'Patient capital' investor, MTDC turns 25
By Karamjit Singh November 27, 2017
- First Malaysia public sector VC helped create Malaysian entrepreneur ecosystem
- Broad industry focus through 6 funds with total annual disbursements of US$36mil
“Only MTDC was there to invest in them,” says Norhalim Yunus (pic), chief executive officer of Malaysian Technology Development Corporation (MTDC), recalling the early years of the agency that was the first government venture capital company, established in 1992.
In tandem with its investing role, MTDC was also tasked to help facilitate the transfer of university developed technology/research to the market and to encourage entrepreneurs to view universities as an asset they could tap to potentially create products/services that solve a market need.
That has been an uphill battle. Even today, though the situation has improved, Norhalim is well aware that the business community tends to dismiss the expertise and research in universities as not being relevant. But he issues a challenge here.
“I think it should be about you the entrepreneur going to the researcher and explaining what you want to do and getting them to work on the solution. Don’t go and listen to what they (researchers) want to do. Ask what you can do together, but driven by the entrepreneur. That is what entrepreneur flair is all about,” he says. “This is what we have been pushing since the early years.”
It has been playing its role well enough that today it manages six funds with a yearly combined allocation of around US$36.4 million (RM150 million) that it disburses in a combination of grants and VC investments.
A unique aspect of MTDC is its broad mandate where it covers industries from agriculture to medical equipment and semiconductors. “Previously technology was not our space, we were more in science and engineering based sectors but since 2014 we have started looking at technology companies and now have made investments in super computing, robotics and automation,” says Norhalim.
As a result of its broad mandate, Norhalim does not think there is any other ecosystem player with the industry reach of MTDC “we invest in any industry” and with the funding scope, “we will invest from the pre-seed level to the mezzanine and help take our companies to a listing as well”.
Yet in the early years there was no exit path for the companies MTDC was investing in as there was little avenue for trade sales and the stock market was geared to help companies that were built in a traditional manner with five year profit track records.
“We could see the problem with this back then and that is why in the late 1990s we were already encouraging the government to launch a stock exchange with less stringent financial track record,” says Norhalim. Eventually in early 2000s, Masdaq was launched.
When the whole is greater than the sum of its parts
This broad approach it has adopted across its 25 year journey, has helped to develop the entrepreneurial ecosystem in Malaysia to the current thriving state where various funds and development programmes from various agencies offer entrepreneurs both funding and networks to leverage on.
One example from MTDC is the recent creation of Tentra, its Technopreneur Training Academy that relies on successful entrepreneurs who have benefited already from MTDC’s help to share their experiences and knowledge with those just starting on their journey.
“The entrepreneurs we have helped over the past 25 years are today doing business all over the world, including 23 just in Indonesia, and we want to leverage on their experience, expertise and networks to help those just starting out on their journey and to accelerate their paths,” explains Norhalim.
The greater purpose here is the help shorten the path of emerging Malaysian companies to be successful and inspire other entrepreneurs to follow in their foot steps. Norhalim points out that such programmes are common in some of the more successful economies. “The best thing is that the successful entrepreneurs are happy to give back and we are seeing this happen.”
With a strong belief that a programme like Tentra can create a strong multiplier effect, from Jan 2018 MTDC will make is mandatory that any entrepreneur receiving either a grant or venture investment from it must attend Tentra.
“If you want to accept our money, you have to enroll because we are saying that we have this network we want you to plug into. I mean, what’s the point if you just take our money. We feel that getting our network to work closely with you will prove that the whole is greater than the sum of its parts. It will help you reduce risk and accelerate your growth,” he stresses.
Greatest source of satisfaction
Having been with MTDC for 24 years, with the last nine as it CEO, Norhalim is quick to point to the success of its cluster of companies that it has helped grow into being world class or get listed, as his greatest source of satisfaction.
“It means that you have made a good judgement on a group of people who have been very hard working and innovative.”
He likens the feeling to that a teacher gets when seeing students who do well in school and in life. “That is worth more than any money, that feeling cannot be bought.”
His definition of world class is simple. “If you are doing business with world class companies, it means that you are world class yourself.”
This path to being world class take time, there have been no overnight or even five to 10 year success stories. “It takes time to succeed because the technology and science components are strong and real and you can never compete without these areas,” he says. And that’s why MTDC likes to call itself the patient capital investor. You cannot rush the path to becoming world class.
The three core traits MTDC looks for
“Our perspective is long term because the journey requires real science and engineering,” says Norhalim citing how one of its companies is now building automation systems for the likes of Google, Tesla and a leading tech leader it cannot name because of a non disclosure agreement. “But it has taken that entrepreneur over 10 years to get to where he is today starting with when we gave him the funds to acquire the core technology from Japan,” says Norhalim, declining to reveal the name of the company until the time is right.
Over a period of a decade, the entrepreneur was able to innovate and build on the technology he acquired to create an automation system. And in this particular company’s journey has MTDC distilled the three core traits it wants to see in the companies it invests in.
Firstly the companies must have the talent that can understand the technology being acquired because it will be pointless otherwise and Norhalim has seen too many cases where in his words “technology was acquired and shoved down the throats of companies that were not in a position to receive it”. It takes time and knowledge of real science for this skill to be acquired before a company can be ready to receive technology.
Next comes the capacity to use the technology, to get familiar with it and then comes the most important step, the ability to innovate around it. “This means, after getting the expertise in using the technology, the company must be able to innovate on it but all these steps take time which is why companies need an investor like us that understands that this progression up the technology stack requires a partner with patient capital,” explains Norhalim.
And that’s great news for core engineering and science based entrepreneurs who may otherwise feel there is no support for them in a funding ecosystem that seems obsessed with how fast a company can scale and how many users it can acquire. MTDC is there, with its patient capital.