Venture Capital Malaysia
Venture Capital Malaysia is a guide for Malaysian Startups looking for venture capital funding. We have also included a list of VCs at the end of the page.
I will cover a few types of venture capital funding including Angel Investment, VC investment, PE investment and so on. Venture Capital Malaysia is a list that covers funding for idea stage, early stage, and growth stage startups.
How does Venture Capital work in Malaysia?
Many venture capital firms 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.
VC Firms 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.
To raise money from Venture Capital 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.
How to secure venture capital investment
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.
Find the Right Venture Capital in Malaysia by Stage
- 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.
- 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
- Series A Round – usually an RM3M-RM10M round from VC Firms in Malaysia to grow the customer base and start to scale
- Series B Round – usually an RM15M+ round from later stage VC Firms in Malaysia to push towards becoming a market leader or expanding overseas
- 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
Not all VCs in Malaysia invest in everything. For example, many VCs 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?
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:
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 Capital
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?
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.
List of Malaysian Venture Capital
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 <2m Investment
- Nexea Angels – We are an Angel Investment group of 20+ Investors (Successful businessmen) focussed on adding value & giving back to Startups.
- BizAngel – An Angel Investment group in Malaysia.
- Cradle Fund – We have a co-investment partnership with Cradle Fund.
Seed Stage Startups >RM1m Investment
- Expara Ventures
- Netrove Partners
- TinkBig Venture
- Teak Capital + Intres (via the Axiata Digital Fund)
- 500 Startups
Later Stage Investment Venture Capital in Malaysia (>RM2m)
- Cradle Seed Ventures Management Pte Ltd
- Jungle Ventures
- KK Fund
- Sequoia Capital
- Golden Gate Ventures
- Vertex Ventures
- SoftBank Capital
- IMJ Investment Partners (now Spiral Ventures)
- SPH Media Fund
- Asia Venture Group
- Incubate Fund
- Rebright Partners
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.