Managing The Myths And Misconceptions Of Venture Capitalists
Business Times, 20 Jan 2004
THE forces shaping a developing country like Malaysia are vastly different from Europe or the US, so direct comparisons would expectedly, and unfairly, draw large gaps. Relative to these countries, the Malaysian venture-capitalist (VC) industry is still in its infancy!
So when Mavcap first started up, expectations abounded about the ‘new-venture-capitalist-on-the-block’. Managing these expectations has indeed been challenging because certain misconceptions stubbornly cloud industry and public opinion.
But like the true entrepreneur, we view conflict and other foibles for what they really are: opportunity to innovate and change.
But first, let us give you the ‘wrong’ picture.
MYTHS AND MISCONCEPTIONS
Myth – VC fund performance is currently measurable
Most VC funds in Malaysia are still quite new in that they have not reached their respective fund life. Hence the key performance indicators (KPI), which are always being measured on fund net IRR or cash on cash IRR, are not available. Comments made on the performance of the funds can thus be dismissed as speculative.
Myth – VC funds ensure success: Traditionally, only 5 to 10 per cent of which go to market survive in the long run. Companies funded by VCs, however, do a bit better – on average, 50 per cent of businesses will fail, 20 per cent will break even, another 20 per cent will do okay, and 10 per cent will hit a home run.
So the fact that a VC is willing to bet on your business idea does not guarantee success. Far from it. What it guarantees entrepreneurs is a fair shot at the market, expert guidance and support.
Misconception – VCs are too stringent: VCs have to be stringent in selecting investee companies. Though success is not guaranteed, the objective of investors is to make money, so targeting the right investment is important.
However, temper this with nation-building makes Mavcap’s overall mandate quite a task. People who think themselves entrepreneurs, but who are in fact mere copiers, add to this confusion.
Myth – Current technology can be commercialised: In reality, there is a huge discrepancy between what the market wants and what happens in research. Currently, researchers focus on obtaining grants for their projects, without necessarily tallying their efforts with market demand. In other words, they conduct research without current and hands-on knowledge of the market and its practices.
Without this partnership with the market/industry, the applied research is relegated to publishing, there may not be a demand for the technology being developed. The researcher has to stress-test his findings by conducting market trials, identifying competition, and determining what the market will bear.
Misconception – Sufficient domestic demand in the ICT industry: In Mavcap’s experience, fuelling the ICT industry is easier said than done. The challenge for local ICT companies is to garner appropriate levels of demand within the context of the domestic market. It is unlikely without local success, companies are able to export their products/services. However, much of domestic demand is being met by multi-national corporations and privileged vendors. In order to invest in ICT companies, appropriate domestic demand must be created – therein lies Mavcap’s challenge.
So how to correct these ‘wrong’ pictures?
It won’t be easy. And it won’t happen immediately. We aim to forge ahead and dispel these many myths and misconceptions through our programmes for the year ahead and beyond.
Communities-of-practice: We want to create ‘communities-of-practice’ where knowledge will evolve from student to researcher to entrepreneur.
For instance, some of our current programmes aim to forge linkages among diverse sets of organisations: investment banks, universities, large corporations, entrepreneurial companies, because this is critical to the innovation process.
In particular, our objective is to close the gap between technopreneurs and VCs, and also bring the VC industry together. So far, Mavcap’s Seed programmes have been well-received by the market and the VC industry, and these will continue into 2003.
Entrepreneurial Economy: In 2003, we want to further narrow the VC-technopreneur gap by bringing the VCs to the universities and students. The E-2 series, a collaboration with TeAM, aims to introduce the concept of entrepreneurship to students as an alternative career consideration. It is part of our vision to create an entrepreneurial economy.
As for commercialising innovative research, Intellectual Property Rights (IPR) lies with the universities at the moment and we are looking to liberalise this practice. Oxford and MIT, among the many other universities in the UK and US, already subscribe to this practice and innovations borne in their labs have gone global. Without tackling this issue, we may never get the Malaysian entrepreneur out of the universities.
Pressing on: With these forces in play, Mavcap plans to press on in achieving its objectives. However, as a VC, we still have s to see a viable business models.
Do not be put off by the due diligence process. Look at it as a shaping experience. If you fail, try and try again. At the end of the day, the experience is enriching. Once you put the effort in to convince your preferred VC of your business plan, winning customers will be that much easier. Challenges and misconceptions are there for you to realistically chart your future. Mavcap is doing just this.
Our plans will of course drive our objectives of nation-building and fostering the entrepreneurial spirit among Malaysians. Already we can see certain barriers and parameters, but we’re going to tackle them head on. So should you.
Mavcap is established as a venture capital firm to invest in technology-based companies and as an engine to spur the growth of the VCventure capital industry in Malaysia. We are an entrepreneurial partner and provider of seed and early stage VCventure capital and innovative financing for ICT companies and high growth sectors. It MAVCAP is also a professional and credible international fund manager, which has the necessary expertise and experiences to monitor and ensure rewarding returns on investment.
Mavcap is dedicated to empower innovative entrepreneurs (innopreneurs) to create new wealth and generate excellent returns to their stakeholders. This is achieved through on-going and planned entrepreneurial development programmes; technology, business and financial assessments; facilitating market access; and professional management of funds.
Article contributed by Mohd Azwar Mahmud
The writer is chief executive officer of Mavcap