Cradle co-investment move hits US$16mil mark with new investors
By Goh Thean Eu April 29, 2015
- Five partners are Captii, Kathrein, KK Fund, Start Up Nation, and Mercatus
- Laying the foundation for a private sector-based funding ecosystem
CRADLE Fund Sdn Bhd has signed up another five partners for its Co-Investment Partners programme, doubling the total combined funding under the programme to about RM56.7 million (approximately US$16 million) from RM28 million.
Chief executive officer Nazrin Hassan also said that Cradle and one of its partners are about to close two investment deals, expected within the next one month.
“We are in the final stages of penning two new co-investment deals with one of the partners in the second batch of co-investors,” he told a press conference announcing the new partners, in Kuala Lumpur on April 28.
Cradle is a funding agency under the Malaysia's Ministry of Finance. The five new partners for the Co-Investment Partners programme, the third batch, are Captii Ventures Pte Ltd, Kathrein Ventures Pte Ltd, KK Fund, Start Up Nation Sdn Bhd and Mercatus Ventures Sdn Bhd.
Together, these five partners and Cradle will be contributing a combined co-investment sum of RM28.7 million. The actual amount each of the partners is putting in was not disclosed.
“The amount is not bad at all, for an ecosystem that has been largely, if not solely, dependent on government funding in the early stages,” said Nazrin.
Cradle has already signed co-investment partnership deals with Fatfish Ventures Sdn Bhd, OSK Ventures International Bhd, CoEnt Venture Partners Pte Ltd, Crystal Horse Investment Pte Ltd and Golden Gate Ventures.
These partnerships have resulted in a combined co-investment amount of RM28 million, with Cradle contributing half.
The door is still open for more such partners, with Cradle saying that it hopes to have 21 co-investment partners in its programme by the end of this year.
Looking at minority stakes
At the press conference, the five co-investment partners also spoke about what kind of startups they would be interested in.
Koichi Saito, founder and general partner of KK Fund, said that he would be more interested in putting money into e-commerce or marketplace-related startups.
He said that he likes Malaysian-based startups as the founders tend to have a “global mindset,” where products and solutions are developed locally, but with the intention of expanding to global markets.
“So far, we have two Malaysian investments, and we are looking forward to the opportunities ahead,” said Koichi, who was previously the director of IMG Investment Partners and responsible for IMG's investments in South-East Asia such as iMoney, Bukalapak and Zipmatch.
Kethrein Ventures chairman Charles Kathrein Sr and Captii Ventures executive director Ng Sai Kit said that one criterion they look at in an investee company is the founders’ passion.
“What we are looking for are passionate founders who have the vision to disrupt markets,” said Kathrein Sr.
Ng concurred, adding that his firm prefers to invest in startups where the founders are not looking for a quick exit.
“We have to see some passion for the business. We want to work with founders who are more deeply connected with the business,” he said.
Start Up Nation founder Anne Cheng said that she is looking to invest in startups which wants to solve a problem that society is facing. “It doesn't need to be technology-based.”
Finally, Mercatus Ventures managing director Raiyo Nariman said that in many cases, it takes more than just passion to drive a business.
“Ask anyone who is married for more than 10 years, and they will tell you that there is a big difference between passion and commitment.
“Passion is great, that’s fine. But commitment is important, because things can go wrong and when it does go bad, they need to keep looking at ways to make it happen,” said Raiyo, who is interested in startups that are in the bio-technology and mechanical technology space.
The co-investment lure
Meanwhile, Cradle’s Nazrin (pic) said that there are several benefits to, and objectives for, having a co-investment programme.
For a start, it paves the way for Cradle to move away from awarding grants and towards co-investment equity funding. It hopes that 70% of its total funding will come from co-investment equity funding by 2017.
“We can only succeed at this if we enlarge the pool of co-investment partners we have,” he said.
Nazrin also said that the co-investment partnership programme is not only about attracting private funds to participate in early stage funding for tech startups.
“First, we are diversifying our value-add base. Every co-investment partner brings something different to the table – some are seasoned entrepreneurs; some specialise in the games industry; some excel in micro-funding startups and effectively starting them up with relatively small amounts; and some others have access to new international markets which our local funding agencies can only dream of reaching,” he said.
The partnership programme is also attracting foreign funds and investments into the Malaysian ecosystem.
“We are not only bringing in the money, but the global experience, business models, and sophistication that frequently come from a more advanced ecosystem,” said Nazrin.
“And as more Malaysian startups begin to get funded by more foreign investors, gradually we will begin to get on the global investment map in South-East Asia,” he declared.
He said he also believes that the programme, over time, will create a ‘virtuous follow-on effect.’
“As some of these investments may become household names, many more of our local investors – whether they are strategic, corporate or financial ones – will want to be a part of the funding action too, according to their own domain expertise and risk appetites,” he said.
Private funding to surpass govt funding
Nazrin said that over the medium- to long-term, Malaysia will reach a point when private funding will be leading the venture capital ecosystem in the country, with only minimal contribution from the Government and public funding vehicles.
“Once this happens, the seeds of what we are starting today via our co-investment efforts will have matured into the full-blown forest of a private-sector based ecosystem.
“It will take a decade or more, but what we do today will be the necessary foundational steps,” he said.
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