Business

Saturday August 15, 2009

Your 10 Questions


What criteria do you adopt in capital management? How have they changed on the back of the downturn? – Bulbir Singh, Seremban

There are many. To start with, try buying low and selling high before fund investors ask for their money back.

When a venture capitalist (they call us VC) invests, he looks at people first. If they cheat in golf, don’t trust them with money. When they market in a country you have difficulty spelling, better run.

If you can’t explain the product or service they sell, it is best not to.

Husni

Most VC funds have their charter life, i.e. the period between which the money is raised from and returned to the investors. It could be six to 10 years.

Typically, the first half is the investing period and the second half is the harvesting or divesting period.

During the investing period, the fund principal will be actively looking for companies as investment targets. In the second half, VC managers will be scrambling all over the place to find potential buyers for their shares in portfolio companies.

If they are lucky, they get to list on Bursa (Malaysia) and claim the fame. Everyone will watch their fortunes go up and down in line with the stock prices before they can sell down their shares.

Why are most entrepreneurs men? How much of your funds go towards woman entrepreneurs? – Melisa, Cheras

Statistics show that women entrepreneurship in the United States has grown by 42% over the last 10 years. About 47.7% of all private US companies are led by women. Better yet, Oprah Winfrey has toppled Bill Gates and Richard Branson as the “Most admired entrepreneur”.

Nevertheless, the VC statistics on women remain unsatisfactory.

Women-led businesses in the United States made up only 8.9% of the VC deal flow (proposals) and received about 6.8% of venture capital investments in 2008. Only 4% of VC-backed companies had female chief executives.

In Malaysia, only 23 (4.6%) are listed in the information communication technology sector. Out of 402 deals evaluated by MAVCAP over the last two years, only 17 (4.2%) are led by woman entrepreneurs.

Are there any particular sectors you are interested in at this point in time? – Wong Ming Kit, Ipoh

I like investing in areas where we can create greater efficiency – be it systems, tools, gadgets, operations, cost centres, outsourcing or managed services. It could be in telecommunications, media, travel, banking, plantation, transport logistics, utility and so forth.

Despite being highly competitive, I like personal lifestyle gadgets and tools in the areas of premium consumer electronics.

Despite so much liquidity, banks are holding back credit. Is venture capital funds facing a drought also? – Alan Tan, Petaling Jaya

I remember some basics that Prof Riley, my finance teacher, taught me in school some 20 years ago. Banks lend, VCs invest. Banks provide loans, VCs buy shares; equity risk is much higher than loan risk as banks secure loans with collateral; high risks, high returns.

VCs loves big returns so they take high risks. Banks are happy making money so long as they get repaid and interest is serviced.

If VCs can’t exit from their investments, they won’t make money. Period.

Currently, many VCs are struggling to find exits before their funds expire.

They need an outstanding track record to raise more money for their next funds but are not able to do that. Some US reports say the VC market will shrink by half from a decade ago.

The reason? Most VC funds raised some 8-10 years ago are maturing now during the worst-ever financial crisis. Many funds are losing money and can kiss goodbye the next fund dream.

I believe that Malaysia can be a hub for VC money in the Asean region. MAVCAP has just launched seven new funds in the last two years. All we need now is many more business plans.

What do you do to relax? – Jenny, Petaling Jaya

I like golf. I’m not very good at it. The game is more like a VC game.

Firstly, in VC, we see many proposals and turn them down before we finally settle with one that suits our risk appetite.

In golf, since we are all busy running around, I have to turn down many invitations before I find one that suits my time.

Secondly, in VC, we learn new things every day – new ideas, new plans, new problems.

In golf, your flight mate will always give you new tips. Different guys will give you different ideas.

Thirdly, in VC, we strive to do our best and not be greedy. Our next deal may not be as good as the previous one. In golf, our next game may not be as good as our last one.

Fourthly, in VC, I know the risk we take is high so I look for one or two home runs to cover some initial loses. In golf, since I’m not that good, I will always look for one or two good holes to give me enough motivation to come back.

Has the transition from being an analyst and investment banker to venture capitalist been good for you? – Phoebe Tan, Petaling Jaya

I wanted to be a doctor. I wanted to study overseas. My grade was not good enough to make the cut for Dublin. I ended up taking finance as my major in US.

I was a kampung boy and my English was bad so I had a tough time understanding all the jargons.

However, I was lucky to have gone to a university where there were only 10 Malaysian students. I had to mix around with all the Mat Salehs. I worked as a part-time waiter.

My English improved tremendously and in my second year, I made money by marking English exam papers for my teachers.

I came back and got a job as an investment analyst. Life was good for this young, single analyst they called “yuppie”.

Then reality hit us during the Asian financial crisis. After selling my house and changing my car, an old friend of mine introduced me to a small foreign VC setup in KL – it was my first stint as a VC on April Fool’s day in 1998.

I took back 70% less than what I used to earn as an analyst. You ask me was it difficult? You bet.

Anyway, I jumped into a new industry and was happy to have made that choice. After two VC firms in nine years, I was asked to head this government technology VC firm.

How important is a mentor and did you ever have one? – Marcus Leong, Kuala Lumpur

It is important to have a mentor, or someone you look up to for advice, someone who has no hidden agenda but to see us grow as a person in whatever we do.

Start with mom and dad. They may not know what you do or what your job is but I’m sure if you do well, they will be so proud of you.

Apart from them, there are some key people who helped me build up my career. They know who they are.

Is saving and investing the same principle to you? Both is for the future, after all. – Murthi, Kuala Lumpur

They are not the same. Saving is when you mitigate risk for future eventualities.

Investing is when you assume risk for greater returns. You may lose your money while investing depending on the degree of risk you take.

The highest degree of risk is when you gamble your money. The lowest degree of risk is when you place your money in government guarantee savings bonds.

Does clothes maketh a man? In short, are you fashion savvy? – Ming Lee, Johor Baru

Clothes may not make a man but it is important in society, more so in the corporate business world we live in today.

A friend once said to me, “presentation is as important as substance”.

No, I am not fashion savvy. However, I get sound advice.

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