stage deep tech start-ups, compared to the same period in 2018. Venture capital Singapore has an expanding job scope because of the past successes of startups. Investment is likely to remain high because of the government's efforts to promote Singapore as the region's innovation and start-up hub. Venture Capital Singapore investments climbed 36% year-on-year to hit SGD13.4 billion during the first nine months of 2019. Digital tech companies received 93.2% of the funds.

The venture capital Singapore industry not only offers full-time jobs but is also broadening its scope by hiring interns and trainees as well. A brief look into the job description for an intern at venture capital in Singapore would have the following guidelines: you will perform industry landscape evaluations and propose new investments targets, conduct due diligence and analysis of selected target companies and so on. Venture capital Singapore jobs in full-time contracts also includes jobs like investment managers, analysts, directors and so on.

Venture capital Singapore industry advertises their jobs on various platforms, the most popular one being LinkedIn with new updated listings every day. Followed by other platforms such as Glassdoor and Job Street Singapore to open the world of venture capital jobs Singapore to those interested.

Venture Capital Singapore Summary

Venture capital Singapore has been growing rapidly which is reflected by the growing number of firms and startups that are starting and growing in the region. For startups wanting a venture capital, it is crucial to first identify the stage of their company is as well as setting boundaries for the company in order to find the right expertise needed for the company. This is not just the rule for venture capital Singapore, but generically.

We hope this article has provided you with a head start on what you should be looking for in a venture capitalist, particularly in regards to venture capital Singapore. Let us know in the comments section if there is anything else that you would like to know more about venture capital Singapore.

If you'd like to know more about venture capitalists in other Southeast Asian countries such as Malaysia, Vietnam, Indonesia, Thailand and the Philippines, check out the Southeast Asian Venture Capital article.

Learn More About NEXEA Venture Capital & How We Provide More Than Just Money

References:

This article talks about the Venture Capital Philippines ecosystem where it answers the basic questions of what is venture capital, why do companies require a venture capitalist to listing down venture capital companies in Philippines. Lastly, we provide several tips in helping you find the right venture capital firm for your company.

What is Venture Capital?

A venture capitalist or VC is an investor who either gives funding to startup ventures or supports small organisations that desire to expand but do not have access to equities markets. Venture capitalists are willing to invest in companies that fit in those criteria because they have the potential to earn a huge return on their investments if these companies end up being successful.

Some of the aspects that venture capitalists look for are strong management team, large potential market and a unique product or service with a strong competitive advantage. Also, they seek for opportunities that they are familiar with, and the opportunity to possess an enormous stake of the business so that they can influence its direction. Here at NEXEA, we are interested in tech start-ups as this is our expertise.

Why do companies require a Venture Capitalist?

You may be thinking, "Why do I need a VC? or What kind of value can a VC bring in to my business?" Well, it is true that not many Venture Capitalists are able to bring in much value. This is because they are too busy managing 10-20 companies per partner as well as managing their Limited Partners (investors).

Nevertheless, any VC is more than just providing funds. Since they will become part the owner of your business, they would want to see the company grow as well by providing any necessary help succeed a startup. At NEXEA, we offer to our invested startups ex-entrepreneurs who can guide young entrepreneurs with their business as well as provide some advice to avoid making the mistakes that they have made in the past.

For entrepreneurs and CEO of rapidly growing companies, most of them are inexperienced and they do not always know what to look out for. That is why a lot of startups need venture capitalist and in order to lessen the risk for a venture capitalist, it is important that startup founders are being connected to industry experts.

"You will need to do the due diligence in order to really understand if a VC is going to add value in addition to capital. This value can be introductions for potential partnerships, their network of other successful founders or the infrastructure the firm brings."

Venture Capital Philippines - Environment

The ecosystem of venture capital Philippines has been growing steadily over the last three years. With the recent implementation of Innovative Startup Act or Republic Act 11337 as well as the Revised Corporation Code by the Philippine government, this shows the support of the local government towards promoting entrepreneurship.

Currently, the top successful startups are within the industries of financial technology (Fintech), e-commerce as well as medical and healthcare technology. As local regulatory are slowly changing (in-favour for entrepreneurs), the majority of venture capitalists is looking forward to the growth prospects of the Philippine startups.

venture capital Philippines

Very Early Stage Investment Firms in Venture Capital Philippines (<US$1m)

Later Stage Investment Firms in Venture Capital Philippines (>US$1m)

Finding the right venture capital firm for your company

The first step to finding the right venture capital firm for your company is to know what stage your company is at right now. After figuring out the stage of your business, you can start applying to venture capital. Remember to prepare an informing pitch deck in order for you to have a higher chance of getting funded when pitching your company. Here are some examples of how a pitch deck should look like made by other successful companies.

Secondly, in order to find the best VCs, you should look out for their infrastructure and "speciality". It is best to find VCs that specialised in the industry that your company is in because you will then be provided with the best support tailored to your needs. Venture Capitalists like First Round Capital, Y Combinator or 500 Startups have a dedicated team of marketers, recruiters, experts and other necessary resources to bring into the company that they invest in. At NEXEA, we have dedicated lawyers, regional level CFOs, a lot of world-class CEOs that mentor and invest in startups as well as other supportive infrastructure in place.

Lastly, it is important to set some boundaries for yourself. If your company are one of those companies that are founded by multiple people, it is very important that there is a mutual understanding between each other on what you are willing to give away. Giving away is not only in terms of equity but in time as well. When a venture capitalist invests in your firm the whole working dynamic can change as you hopefully transition your company into a fast-growing firm.

Steps to finding the right venture capital firm

Besides that, here are some additional tips on how to find the right venture capital firm for your company. We've made it into several easy steps where you can easily implement through the list of companies in Venture Capital Philippines to see which ones that fit well with your firm's needs.

  1. Geography: The location of your startup should be in the region which the VC is operating in. At NEXEA, we invest in tech startups in the SEA region. However, for some programs, we prefer companies that are based in Malaysia as our HQ is located in Kuala Lumpur. Thus, do some research on the VC to know if your location is applicable to them.
  2. Sector: Usually VC's only invest in companies that operate in fields of business where they have a lot of experience in. That goes to show why at NEXEA we invest in tech startups because we have a lot of expertise in tech-related companies. For us, a company which has a traditional business model would not be applicable.
  3. Portfolio conflict: A VC will typically not invest in a company which is a direct competitor of a company in their portfolio. So before applying to a VC, you should find out about their portfolio and see if you can identify any direct competitors to your company.
  4. Involvement: There are two types of VC firms. The first group are the VCs that are very involved. These type of VCs typically do not invest in a lot of companies as they do not have the time to be highly involved in all the companies that they invest in. The second group of VCs are the opposite where these firms are not very involved in the companies they invest in. This is usually due to the number of startups they invest in. They simply don't have the time to have a meeting with each startup every week.
    At NEXEA, we are highly involved with each startup due to our startup mentor network. For a startup, it is essential to know from each founder whether they prefer a highly involved VC or less involved VC.
  5. Fund size: A startup has to know beforehand what series a VC invest in. It does not make sense to apply for a pre-seed startup while you are doing your A-series. Furthermore, if you plan beforehand that you want to do your B-series and A series with the same VC to ensure good collaboration, you should check whether or not they invest in both series.

Venture Capital Philippines Summary

The Philippine venture capital ecosystem is slowly growing as more and more startups are expected to increase in the succeeding years. With that said, for startups wanting a venture capital, it is crucial to first identify the stage of their company is as well as setting boundaries for the company in order to find the right expertise needed for the company.

We hope this article has provided you with a head start on what you should be looking for in a venture capitalist. Let us know in the comments section if there is anything else that you would like to know more about venture capital Philippines.

If you'd like to know more about venture capitalists in other Southeast Asian countries such as Malaysia, Vietnam, Thailand, Indonesia and Singapore, check out the Southeast Asian Venture Capital article.

Learn More About NEXEA Venture Capital & How We Provide More Than Just Money

References:

Southeast Asia Growing in Popularity

Southeast Asia came from far in its aim to be an attractive investment area. Over the past years the region experienced a strong economic growth. Since 2012, Southeast Asian startups were able to put in more money than the year before. In a market with over 600 million consumers together with the world's fastest growing internet market, Southeast Asia's time has come now.

The change affects startups and investors in this region positively. With the ecosystem maturing, larger capital is flowing in and out for both parties in this increasingly competitive market. More opportunities are arising for upstream, downstream and in previously untouched sectors due to the lack of capital and infrastructure. Venture capitalists are expanding their investment range and are situated in a more competitive environment in which they have to compete to get into deals. The region acknowledges nine unicorns with several others coming up. Those startups are increasingly raising bigger fund to keep their trendline in steady growth.

Chinese tech giants and Silicon Valley majors are currently in a battle with each other and with regional managers for a slice of this increasing market. No surprise, knowing that the internet economy's expectation of 2017 was to hit USD 50 billion and will exceed 200 billion by 2025

Globally, it is clear that Asia overtook Europe when it comes to Private Equity and Venture Capital. From 2016 to 2017, Asia saw a rise of around 13% while Europe has been steady for the past years. North America is the biggest player and takes the lions-share in this sector. Asia's fast-growing economy and advanced technical resources make the area more and more attractive to invest in.

High-growth sectors in Southeast Asia

There are some sectors that show quicker progression than others. Those are high-growth sectors and most of the time sensitive to technology. The following are some sectors which are perceived as attractive markets. Later in this report, you will find them validates by the unicorns resulting from this market.

Fintech

  1. More than half the adult population of ASEAN is unbanked and lack of access to financial services is acute in rural areas. 
  2. In ASEAN, P2P lending is forecast by Allied Market Research to grow at a compound annual growth rate of 51.5 percent to 2022.
  3. The unmet electronic payment needs across four ASEAN markets: Indonesia, Philippines, Cambodia, and Myanmar is in total more than USD 180 billion
  4. In these four markets, the credit market currently serviced by the informal sector is worth approximately USD 80 billion.

E-commerce

  1. E-commerce sales of first-hand goods were estimated to have reached USD 10.9 billion in GMV in 2017, up from USD 5.5 billion in 2015, growing at a 41% CAGR.
  2. The overall regional e-commerce market is expected to hit USD 88 billion by 2025.
  3. With an average of 140 minutes per month per person spend on e-commerce platforms, SEA outperforms the US who spends on an average of 80 minutes per person.

Transport

  1. Transport demand in Asia had increased on average four times per country since in 1980 ride-hailing services in Southeast Asia were expected to have reached USD 5.1 billion in 2017, double the USD 2.5 billion market size in 2015.
  2. The overall ride-hailing market is projected to touch USD 20.1 billion in GMV by 2025.
  3. Two of the biggest unicorns in Southeast Asia are ride-hailing majors; Grab and Go-Jek

Other sectors

  1. Online travel; due to the growth in airline and accommodation industry
  2. Online media serviced; driven by online ads and gaming

PE/VC investments in Southeast Asia

According to Preqin data, private equity and venture capital investments into SEA has nearly tripled its intensity to USD  23.5 billion in 2017, this growth has never been so high in four years. It was driven by a surge in corporate investment as leading companies across Asia co-invested in or led funding rounds for startups in this region. In the end, in seven of the top 10 deals in Southeast Asia for that year, corporate investors were part of it.

Singapore and Indonesia's role in PE/VC investments in Southeast Asia

The best areas within Southeast Asia for PE and VC investments are Singapore and Indonesia. Together they account for over 90% of the total deal value in 2017. The pro-business policies, tax treaties and a transparent regulatory regime make those countries interesting for fund managers and businesses seeking in SEA. As the fourth-largest economy in the world, Indonesia remains a key market, and significantly untapped at that, for businesses and investors alike. It is also home to four of the region's unicorns: Go-Jek, Tokopedia, Traveloka and Bukalapak.

Vietnam continues to show promise, with investments growing almost three times over the last two years to exceed USD 510 million in 2017.

Private Equity in focus

Private Equity deal value in Southeast Asia increased from USD 9.2 billion to 2014 USD 15.5 billion in 2017. The increasing PE interest to private transactions was the drive for the deal activity in this region. Such deals grew at 113% annually in three years. In one-year privatization deals involving PE firms grow 5.8%, led by the mega GLP deal.

Venture Capital in Focus

Statistics show that investments stood at 0.04% in 2014 and increased to 0.18% in 2016. This shows that the inflow of venture capital in Southeast Asia has been rising in the past years. This rise in investments led to a par with India when it comes to the proportion of GDP and is slowly pursuing China who is currently at 0.3% of GDP.

The amount of investments coming from VC's in Southeast Asia grew 4.8x from USD 1.7 to USD 8 billion (Preqin data). When it comes to seed and series A investments, the region saw an increase from USD 39.5 to 83.1 million. The largest gain was seen at series C and onwards. The investments had an increase from USD 738 million to 6.3 billion. Series A and subsequent financing rounds resulted in 79% of the VC investments for 2017.

Changes in the Southeast Asian sector

Unicorns launch IPO

A startup's exit path is relevant to investors. Still, Southeast Asia does not have relatively that much experiences with big exits. Looking at the fact that most startups right now are unprofitable and burning a lot of cash with the aim to grow, a public market listing is not likely. Yet two Asian unicorns announced their IPO in 2017 which gave the Asian sector hope. Sea Limited, formerly known as Garena, is a hosting platform for popular online games. The company raised USD 884 million in New York on initial public offering. Razer Ltd. is a leading marketer of computer and gaming equipment. The company raised around HKD 4.12 billion at the Hong Kong stock exchange on their IPO.

Larger money inflow

Startups are able to raise more money in their funding rounds nowadays. Unicorns are raising multibillion-dollar rounds. Some examples are Grab - USD 2.5 billion, which was recently followed by another USD 2 billion. Alibaba funded the e-commerce giant Lazada with USD 2 billion which resulted in a total investment of USD 4 billion.

When is The Best Time to Raise Funds for your Startup?

Reference list

MDEC, Southeast Asia 2018 Private Equity and Venture Capital Landscape Report

CB Insights, Venture Capital Funding Report Q3 2018, Available at https://www.cbinsights.com/research/report/venture-capital-q3-2018/ 

SVCA, Southeast Asia PE & VC: MAY 2018, Available at: https://www.svca.org.sg/editor/source/publication/research%20Publications/ southeast%20Asia%20PE%20%26%VC%20investments%20activity%20may%202018.pdf

Medium, Venture Capital in Asia: Landscape overview, available at: https://medium.com/@bluefuture/venture-capital-in-asia-lanscape-overview-1999ab168cc3

Learn more about venture capital

We will cover a list of Venture Capital Malaysia at the end of this article. I will also cover a few types of venture capital funding including Angel Investment, VC investment, PE investment and so on.

Venture capitalists have become more and more important in the start-up scene, as almost any major technology company launched in recent years has been financed by a VC company.

Aspiring entrepreneurs need to know what VC companies are looking for and how they can best be presented. Hire a good management team, learn how to pitch and show you understand the objectives of VC's exit strategies.

Securing funding is an important part of making your start-up dream come true.

Top Venture Capital in Malaysia

Below are the links to Venture Capital that invest into Malaysian companies by their investment stages. Venture Capital Malaysia List of VCs is to be updated regularly so that inactive venture capital in Malaysia are removed from this list.

Early Stage/ Idea Stage Venture Capital in Malaysia

Investments under RM1,000,000

  • NEXEA – Funding from RM50,000 to RM2,000,000
  • BizAngel – An Angel Investment group in Malaysia.
  • Cradle Fund  – We have a co-investment partnership with Cradle Fund.

Seed Stage Venture Capital in Malaysia

Investments above RM1,000,000

Later Stage Investment Venture Capital in Malaysia

Investments above RM2,000,000

Venture Capital Malaysia - How Does It Work?

Many venture capital firms in Malaysia either have funds or a holdings company. The funds range from small funds of a few million to billions. The smaller VCs are backed by family offices while the larger funds are typically funded by pension funds, insurance companies, foundations, fund-of-funds, and sovereign wealth funds. They are known as the Limited partners in a fund. General Partners are those managing the fund - but their business title is usually Venture Partner.

Venture Capital Funds in Malaysia require Startups that have the potential to grow at least 30X within 5-10 years to justify their investments. Below are the typical returns of Startups after 5-10 years. As you can see, those that return more than 30X will need to cover those that lose money (0-1X returns), plus give them enough returns to have at least 20-25% Internal Rate of Return (IRR). The data is from the US since the Malaysian market is just getting started.

Image result for vc minimum multiple
Venture capital malaysia minimum returns 30x - Correlation Ventures

To raise money from Venture Capital funds in Malaysia, there are a few key things to watch out for, like your Team, Financials, Traction (Results), Product, Market, and so on. All of these are detailed in our Startup Pitch Deck guide - which also helps Startups to understand how VCs think when they go through your Pitch deck. Do look below as we detail how to secure venture capital investment in the Malaysia & Southeast Asia context.

Understanding VCs: Venture capital companies are based on partnerships aimed solely at making a profitable exit.

VC deals are made throughout the world with the start-up boom. But how exactly does a VC company work?

Venture capital funds in Malaysia is usually structured as a private limited company and sometimes as a limited partnership. The majority of the capital of investment comes from the limited partners (LPs), whilst the General partners (GPs) of the Fund invest the capital on behalf of a limited partner in different projects.

General partners invest money in projects as well. Typical is that if a general partner raises a total of $100 million from limited partners for a particular project, the general partner is likely to raise an additional $1 million to $5 million to demonstrate the VC firm's trust in the project.

Ultimately, venture capital funds in Malaysia have one goal: to make a profitable exit if a funded start-up is either sold or published. A venture capital group will aim to repay its investors with a decent margin for their initial investments. The venture capitalist in Malaysia would naturally like, if possible, to make some money, usually about 20% of the final sale or public valuation, taken from their investors.

A venture capital firm pays for its expenses by retaining a management fee of approximately 2% annually for the entire amount of its original investment.

So, who are you talking to when you want to reach a risk capital venture?

General partners, managing directors and then partners are at the top of the hierarchy. These are the people who decide and define investment strategies. These are the people you want to talk to when you are ready to pitch your great idea.

How to secure venture capital investments in Malaysia

There are a few things to consider when looking to secure venture capital funding in Malaysia. Some Venture Capital firms only do certain stages of funding in different stages of the Startup Lifecycle. Some others only do specific industries - so watch out for those that only do one specific industry, e.g. Fintech Startups only. Some others have a list of Startups that they can invest into - and this depends on the Malaysian VC's mandate or agreement with their Limited Partners/Investors. Venture Capital Malaysia will explain below how to find the right VC alogn with other things to note.

The golden rule of real estate is location, location, location. For venture capitalists, however, it’s management, management, management.

A start-up’s success depends on having a flexible yet skilled management team. It doesn’t matter if the start-up has a great business plan. Realistically, the management team will have to revise that plan, changing directions to respond to market needs and pressures. They will always need to be ready to face unexpected challenges.

That’s why venture capitalist in Malaysia rarely invest in ideas alone. It’s a much safer bet to invest in a great team.

Most successful companies are founded on strong, balanced teams. In fact, when you look at Silicon Valley success stories, a pattern emerges: a successful company often springs from the combination of a visionary leader with a global perspective, a technician with the skills to turn the vision into reality, and a salesperson who can tailor a product to market expectations.

Computer graphic card pioneer 3Dfx was one such company. In the 1990s, the company’s founding trio included a visionary expert on polygonal mathematics, a professor from the Massachusetts Institute of Technology specializing in 3D mathematics, and a senior sales vice president with years of experience.

This is the sort of team a venture capitalist wants. If a company is missing a key position, it’s an indication that the management team might not be well-balanced. What’s more, venture capitalists also question a start-up that can’t attract at least one founder with a solid technical background.

In sum, if the management team doesn’t impress, a venture capitalist in Malaysia might feel the start-up isn’t yet ready for investment.

Check out some Malaysian Startups.

Find the Right Venture Capital in Malaysia by Stage

venture capital malaysia stages
  1. Angel Round - usually an RM50k-RM500k round from angel investors or friends and family to go from idea to initial prototype. Many times, this is where Startups also go for Accelerator or Incubator programs.
  2. Seed Round - usually an RM500k - RM2M round from angel investors and a few early stage VC Firms in Malaysia  to establish product-market fit with a series of initial customers
  3. Series A Round - usually an RM3M-RM10M round from VC Firms in Malaysia to grow the customer base and start to scale
  4. Series B Round - usually an RM15M+ round from later stage VC Firms in Malaysia to push towards becoming a market leader or expanding overseas
  5. After the Series B, companies will sometimes raise a Series C, D, E, etc., which can be a mix of both later-stage VC Firms in Malaysia as well as Private Equity firms (out of scope for this answer, but good to research the difference).

Other things to note about Malaysia VCs

Not all venture capitalist in Malaysia invest in everything. For example, many venture capitalists in Malaysia do not invest in e-commerce websites, property projects, Bitcoin mining projects, etc. because these projects rarely have the potential for a 30X return in 5-10 years.

The majority of VCs are looking for businesses that are somehow enhanced by IT - but not necessarily in the IT space. For example, Uber, Airbnb and Foodpanda are all IT-enhanced businesses in the industries of Transport, Accommodation and Logistics, which are in the past very traditional and slow growing businesses.

The IT solutions implemented give these businesses huge scalability in their business models to grow fast enough to give a 30X return within 5-10 years.

When is a good time to raise funds from Venture Capital in Malaysia?

Venture capital Malaysia aims to explain when the right time to raise venture capital. There are a few things to consider before raising from Malaysian venture capital.

This includes things like if it is time to trade ownership equity for capital investment. Should you work hard on becoming cash flow positive before raising money or at least have some revenue before raising money?

It definitely affects your valuation negatively if you have not validated revenues or if you have not become breakeven. Most Startups that approach us are not break-even yet but those that get invested have at least some sort of revenues proven. We work with many Startups that are not yet break-even but have some sort of revenues.

We support them with our network of successful business owners. We understand that taking off is hard, so we look to support Startups as much as we can.

We usually separate Startups with and without revenue, where those with revenue are considered Startups with some sort of Validation and can be valued as much as 4X higher due to the fact that they may have enough revenue to justify the valuation.

For example, some highly scalable startups with RM50k revenue a month can be valued at about 4X Revenues, which is:

50k*12*4=RM2.4M.

If they were to raise RM200k, that would be:

200k/2.4m = 8.3% equity dilution

At NEXEA, we never want to take more than 10-20% of the company because we want the founders to continue to be motivated in the case that more funds are raised later on.

Do you want to hold on to your company forever, or are you willing to let it go after some time and retire young? Does raising capital fit to the vision of the company and yourself, as the founder?

Some founders tend to want to own their business forever, and that is fine. Some others feel that by sharing the pie, the pie actually grows larger. One of the advice that we usually give is to think of the amount of money you need to retire young or to live the rest of your life without financial worries.

For example, if you think you need Rm10M to retire young and live the rest of your life financially free, then you only need to own 20% of a RM50M company by the time you exit. Venture capital funding can help you reach that goal.

To benefit the most from Venture Capitalist in Malaysia

To make the most of Venture Capital in Malaysia, you need to be ready for it. One of the things you will need to ensure is that you have your business plan tested and ready to be executed. One of the biggest mistakes we have seen is a Startup founder raising more than RM10m from Venture Capital and then spending it on the wrong things which brought little to no return to the value of the business. That is where testing/validation comes in to help you avoid mistakes like that.

For example, if you are an idea stage startup, you will want to ensure that there is a market, that your product is needed, and that people are willing to pay for it. Some Startups (even very large ones) have not done so, and are now paying the consequences in the form of down-rounds (valuation drops significantly), being avoided by VCs, or even having the CEO removed by their board members. It is always important to have the fundamentals of any business right so that you can build up your empire fast and steady. A great example of a Startup that validated well is Airbnb where there is a huge global demand, that people need cheaper accommodation, and that people are willing to pay for their fees. A huge factor for their success is that they are disrupting hotels that have traditionally been demanding high prices.

What will Venture Capital Funds in Malaysia typically ask from Startups?

malaysia vc venture capital questions requirements

Venture Capital Firms (VCs) in Malaysia look for a few key things in Startups. Of course, they give you money in exchange for your equity, or shares in your business. However, it also includes the Pitch Deck, asking amount, and usually Financials. If the deal starts to get serious, then they will start to do their due-diligence process, which can include calling up your suppliers and customers, checking your financials and accounting, and doing other forms of checks to ensure that they are not investing in something too risky.

The Term Sheet

Venture Capital Malaysia will try to explain the term sheet briefly for the main things to watch out for. The term sheet is an agreement where the VC in Malaysia and the Startup sign before the actual transaction. Startups need to negotiate and sign this upon both parties agreeing to the terms.

Investment Tip: Ensure that you write down the terms discussed and agreed upon so that they do not change by the time it is time to draft the actual term sheet. Do this in the order of importance to not-so-important, so that both parties can save time.

Going deeper, they may require things like Preferred Shares which have additional features and protection like a Liquidation Preference where they are guaranteed a certain return before the common shareholders get anything. Some Venture Capital in Malaysia also practices anti-dilution protection where in the event of a down-round (valuation goes down), they get protected from dilution of their equity. They can also have pro-rata rights and rights of refusal to invest further before an existing or new investor can, to maintain their equity percentage. Malaysian VCs can also ask for the right to be paid dividends, although dividends are usually not required by them. They would want Voting Rights and Board Seats to give them some control over the company in the case that there might be disagreements down the road.

The Pitch Deck

It does not occur to many Startups just how important the pitch deck is to Malaysian VCs. It is the reference point to most important aspects of your business. That is why it is important to understand how a VC in Malaysia thinks when they are looking through your pitch deck. Here is an example pitch deck that does just that.

For example, the Problem & Solution slides are important for venture capital fund managers to understand what problem you are solving, and why it is important to society. It seems that society highly rewards people who solve painful problems (by paying for your service), so this is one of the main things VCs look at when evaluating your business. The problem being solved must be painful enough for people to throw money to solve it. A good example is a food delivery service like RunningMan, where people are willing to pay extra for food to be delivered. It is not the most painful problem all the time, but when you are stuck in a meeting or just had a really tiring day, it makes a lot of sense. Or, it must evoke so much desire that they just end up needing to pay for it. A great example is Spotify, where it is so much more convenient to subscribe and get all the music in the world compared to buying albums or downloading music.

Venture Capitalists don't have time to attend lengthy presentations. Just make it quick!

Venture Capital people are busy. Don't waste the precious time they grant you to secure the financing they need. Have all your materials ready to make a good impression before you meet.

Know that long multi-page business plans are gone for a long time. Investors want to see snappy, concise plans with clear objectives. Entrepreneurs must show that they can launch their ideas on the market and quickly analyse the results – and be prepared to make big changes if necessary.

Today, the VCs deal with a tonne of communications, email or otherwise. They therefore prefer newsletters that deal with major issues in a few words.

You should have an understanding of the financial requirements of your start-up, the talents of your management team, your current development stage and future objectives. The executive summary of your business plan – one or two pages, topics – should cover these key subjects.

You may provide other support documents, such as the so-called investor slide deck, once you are at the door. This is a set of ten slides that address the most important issues for your startup like your competition or your company value proposition.

You also need a financial model to demonstrate your project's viability. Your model should provide financial data for three to five years covering issues, e.g. projected revenue, significant costs and net results. All this should be organised clearly in a table.

A good model accurately describes the factors that determine the profitability of your company. Don't skimp at the details! Don't skimp! For example, you have to consider how many customers you serve if you open a restaurant, fluctuating the price of raw materials, potentially increasing rent costs, etc.

Ask Me Anything

Let me know if you have any further questions. Let me know in the comments below what worries you and I will try to give you a good answer on how Venture Capital in Malaysia works for Startups. Venture Capital Malaysia is a side product Nexea aimed to help educate young Startups on venture capital.

Get Investments from a Leading Venture Capital Firm in Malaysia

If you want to raise funds, feel free to contact us here: Venture Capital - we have one of the fastest deal times and we cover early stage venture capital for Startups in Malaysia. NEXEA adds value like no other VC - because we are also a hybrid Angel Investment Fund. Our Angel Investors who are actual high net worth individuals, businessmen and ex-entrepreneurs are here to mentor and connect you with their networks.

UPDATED 24 AUGUST 2021: More information & VCs added to the list

This article about VCs in Malaysia includes the definition of VCs, why companies need VCs, the VC environment, and of course, the list of Venture Capital funds in Malaysia and the rest of Southeast Asia. We have also included how you can find the right VC for your company as well!

How is Venture Capital defined?

A venture capitalist or VC is an investor who either provides capital to Startup ventures or supports small companies that wish to expand but do not have access to equities markets. Venture capitalists are willing to invest in such companies because they can earn an impressive return on their investments if these companies turn out to be successful. Venture capitalists look for a strong management team, a large potential market and a unique product or service with a strong competitive advantage. They also look for opportunities in industries that they are familiar with, and the chance to own a large stake of the company so that they can influence its direction. At NEXEA we are interested in tech start-ups as this is our expertise.  

The video below further explains venture capital.

Why Do Companies Require Venture Capital Firms?

Is it true that Venture Capital fund managers always bring in value to the strategy and execution of the business? That is far from the truth – from my experience, not many Venture Capitalists are able to bring in much value. Not only are they too busy managing 10-20 companies per partner, but they also have to manage many of their Limited Partners (investors) too!

However, any VC in this list of venture capital firms in Malaysia is more than just a fund. They will be part owners of a company and want to see this company grow so they will do anything to help a start-up succeed. At NEXEA we have ex-entrepreneurs who can guide start-ups and help them avoid mistakes they have made before when setting up their business.

The start-ups need venture capitalists as they are mostly rapid growing companies with inexperienced owners who do not always know what to look out for. To reduce the risk for the venture capitalist as well as for the start-up it is important that there is a great connection between the two parties.

"You will need to do the due diligence in order to really understand if a VC is going to add value in addition to capital. This value can be introductions for potential partnerships, their network of other successful founders, or the infrastructure the firm brings."

Is Venture Capital The Right Fit For Your Company?

Venture Capital is the most well-known method of raising funds, and for good reasons. The average yearly VC deal value has increased by nearly fivefold over the last decade. Companies that are ready to expand quickly with the willingness to give up stocks and listen to the VC investor's will benefit greatly from venture capital. VC investors are motivated to bring more than just money to the table since they profit (substantially) if your firm succeeds. In this regard, they are one of the most helpful sources of startup capital. Investors supply crucial information for running a successful firm, as well as marketing and sales guidance, networking opportunities, and industry contacts.

The publicity that comes with landing a significant deal can help young businesses build demand for their products and recruit top people. Although “VC” has become synonymous with “early business financing” due to its major participation in some of the most significant launches of the decade and genuinely exponential growth, the reality is that VC investment is the exception, not the rule.

Venture Capital in Malaysia - The Environment / Ecosystem

VC in Malaysia has been booming lately. There has been an increase in venture capital firms over the last couple of years. This increase has been very positive for the start-up environment in Malaysia. Venture capital has a great influence on a growing economy as well as job creation and transitioning into a knowledge-based economy. This is extremely important for Malaysia and this great environment has and will on having a great influence on the country.

Furthermore, the success rate of start-ups is significantly improved by venture capital in Malaysia. They bring in not just money, but also value like connections to corporates, and follow in investments from venture capitalists that do larger deals than they do. Eventually, the private venture capital market leads to private equity, mezzanine investors, or even public markets where Startups can eventually exit.

venture capital funds in malaysia / venture capital in malaysia

Very Early Stage Investment Venture Capital List Malaysia investing under US$1m

Venture Capital funds in Malaysia for early-stage startup companies are listed below:

Later Stage Investment VC Funds in Malaysia investing above US$1m

List of Accelerators in Malaysia (Idea Stage Startups)

We added this to our venture capital list because venture capitalists don't typically cover idea stage companies.

An accelerator is a 3-4 month program that helps Startups jump-start their business with about RM50k for about 8%. Startups that graduate should be able to raise funds. Accelerators usually offer mentoring and coaching, as well as networking opportunities.

Government start-up accelerators

Private start-up accelerators

Corporate start-up accelerators

List of Government Grants in Malaysia (Early Stage Startups)

A government grant is a financial award given by the federal government to an eligible startup. In Malaysia, this usually originates from the Ministry of Finance. 

List of Venture Capital in Southeast Asia

The Venture Capital Southeast Asia ecosystem has been growing significantly from previous years as the internet economy rapidly expanding. According to Pitchbook, the venture capital dry power has increased up to eleven-fold in the past 6 years. This shows how competitive the VC landscape is in Southeast Asia as large international investors (Y Combinator, 500 Startups, GGV Capital, etc) start to focus on SEA, while regional VC investors (NEXEA, Asia Partners, Strive, etc) are doubling down.

View the full list of venture capital in SEA here.

Finding the top Venture Capital firms in Malaysia for your company

First of all, you have to know what stage your company is currently. When you know what stage your company is in you can start applying to venture capital. To ensure you have the opportunity to pitch your company you have to prepare an informing pitch deck.

The infrastructure and “speciality” of the VC is the most interesting part to look out for, this is what separates the best from the rest. Venture Capitalists like Andreessen Horowitz or First Round Capital have a dedicated team of marketers, recruiters and other resources to bring into a company they invest in. At NEXEA, we have dedicated lawyers, regional level CFOs, many world-class CEOs that mentor and invest in Startups and other support infrastructure in place.

Lastly, set boundaries for yourself. Especially companies which are founded by multiple people it is very important that you know from each other what you are willing to give away. Giving away is not only in terms of equity but as well in time. When a venture capitalist invests in your firm the whole working dynamic can change as you hopefully transition to a fast-growing firm.

Steps to finding the right Venture Capital funds in Malaysia

In addition to some tips to find the correct venture capital firm for your company, we would like to supply you with some easy steps which you could implement to find via this venture capital list that fits your firm.

  1. Geography: The location of your startup should be in the region which the VC is operating in. At NEXEA we invest in tech start-ups in the SEA region. However, for some programs, we prefer companies that are based in Malaysia as we are located in Kuala Lumpur. So do some research on the VC to know if your location is applicable to them.
  2. Sector: Usually VC's only invest in companies that operate in fields of business where they have a lot of experience in. As discussed before at NEXEA we have a lot of expertise in tech-related companies. For us, a company which has a traditional business model would not be applicable.
  3. Portfolio conflict: A VC will typically not invest in a company which is a direct competitor of a company in their portfolio. So before applying to a VC find out about there portfolio and see if you can identify any direct competitors.
  4. Involvement: There are two types of VC firms, the first group are the VC's that are very involved. These VC's typically do not invest in a lot of companies as they do not have the time to be highly involved in a lot of companies. The second group of VC's are the opposite, these firms are not very involved in the companies they invest in. This is usually due to the number of start-ups they invest in. They simply do not have the time to have a meeting with each startup every week. At NEXEA we are highly involved with each start-up due to our start-up mentor network. For a start-up, it is essential to know from each founder whether they prefer a highly involved VC or less involved VC.
  5. Fund size: A start-up has to know beforehand what series a VC invest in. It does not make sense to apply for a pre-seed start-up while you are doing your A-series. Furthermore, if you plan beforehand that you want to do you B-series and A-series with the same VC to ensure good collaboration, you should check whether or not they invest in both series.

List of Venture Capital Funds in Malaysia - Summary

There has been and a growing number of venture capital firms in Malaysia which has had a very positive effect on the economy of the country. For startups wanting venture capital, it is important to identify at what stage they are as well as finding the right expertise and setting boundaries for the company.

We hope this venture capital list has provided you with enough knowledge. Let us know in the comments if there is anything we should add?

Learn More About NEXEA Venture Capital & How We Provide More Than Just Money here

References:

https://www.inc.com/bubba-page/5-steps-to-finding-the-right-venture-capital-investor.html https://www.forbes.com/sites/alejandrocremades/2018/08/02/how-venture-capital-works/

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Written by Cherylle Phua

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