They provide startups with funding in exchange for equity in the company. In addition, VCs are often given a say in how the company will operate and grow.
Ultimately, the goal of such partnerships is for VCs to make a profitable exit at a later date either through the sale of their stakes or an initial public offering.
Chok, who sits on the board of Web Bytes following Teak Capital’s investment in the startup, takes an active interest in helping Ooi develop the company’s product.
As Web Bytes grow with the guidance of Chok, so does its value, allowing Teak Capital the chance to make a profitable exit in the future.
Somewhat like angel investors, VCs have a wealth of resources, expertise and network that startups can tap into.
However, VCs tend to fund early-stage startups that have already gained some traction in user base and revenue, but are still new enough to be considered a risky investment for traditional banks and debt funding.
In identifying suitable startups to invest in, VCs are naturally drawn to early-stage companies with technologies that have the potential to generate high returns. Ideally, products developed by these startups are not in overly saturated markets.
VCs also analyse the market to ensure that it is robust enough to support the entry and growth of a startup.
The startup’s management team is also taken into consideration as VCs typically look for a team that is passionate, persistent, experienced, dedicated and organised.
According to Chok, having the right people is as important as having the right idea as the right people would be needed to make the ideas work.
“We have seen more than 1,000 companies since our formation in 2008 and only invested in less than 10, with an average investment of RM2mil to RM3mil.
We look at the team, the product and the market potential,” she said.
Startups are encouraged to build a good working relationship with VCs, not just for the funding element but also because investee companies will be spending a lot of time with mentors from their VC partners.
Many startups, like Web Bytes, have indeed benefited from the active participation of their VC investors. Among Teak Capital’s portfolio of startups, Web Bytes has seen tremendous growth after a year of active mentoring.
But the venture capitalism in Malaysia is still in its early days.
Malaysia Venture Capital Management Bhd (Mavcap) chief executive officer Jamaludin Bujang noted that while there is an increase in demand for capital, there are only a handful of VCs in the market.
Currently, about 60% of VC funds come from Government sources, with only nine private VC firms in the country.
Jamaludin says VC firms should look at pushing out more Series-A funding. Series-A is the first significant round of funding for startups that have progressed beyond the seed-funding stage and have started generating revenue of between RM200,000 and RM1mil. With things heating up in the local startup scene, both Jamaludin and Chok agree that more needs to be done to encourage more entrants into the field of venture capitalism.
“The startup scene is picking up. And a lot of them are actually going to Singapore for funding. So I think we need more Malaysian VCs in the market,” said Chok.
By Lim Wing Hooi