Business

Saturday August 22, 2009

Ingenious way to provide private equity funding

By TEE LIN SAY


DID you know that the many great technological companies of today got their break from private equity funding?

Companies like Google, Yahoo, Microsoft, Compaq and Apple in the United States were funded by venture capitalist in their early years.

William Du says most entrepreneurs face difficulties in financing at the early stage due to lack of track record and resources.

In Malaysia, successful private equity-backed companies include AirAsia Bhd, Green Packet Bhd, ETI Technologies Bhd, Jobstreet.com Bhd and StemLife Bhd among others.

Certainly, private equity firms offer high returns but can be riskier. Nonetheless, studies have shown that it also provides stand-alone superior long-term return opportunities that are not available through investment in traditional stock and bond investments.

Ingenious Haus Sdn Bhd, a boutique corporate advisory and private equity firm, will be launching the Ingenious Growth Fund in mid-September.

The fund is a registered venture capital (VC) corporation under the authority of the Securities Commission. It is a special-purpose private equity fund to raise RM50mil to invest solely in telecommunications company V Telecoms Bhd.

“We’re opening our fund to high net worth individuals and institutions. It will cost RM250,000 per unit with a commitment period of five years,” says Ingenious chief executive officer William Du.

He says the fund will pay 5% dividends per annum over the next five years. Upon maturity, investors will not only get their principal redemption, but an additional 75% committed returns.

This effectively means that an investor will make 100% return over a five-year period.

“As V Telecoms hopes to go for a listing over the next three years, investors of the fund will also have the opportunity to convert their shares into the company’s initial public offering,” says Du.

He adds that the sum of RM50mil for the fund makes up a 30% stake in V Telecoms. Furthermore, V Telecoms has agreed to appoint up to three board representatives from the fund.

“We’ve done our homework and worked out our cashflow projections to over 16 different scenarios and we’re sure we can deliver. The company is not a start-up, but a cash cow. The capital expenditure has already been made since it started in 2007,” says Du.

As for Ingenious, since it first started out in 2004, it has helped numerous entrepreneurs and mid-sized companies with advisory activities. Ingenious has also helped many aspiring entrepreneurs raise VC funding from its network of angels, VC institution, and corporates.

Du says most entrepreneurs face difficulties in financing their business at the early stage due to lack of track record and resources.

“Most commercial banks do not provide loan facilities to companies which do not have collateral. Furthermore, they also do not understand the business. Hence, venture capital funding is a good financing alternative,” says Du.

V Telecoms provides high bandwidth connectivity to businesses and homes. Having invested RM100mil in its initial infrastructure, it plans to raise an expansion capital of RM50mil to complete its last-mile fibre-optic network that will connect up to 20,000 offices.

Subsequently, it plans to grow this to 50,000 connections to homes and offices within the next five years. A listing on Bursa Malaysia is on the cards over the next three years.

The company has a positive net tangible assets base with a paid-up capital of RM105mil, is debt-free and has been in positive free cash flow since it started in 2007.

Its niche is “dedicated connectivity” which is suitable for bandwidth-hungry applications and online collaborations.

For instance, whether a person wants to connect two offices on a single network or to link up operations to a distant server, he will require a leased line connection.

V Telecoms ensures proper routes for IP-traffic, which makes the difference between a poor Internet connection and a superior one.

Moving forward, V Telecoms wants to expand its broadband service to some 300 buildings in the Klang Valley over the next two years.

The service is now offered to, among others, Menara Standard Chartered, Menara UOA and Wisma PanGlobal, all in Kuala Lumpur.

While it had previously focused on providing network facilities and services to the private and public sectors, V Telecoms has now set a target of providing similar services to consumers in the high-end property sector to diversify its revenue stream.

It is currently offering up to 10Mbps (megabits per second) to residents and prospective residents of the Suasana Sentral Loft condominiums. Suasana Sentral Loft marks its first foray into the residential sector, although the commercial sector remains its core focus.

V Telecoms is also in talks with TM Wholesale to subscribe to Telekom Malaysia’s HSBB (high speed broadband) transmission.

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