Ismail Ab.

Wahab
 Ismail Ab.Wahab

 INTRODUCTION

 STAGES OF FINANCING

 SOURCES OF FINANCE

 VENTURE CAPITAL FINANCING: SELECTION

CRITERIA

 GOVERNMENT’S FUNDING SCHEMES & GRANTS

 DEBT VERSUS EQUITY

 Ismail Ab.Wahab

 The availability of finance is a key factor in the

development of technology-based ventures.
 The choice of financing method is an important
determinant of whether an idea or product reaches the
market quickly and successfully.
 The nature and sources of finance for technology-
based ventures will vary through the venture’s
development process.
 The financing of this process requires a series of
injection of money and failure to finance adequately any
part of the process may cause the business to fail.
 Ismail Ab.Wahab

NEW VENTURE FINANCING: THE ROCKET ANALOGY

 “Launching” a new venture

= launching a rocket

 The venture proceeds in “stages”

 At the each stage, the venture

must be “fueled” by cash

 The rate at which cash is

consumed during one stage of
venture development is referred to
as the venture’s “burnt rate”
 Ismail Ab.Wahab

Generally, funds for technology ventures are raised in

stages. Stages of funding are typically tied to the
stages of business development:

PRE-
START- EARLY RAPID MATURE
START- EXIT
UP GROWTH GROWTH GROWTH
UP

GROWTH &
EARLY STAGE LATER STAGE
EXPANSION

 Pre-Seed Financing  Second-Round Bridge Financing

 Seed Financing Financing
 First-Round  Third-Round
Financing
Financing
 Ismail Ab.Wahab

Generally, funds for technology ventures are raised in

stages. Stages of funding are typically tied to the
stages of business development:

PRE-
START- EARLY RAPID MATURE
START- EXIT
UP GROWTH GROWTH GROWTH
UP

GROWTH &
EARLY STAGE LATER STAGE
EXPANSION

 Pre-Seed Financing  Second-Round Bridge Financing

 Seed Financing Financing
 First-Round  Third-Round
Financing
Financing
 Ismail Ab.Wahab

EARLY STAGE
 PRE-SEED FINANCING

A relatively small amount of capital is provided to an

inventor or entrepreneur to prove a specific concept
for a potentially profitable business opportunity that
still has to be developed and proven. The funded
work may involve product development (as opposed
to "pure" research), but it rarely involves initial
marketing.
 Ismail Ab.Wahab

EARLY STAGE
 SEED FINANCING

Financing is provided to newly formed companies for use

in completing product development and in initial
marketing. These companies may be in the process of
being organised or may have been in business a short
time. In either case, products have yet to be sold
commercially. Generally, such businesses have
assembled key management, have prepared their initial
business plan, and have conducted at least initial market
studies.
 Ismail Ab.Wahab

EARLY STAGE
 FIRST-ROUND FINANCING

Financing is provided to companies that have

expanded their initial capital and now require funds
to initiate commercial-scale manufacturing and
sales.
 Ismail Ab.Wahab

GROWTH & EXPANSION STAGE

 SECOND-ROUND FINANCING

Working capital is provided for the expansion of a

company which is producing and shipping products
and which needs to support growing accounts
receivable and inventories. Although the company
clearly has made progress, it may not yet be
showing a profit at this stage.
 Ismail Ab.Wahab

GROWTH & EXPANSION STAGE

 THIRD-ROUND FINANCING

Funds are provided for the major expansion of a

company which has increasing sales volume and
which is breaking even or which has achieved initial
profitability. Funds are utilized for further plant
expansion, marketing, and working capital or for
development of an improved product, a new
technology, or an expanded product line.
 Ismail Ab.Wahab

LATER STAGE
 BRIDGE FINANCING

Financing is provided for a company expected to "go

public" within six months to a year. Often bridge
financing is structured so that it can be repaid from
the proceeds of a public offering.
 Ismail Ab.Wahab

PRE-
START- EARLY RAPID MATURE
START- EXIT
UP GROWTH GROWTH GROWTH
UP

GROWTH &
EARLY STAGE LATER STAGE
EXPANSION
Self, Family & Friends
Govt. Schemes & Grants
Venture Capitals
Commercial Banks & DFIs BURSA
MALAYSIA
Non-Banks Sources
 Ismail Ab.Wahab

MAIN SOURCES OF FINANCING FOR SMEs

DFIs (2.7%)

Banks (13.4%)

Self (34.0%)

Friends/
Family (23.6%)

Others (25.7%)

Source: SME Annual Report 2005

 Ismail Ab.Wahab

SELF, FAMILY AND FRIENDS

The obvious starting point for the entrepreneur is to

use personal resources to advance the project to a
point where third-party financing is feasible. The
entrepreneur’s resources include not only personal
savings and assets, but also his debt capacity in
obtaining a limited amount of external capital without
the risk of losing control over product development.
 Ismail Ab.Wahab

GOVERNMENT’S FINANCIAL ASSISTANCE

Government’s financial assistance to technology-

based companies can be classified into two groups:
government funding schemes and grants. Most
funding schemes and grants for technology venture
are channeled through MAVCAP, MDeC, MTDC,
MOSTI, SME Corp.
 Ismail Ab.Wahab

BANKING AND DEVELOPMENT FINANCIAL

INSTITUTIONS

Banking institutions and DFIs have been providing

financial facilities to small and medium enterprises
(SMEs). However, commercial banks and DFIs
typically do not invest in start-up technology-based
companies because of the high level of risk of the
business and the absence of a track record in terms
of assets, profits, and positive cash flow.
 Ismail Ab.Wahab

ANGELS FINANCING

For new venture based on concepts that require

lengthy development efforts, the earliest source of
outside financing can be provided directly by wealthy
individuals or “business angels”.
Angels can be an important and critical source of
early-stage financing in amounts of RM25,000 to
RM100,000.
In most cases, they only invest in businesses that
they are strongly familiar.
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

VC financing has tremendous potential in Malaysia to

contribute to the growth of technology and
knowledge-based ventures. The formal venture
capital industry in Malaysia began in 1984 with the
establishment of Malaysian Ventures Berhad. In
terms of the stages of financing, most investments
made by Malaysian Venture Capital Companies
(VCCs) have been in the bridge/ mezzanine/pre-IPO
stage. Investments in the seed and start-up stages
are less than 10% of total investments.
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

Only 19% of ventures invested by VCCs are in Early Stage with
5% to 10% of total funds disbursed.

PRE-
START- EARLY RAPID MATURE
START- EXIT
UP GROWTH GROWTH GROWTH
UP

GROWTH &
EARLY STAGE LATER STAGE
EXPANSION

Venture Capitals

5 – 10%
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

What Do Venture Capitalists Look At?

 Product-Market Factors
 Strategic Competitive Factors
 Management Team Factors
 Management Competence Factors
 Financial Factors
 Fund and deal Factors
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

What Do Venture Capitalists Look At?

 Product-Market Factors
 Degree of Market Already Established
 Market Size
 Seasonality of Product-Market
 Sensitivity to Economics Cycles
 Market Growth and Attractiveness
 Uniqueness of Product and Technology
 Location of Business
 Degree of Product-Market Understanding
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

What Do Venture Capitalists Look At?

 Strategic Competitive Factors

 Ease of Market Entry
 Ability to Create post-Entry
 Sustained Share Competitive Position
 Nature and Degree of Competition
 Strength of Suppliers and Distributors
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

What Do Venture Capitalists Look At?

 Management Team Factors

 Leadership Potential of Management Team
 Leadership Potential of Lead Entrepreneur
 Recognized Industry Expertise in Management Team
 Track Record of Lead Entrepreneur
 Track Record of Management Team
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

What Do Venture Capitalists Look At?

 Management Competence Factors

 Marketing or Sales Capabilities of Team
 Process/ Production Capabilities of Team
 Organisational/Administrative Capabilities of Team
 Financial/Accounting Capabilities of Team
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

What Do Venture Capitalists Look At?

 Financial Factors
 Time to Break-Even
 Time to Payback
 Expected Rate of Return
 Ability to Cash-Out
 Ismail Ab.Wahab

VENTURE CAPITAL (VC) FINANCING

What Do Venture Capitalists Look At?

 Financial Factors
 Business and Product Fit with Fund Portfolio
 Stages of Investment Required
 Scale and Chance of Later Financing Rounds
 Ismail Ab.Wahab

EXAMPLES OF AGENCIES THAT PROVIDE

GOVERNMENT-BACKED SCHEMES & FUNDS

 Malaysian Venture Capital Management Berhad

(MAVCAP)
 Multimedia Development Corporation (MDeC)
 Malaysian Technology Development Corporation (MTDC)
 Ministry of Science, Technology and Innovation (MOSTI)
 SME Corporation
 Ismail Ab.Wahab

PRE-
START- EARLY RAPID MATURE
START- EXIT
UP GROWTH GROWTH GROWTH
UP

GROWTH &
EARLY STAGE LATER STAGE
EXPANSION
Seed
Venture Direct Venture Fund
Fund (MAVCAP)
(MAVCAP)
CRADLE
Investment Venture Capital Fund
Programme (MTDC)
(MAVCAP)
Pre-Seed
Fund
Programme
(MDeC)
 Ismail Ab.Wahab

Malaysian Venture Capital Management

Berhad (MAVCAP)

As a unique venture capital company,

MAVCAP is committed purely to the
technology sectors and will invest in a mix of
local and overseas businesses to bring
together a successful blend of technologies
and entrepreneurial skills.
 Ismail Ab.Wahab

Malaysian Venture Capital Management

Berhad (MAVCAP)
Its investment focus is in the areas of:

Communications and networking

Electronics
Semiconductor
Internet
Information technology
Bio-tech and life sciences
Medical and health services and device/equipment
Other new area of high growth.
 Ismail Ab.Wahab

Malaysian Venture Capital Management

Berhad (MAVCAP)

Two main types of funding offered by

MAVCAP:

Seed Venture Fund: Idea/Pre-Start-Up

Stage

Direct Venture Fund: Start-Up, Early

Growth, Expansion, Rapid and Mature
Growth
 Ismail Ab.Wahab

Malaysian Venture Capital Management

Berhad (MAVCAP)
Seed Venture Fund: Idea/Pre-Start-Up Stage
The fund focus particularly on start-up and early-stage
high-growth companies, bringing them to fruition
through its service-oriented approach of partnership
investment.

Size of direct investment :

start-ups - between RM50,000 to RM500,000.
other than start-up - ranging from RM500,000 - RM10
million
 Ismail Ab.Wahab

Malaysian Venture Capital Management

Berhad (MAVCAP)

Cradle Investment Programme [CIP]

The objective of CIP is to generate ICT, biotechnology

and high growth areas, and new areas of growth in the
field of science and technology with interesting
innovative idea and technology. CIP provides pre-seed
funding of up to RM50,000 for the development of
prototype, proof of concept or the preparation of
business plan. It makes the idea more valuable to the
venture capital and later stage funding.
 Ismail Ab.Wahab

Malaysian Venture Capital Management

Berhad (MAVCAP)

University Cradle Investment Programme [U-CIP]

U-CIP works together with researchers in public and private

universities and colleges. The primary aim of U-CIP is to
facilitate the transformation of research outputs into
marketable products/services, as a first step in the
commercialisation.

To this end, U-CIP specifically funds the development of

prototypes, proofs of concept and the preparation of
business plan. U-CIP provides pre-seed funding of up to
RM50,000.
 Ismail Ab.Wahab

Multimedia Development Corporation (MDeC)

MDeC has been entrusted to manage the following

funding scheme and grant and oversee the progress
and completion of funded projects:

 The MSC Malaysia R&D Grant Scheme

(MGS)

 Technopreneur Pre-Seed Fund

Programme 
 Ismail Ab.Wahab

Multimedia Development Corporation (MDeC)

The MSC Malaysia R&D Grant Scheme (MGS)

A total sum of RM120 million has been allocated for

the MGS to support R&D initiatives within the MSC.

The MGS will provide a grant of up to 50% of the

approved total project cost or RM1.2 million
whichever is lower. The amount of the grant
approved will be determined by the merits of each
case.
 Ismail Ab.Wahab

Multimedia Development Corporation (MDeC)

Technopreneur Pre-Seed Fund Programme

This programme is targeted to local entrepreneurs

whose ideas has been developed into a business
plan and require further development to produce
commercialisable project with ready prototype
suitable for seed/start-up funding.

The size of funding is up to a maximum of

RM150,000 for development up to 12 months.
 Ismail Ab.Wahab

Multimedia Development Corporation (MDeC)

Technopreneur Pre-Seed Fund Programme

Project proposals eligible for consideration to fall

under any of the following clusters and qualifying
activities:
Creative media and content development
Software development
Internet-based businesses
Support services
Shared services outsourcing
Hardware design
 Ismail Ab.Wahab

Malaysian Technology Development

Corporation (MTDC)

MTDC’s investment criteria are focused on the

following:

Non-ICT sector – focusing on life sciences sector

Strategic technologies
High Investment return
Clear and defined business vision
Credible management team
 Ismail Ab.Wahab

Malaysian Technology Development

Corporation (MTDC)

Two types of financial assistance offered by MTDC:

 Venture Capital Funds

 Special-Purpose Government Grants 

 Ismail Ab.Wahab

Malaysian Technology Development

Corporation (MTDC)

Venture Capital Funds

MTDC invests in early, growth and late-stage

technology-based businesses. In order to diversify
its risks, the equity stake in any investment is
limited to around 30 percent.

The investment horizon is limited up to five years.

 Ismail Ab.Wahab

Malaysian Technology Development

Corporation (MTDC)

Special-Purpose Government Grants 

 Technology Acquisition Fund (TAF) - facilitates the acquisition
of strategic and relevant technology.
 Commercialisation of Research & Development Fund (CRDF)
- provides partial grants to qualified R&D projects for
commercialisation.
 Technology Acquisition Fund for Women (TAF-W) - provides
partial grant to promote efforts by women entrepreneurs,
assisting their companies to be at the technological forefront
pursuing market reach with their products/services.
 Ismail Ab.Wahab

Ministry of Science, Technology and

Innovation (MOSTI)

Funds offered by MOSTI:

 Enterprise Innovation Fund (EIF)

 Technofund
 Ismail Ab.Wahab

Ministry of Science, Technology and

Innovation (MOSTI)
Enterprise Innovation Fund (EIF)

EIF assists individuals/sole-proprietor, micro and small

business to develop new or improve existing products,
process or services with elements of innovation for
commercialisation.
The quantum (maximum) and duration of funding will be
based on the merits of each application: individual,
RM20,000 (12 months); sole-proprietor, RM20,000 (12
months); micro enterprise, RM50,000 (12 months); and
small enterprise RM250,000 (18 months).
 Ismail Ab.Wahab

Ministry of Science, Technology and

Innovation (MOSTI)
Enterprise Innovation Fund (EIF)

Technology clusters to be considered: Agriculture, Information

and communication technology (ICT), Biotechnology, Industry.

Criteria for approval: Innovativeness of project proposal,

credibility of project proposal, appropriateness of methodology,
appropriateness of milestone, commercialisation prospect, and
financial capability.
 Ismail Ab.Wahab

Ministry of Science, Technology and

Innovation (MOSTI)
Technofund

 To stimulate the growth and successful innovation of

medium and large enterprises
 To increase capability and capacity of Malaysian
Government Research Institutes (GRI) and Institutions of
Higher Learning (IHL) to undertake market driven R&D and
to commercialise the R&D findings through
spin-offs/licensing; and
 To enhance global competitiveness and R&D culture
among Malaysian medium and large enterprises.
 Ismail Ab.Wahab

Ministry of Science, Technology and

Innovation (MOSTI)
Technofund

Two types of funding:

Type A - Pre-Commercialisation
Type B - IP Acquisition (Laboratory Scale)

Project eligible for consideration: Agriculture, Biotechnology,

Information and Communication Technology (ICT), and
Industry.
 Ismail Ab.Wahab

SME Corporation

Grants offered by SME Corp:

 Matching Grant for Business Start-ups

 Matching Grant For Product And Process

Improvement
 Ismail Ab.Wahab

SME Corporation

Matching Grant for Business Start-ups

Assistance is given in the form of a matching grant where

50% of the approved project cost is borne by the Government
and the remainder by the applicant. For enterprises in the
manufacturing sector, incorporated under the Registration of
Business Act 1956, assistance is given up to 80% of the
approved cost. The maximum grant allocated per application
is RM 40,000 .
 Ismail Ab.Wahab

SME Corporation

Matching Grant for Business Start-ups

Sector coverage includes manufacturing and manufacturing

related activities such as product/process development,
software development, and product and process design.
Eligible Expenses incurred in starting up a business includes:
Preparation of Business Plan, Related Feasibility Studies,
Rental of incubators and business premises up to 24 months,
Rental of equipment and machineries, Development of
prototype, Product sample and testing.
 Ismail Ab.Wahab

SME Corporation

Matching Grant for Product And Process

Improvement

This scheme provides matching grant to SMEs for

improvement and upgrading of existing products,
product design and processes upgrading.

Assistance is given in the form of a matching grant

where 50% of approved project cost is borne by the
government and the remainder by the applicant. The
maximum grant allocated per application is RM500,000
 Ismail Ab.Wahab

SME Corporation

Matching Grant for Product And Process

Improvement
Sector coverage includes manufacturing and manufacturing
related activities such as product/process development,
software development, and product and process design.

Eligible Expenses incurred in starting up a business includes:

Technology feasibility studies, fees for technology transfer,
development of prototypes and system design, product
testing, product registration, marking and labeling.
 Ismail Ab.Wahab

As illustrated before, entrepreneurs have a

number of sources of capital as their venture
develops. These sources range from debt to
equity depending upon the stage of financing
that is arranged.
 Ismail Ab.Wahab

DEBT FINANCE EQUITY FINANCE

 Debt financing involves a  Equity financing involves

payback of funds plus an the sales of some of the
interest. ownership in the venture.

 Debt places a burden of  Equity financing forces

repayment and interest the entrepreneur to
on the entrepreneurs. relinquish some degree
of control.
 Ismail Ab.Wahab

DEBT FINANCE OR EQUITY FINANCE?

The choice for the entrepreneur is:
EITHER
 To take on debt without giving up ownership in the
venture.
OR
 To relinquish a percentage of ownership in order to
avoid having to borrow.
In most cases, a combination of debt and equity proves
most appropriate.
 Ismail Ab.Wahab

THANK YOU