New investment strategy is to have more control
Fund still optimistic about delivering what it was set up for
FOR those wondering why e-government services provider MyEG Services Bhd is not involved in the Cradle Seed Ventures Fund, it’s because its cofounder Wong Thean Soon (aka TS Wong) has a new game plan for investing in startups: He wants MyEG to have more control.
This new outlook did not manifest itself overnight and started some time last year, Wong (pic above) told Digital News Asia (DNA) recently.
In October 2013, MyEG signed a memorandum of understanding (MoU) with Cradle Seed Venture Pte Ltd, declaring its interest in investing RM20 million in the Cradle Seed Ventures Fund 1 (CSVF1). [RM1 = US$0.27 at current rates]
Cradle Fund Sdn Bhd is a non-profit company, under Malaysia’s Ministry of Finance, that supports technology entrepreneurs.
That expected investment by MyEG, along with the CSVF1’s initial fund size of RM40 million, would have provided RM60 million to CSVF1, which aims to invest from RM1 million to RM3 million in promising startups, locally and in the region, for what it says would be a “minority equity stake.”
“I am just interested in working with entrepreneurs and their startups and watching their business grow ... Some people enjoy tinkering with their cars, I just happen to enjoy watching entrepreneurs tweak their business until something sticks,” Wong told DNA not long after the MoU was signed.
While his passion and interest in supporting entrepreneurs remain, his strategy however has changed, he told DNA when contacted recently.
This is one of the main reasons why MyEG, about 18 months after it signed the MoU, did not take part in the seed venture when it eventually rolled out earlier this month.
“We were reviewing our strategy with regards to investing in startups. In the past, we took minority stakes in the likes of FashionValet and Agmo Studios with a hands-off approach, and we had thought of continuing to do so in the joint-venture with Cradle,” said Wong.
“However, we have since changed our strategy to one where we work with entrepreneurs, where we take a majority stake and the entrepreneur takes a minority stake.
“The reason for this is so that we can play a much more active and direct role, and where we can justify putting more resources.
“With this new approach, our participation with Cradle in the joint venture no longer fits into our strategy,” said Wong, a DNA Digerati50.
The new outlook is already active. Last November, MyEG – via its wholly-owned unit My EG Capital Sdn Bhd – acquired an 80% stake in Car X Services Sdn Bhd, which recently launched its MyMotor portal.
MyEG Capital also recently acquired a 55% stake in card payment and terminal service provider Cardbiz Holdings Sdn Bhd for RM6.23 million.
Cradle remains upbeat
Cradle Seed Ventures chief executive officer Aziz Hussein (pic), when contacted by DNA this week, said he believes that MyEG’s decision will not derail CSVF1’s plans and objectives, including to grow the fund size to RM100 million as well as investing in promising startups in Malaysia and in South-East Asia.
More importantly, he is also hoping that the fund can help reduce the number of good deals flowing out of Malaysia.
“We are also very much aware that raising money for a venture capital fund within Malaysia is very difficult,” he said.
“For so long, it has and still is driven by money fronted by the public sector. We are confident that with what we have with Cradle Seed Ventures specifically, and Cradle Fund in general, we will be able to more or less deliver what we have set out to do,” he added.
Aziz also said that there needs to be more awareness for investors to participate in a venture fund in which they would not have controlling stakes.
Although having majority stakes and control in a startup may sound like the safer strategy, there are many investors which have made hefty returns by investing small stakes in a startup, he argued.
For example, in 2008 Hong Kong billionaire Li Ka-shing, via his foundation, invested US$120 million in Facebook over two funding rounds, and currently holds a 0.8% stake in the social media giant.
The stake is now worth US$1.9 billion, and even if Li had decided to cash out on the day Facebook went public in 2012, he would have still enjoyed a sixfold return.
Still, despite MyEG not participating in the seed venture initiative, Aziz said he remained hopeful and is looking forward to more opportunities for working with it in the future.
“We’ve recently been made aware of MyEG’s decision and we respect this decision.
“However, this shall not stop us from continuing our effort to successfully fund startups in Malaysia, and we do look forward to opportunities to continue working together in the future, formally or informally, as MyEG has been a long-time partner of ours ever since the days of Make The Pitch,” he said, referring to the startup reality TV show.
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