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VENTURE CAPITAL AND LITIGATION FUNDING A.

Venture Capital Venture capital is one of the methods used to raise capital of company. It can also help a company to merge or acquire other companies. Venture capital originated from the practice of private equity since 18th century in London. Today this method had been developed and spread all over the world including Asia. The concept of this form of raising capital is investors will make investments to the companies rather than giving loans. The investors or so called venture capitalists usually are groups or individuals of wealthy investors, investment banks and other financial institutions. There are three general categories of venture capital namely seed capital, early-stage capital and expansion-stage financing. Seed capital is an investment made for ideas that have not yet come to market while early-stage capital is for companies in their first or second stages of existence and expansion-stage financing, for companies that need to grow beyond a certain point to become truly successful. As a consideration of the investment made, the venture capitalist will be paid a high rate return, owe equity and substantial ownership position in the companies. Other than that, the venture capitalists will have significant influence on company decisions. Investments are usually made in the form of cash in exchange for preference shares in the invested companies. So venture capital can be viewed as a subset of private equity. Besides money, there are situations where investors are expected to provide their managerial and technical expertise to the invested companies. For the companies, venture capital is a great and appealing option to raise fund especially for the new or small companies which are unable to raise capital in the public markets, to secure a bank loan or complete a debt offering in a short period. Through venture capital, companies are allowed to save time to build up and expand theirs business empire. Besides that, the fact that the companies obtained venture capital backing means the business can be considered as potential for rapid and profitable growth. By this, companies can market their business, attract more investors and draw intentions of the public. . At the end, both companies and venture capitalist will have a lucrative profits in terms of monetary and reputation. In addition, venture capital can be regards as a key which is necessary to form of investment because it fosters entrepreneurship, especially in high-tech and other innovative industries. This also turn promotes job creation and economic growth. The mode to contact the venture capitalists are by an introduction of business to another business owner, financial institution or other professional who knows the venture capitalist well enough to approach them with the proposition. Usually, venture capitalists on deciding which companies they want to invest in, they will review hundreds of business plans, meeting entrepreneurs and company managers, and performing extensive due diligence on investment candidates. The venture capitalist needs to be very careful and selective in the assessment because they are actually in the hunt for opportunities in which their investments will grow rapidly and provide a successful exit within a certain timeframe. Eventhough venture capital can allow the investors to receive high returns profit, it must be noted that, it is a kind of investment with risk. This happens when the companies invested fail or underperform. In Malaysia, venture capital is still an emerging industry which has a good prospect. There are two types of venture capital in Malaysia which are, Venture Capital Corporation (VCC) and Venture Capital Management Corporation (VCMC). VCC means being a corporation that

manages on its own behalf, investment in securities of venture companies in early business stages, while VCMC is being a corporation that manages on behalf of a VCC. The main regulatory body that governed the establishment and operations of venture capital in this county is the Securities Commission of Malaysia and the laws governing venture capital are Capital Market and Services Act 2007 and Guidelines for Registration of Venture Capital Corporations and Venture Capital Management Corporations (prescribed by SC). Besides that, SC also had also provided the guideline for Islamic Venture Capital named Guidelines and Best Practices on Islamic Venture Capital. Both guidelines have laid down the procedures of registration, requirements need to be fulfilled and rules. B. Litigation Funding Litigation funding is an instrument which law firms can finance their litigation or other legal costs through investors who are known as third party funding company. This funding company will provide advance cash to litigants or legal firms for litigation purposes. As exchange, the funding company will obtain some share of the judgment or settlement. Previously, people are not aware of the existence of litigation funding tend to make loans to cover the litigation fees, and end up suffer to pay back the debts regardless the lawsuit was successful or not. Around 1997, litigation funding was a phenomenon in United States and later the demands for it grows all around the world. This is because; litigation funding is always viewed as an access to justice which is just, cheap and quick. It is also considered as fundamental for human rights for those who cannot bear to pay the expensive litigation fees. Litigation funding is available for either plaintiff or defendant, and can be used for any cases such as personal injury, commercial disputes, civil rights cases, workers compensation and structured settlement. However in order to qualify for funding with a legal financing company, there must be sufficient prospect of success on its merits and has a strong legal team with a convincing case strategy. In some types of offering, however, the model of litigation funding can appear to be more like the provision of legal services. This is where a funder, sometimes from a legal services background, conducts a detailed assessment of the legal merits of a case. There are many benefits of litigation funding on part of the plaintiffs as well as litigants and funding company. It gives the plaintiff the peace of mind as the plaintiff will not be trapped in debt and can avoid financial disaster during the pending of a lawsuit. It is nothing like a bank loan or insurance as there is no interest or premium will be charged. Plaintiffs will have greater access to the courts and are given greater bargaining when facing large corporations or other wealthy defendants. It can also evade premature settlements at a discount due to the exhaustion of funds. As litigation funding advances are not debt, litigants do not have to pay monthly fees in obtaining litigation funding. Besides that, there are no payments need to be made at all until the case settles or judgment is obtained, which could take months or years away. In the situation where the case proceeds to trial and loses, the third party funding company will receives nothing and loses the money they have invested in the case. Both the litigants and the plaintiff in this case are not entitled to reimburse the money. However if the lawsuit succeed, certain percentage of the judgement or settlement, need to be paid to the funding company. The percentage depend on negotiation or agreement between the plaintiff and funder. In essence, legal funding relieves financial pressures to better obtain a fair settlement. In Malaysia, Litigation funding is still a foreign concept in Malaysia. According to section 112 of the Legal Profession Act, 1976 a pure contingency fee arrangement is prohibited. However, based on Ad Hoc Committee to Review the Legal Profession Act wherein it was

proposed that the legal profession be allowed to have conditional fee arrangements modelled after the South African Contingency Fees Act (No. 66 of 1997) but it is not yet enacted. Bar Council of Malaysia also said to have made rules to allow for some contingency fee arrangements. While the Security Commission of Malaysia is still studying the possibility of third party litigation funding to encourage them to be more involved in protecting their rights,