Cradle moves into the VC space
By Karamjit Singh October 24, 2013
- Partners with MyEG in launch of RM60m early stage fund
- Fund has advantage of tapping ecosystem Cradle has built
“IT is about time for a new player to provide venture capital funding at this stage of our ecosystem development,” says Cradle Fund Sdn Bhd chief executive officer Nazrin Hassan (pic) of the announcement to set up the RM60-million (US$19-million) Cradle Seed Ventures Fund 1 (CF1).
What’s unique about this fund, which Nazrin calls a seed/ startup/ early stage fund, is that RM20 million will come from public listed MyEG Services Bhd, and RM40 million from the Ministry of Finance (MoF). Cradle is an MoF agency.
Significantly, while there is a definite trend of the Malaysian Government reducing its involvement in the funding side of the ecosystem, this RM40 million is a new allocation being made.
CF1 will be investing between RM1 million and RM3 million to help entrepreneurs reach greater heights with their business. The establishment of CF1 and CSV Sdn Bhd, the fund management company, marks Cradle’s first steps into the equity investment market.
The idea has actually been around since 2009 when it was thought that it should be run as a government-owned fund, but this morphed into its present public-private partnership.
It has not been easy though, with Cradle taking almost two years to find the right partner, according to Nazrin.
But it has been worth it, with MyEG pumping in more than Cradle expected. The initial idea was to have a ratio of 4:1 but with MyEG putting up RM20 million, the ratio is now 2:1.
The confidence shown by MyEG Services in this venture is underpinned by the relationship Nazrin has built with MyEG founder T.S. Wong.
Just as how Wong described the relationship in his interview yesterday with Digital News Asia (DNA), Nazrin, who has been a judge for three seasons now, says he saw up close the passion Wong has for his fellow tech entrepreneurs and his commitment to helping startups.
“Wong likes to mentor entrepreneurs and is very hands-on. The show Make The Pitch itself cost millions to make and this demonstrates his commitment,” says Nazrin.
Make The Pitch is a reality TV show on entrepreneurs, now in its third season.
Nazrin admits that the choice of MyEG over two other companies that were willing to put in money to be part of CF1, was influenced by MyEG already being familiar with the workings of the Government through the e-government services it already offers.
While a CEO has not been identified yet, he says the search for a suitable candidate has begun. “We need someone with prior VC (venture capitalist) experience,” he adds. Johnathan Lee, vice president of commercialisation and ventures at Cradle, will be the chief investment officer.
Nazrin seems confident that CF1 will do well, mainly because it can tap into the established ecosystem that Cradle has built over the years.
“Typically, VCs invest in companies, then add value. But we started by adding value first via our grants, the mentoring via the Coach and Grow Programme (CGP) and the activities around the angel tax incentive,” he says.
The CGP is an entrepreneur training programme. The Angel Tax Incentive, which rolled out in April, offers a maximum personal tax exemption of RM500,000. In expectation of this, last December Cradle launched the Malaysian Business Angel Network, which amongst other things, would accredit angel investors to qualify for the incentive.
All these activities will give CF1 a strong platform to leverage on and get first dibs on any interesting companies that come Cradle’s way.
“Up to now, because of the limitations of our Cradle funds, we have not been able to do anything above the RM500,000 maximum of the CIP500 grant. But CF1 changes that, and I think we are in for some exciting times ahead,” says Nazrin.
The fund is expected to be operational by December, with a CEO in place.
About Cradle Seed Ventures Fund 1
What is the Cradle Seed Ventures Fund 1 (CF1)?
CF1 is a private-public venture fund initiative by Cradle and MyEG Services Bhd (MyEG). The venture capital fund is worth RM60 million and it will provide early stage funding into high growth and innovative technology start-up companies to further develop their businesses.
Up to 30% of the fund can also be used to fund overseas startups, with the intention of bringing talent and technology knowledge back to Malaysia. With this, we hope to also strengthen Malaysia’s pool of knowledge workers that will enable Malaysia to be competitive in terms of innovation advancement in South-East Asia.
CF1 will mark Cradle’s foray into the early stage venture capital space. As Cradle has been in the forefront of the pre-seed and commercialisation funding. as well as providing meaningful value add to the entrepreneurship ecosystem, it is a natural evolution for Cradle to expand its services to also include venture capital funding into its portfolio.
MyEG has taken the bold move to partner with Cradle to address the need for more early stage funding and has become a good example of the private sectors contributing to the development of the entrepreneurship ecosystem, alongside the government sector.
This won’t be the first time Cradle and MyEG are collaborating to support the early stage ecosystem. The two have already partnered to mentor, nurture and fund high potential startups in the business pitch television show, Make The Pitch.
Who manages CF1?
The fund will be managed by Cradle Seed Ventures Pte Ltd (CSV). CSV will manage the day-to-day operation of the fund as well as to seek out and invest in suitable early stage startups.
What is the investment size and how will it be disbursed?
CSV will invest between RM1 million and RM3 million per company. Disbursement will be done on a milestone basis.
How is CF1 different from existing Cradle funding facilities?
CF1 marks Cradle’s first step into the early stage equity investment market. Cradle will still maintain its grant funding programme at the pre-seed and commercialisation stage.
What type of businesses does CF1 fund?
CF1 shall have a multi-industrial focus, and will target promising opportunities in the following technology segments:
- Information Communication Technology (ICT)
- Internet Business
- Mobile Technology
- Engineering and Hardware
These opportunities should fall within the following National Key Economic Areas (NKEAs):
- Primary areas would include the following:
- Financial services
- Business Services
- Electronics and Electrical
- Wholesale & Retail
- Communications Content and Infrastructure
- Secondary areas would include the following:
- Oil, Gas and Energy
- Palm Oil & Rubber
Does my company need to be a ‘Sdn Bhd’ (private limited company) to qualify for CF1 investments?
Yes, CF1 would only fund registered companies.
Right now, I only have a proof-of-concept. Can I apply the funding to launch my business?
Yes, CF1 will only invest in early stage companies that may or may not be profitable at the time of investment, but exhibit a clear path of growth and profitability. Early stage companies in this case will cover the following stages:
- Seed or Pre-Commercialisation
- Early Growth
How much equity will CF1 take in my company?
CF1 will invest through equity participation, whereby it will take minority stakes at reasonable valuations in the companies. In circumstances where the valuation of the company is too small, the fund is allowed to invest a lesser sum and/ or co-invest with another investor into the company to ensure that CF1 does not take a majority equity stake.
Why is CF1 taking equity in my company where as it has never been a condition with Cradle Fund before?
CF1 and Cradle are two different entities providing different types of funding. CF1 is a Venture Capital Fund and as such, CF1 would make equity investments. It also has a responsibility to provide a return on investment to its shareholders.
Cradle, on the other hand is a not-for-profit investment agency that disburse grants.
Besides financial assistance, how else can CF1 help develop my start-up business?
CF1 will help via CSV, which manages the day-to-day operations of the fund. Since CSV is modelled after Cradle, CSV would continue Cradle’s heritage in providing meaningful value add to entrepreneurs particularly in the areas of strategy and business development assistance.
How can I apply for CF1?
Please visit www.csv.com.my or contact us at (+603) 2166 4730 to arrange a meeting with one of our investment managers and submit your business plan.
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