FMAccounting.com » Venture Capital

First foreign Venture Capitalist company In Malaysia

slang — Tue, 30 Sep 2008 06:02:26 +0000

The Securities Commission (SC) has approved the application of Japan Asia Investment Co Ltd (JAIC), one of the largest venture capital companies (VCCs) in Japan, to undertake activities in Malaysia. The rationale according to SC chairman Datuk Zarinah Anwar is to give the local venture capital market greater depth and breath to the pool of players within the industry.

Details:

The registration of JAIC marks the entry of the first foreign VCC in Malaysia.
As at 31 August 2008, there were 57 VCCs registered with the SC

About Japan Asia Investment Co Ltd (JAIC)

Established in 1981 by the Japan Association of Corporate Executives and became an independent VCC in 1989.
JAIC is listed on the Tokyo Stock Exchange
Currently manages US$1.4 billion in investment funds across 11 countries including China, Hong Kong, Indonesia, Japan, Korea, Singapore, Taiwan, Thailand, Vietnam and the US.
With over 15 years’ experience in venture capital investments, JAIC is a globally-linked organisation that pursues investments in Japan, Asia and the US.
Apart from venture capital investments, JAIC is also an active player in private-equity-related businesses such as buyout investments, restructuring financing, and secondary investments.

Venture Capital – Advices to Entrepreneur From MAVCAP (Part 1)

slang — Mon, 15 Jan 2007 11:10:50 +0000

As described in earlier articles that there are many avenues for taping capital for your business- one of which is from Venture Capital Companies (VCC).
Recently reported in The Star (13/1/07) are some good practical advices from the Malaysian Venture Capital Management (Mavcap) CEO Norazharuddin Abu Talib to entrepreneurs who wish to take in VCC as partners in their business:

VCC are not banks who charge interest but are institutional investors who requires transparency, accountability and governance from their partner;

VCC have processes in place and entrepreneurs need to respect or adhere to these processes for example, on-time arrival during board meeting, etc. Hence these “new” entrepreneurs need to be more matured when dealing the JVC as it can provide good strategic and operational side of the business to the entrepreneurs;

as CEO of the new company, the entrepreneur need to learn to be a manager. The entrepreneur can no longer just focus on its on little area of expertise. He or she needs to learn to manage all the divisions of the new company for example, if the audited accounts are not prepared in time, it is the director, rather than your accountant, who is responsible. If the entrepreneur do not want to be managers then he needs to step aside and appoint a professional to do the job;

need to switch from thinking as an employee to that of a business owner. Where before the priority may have been in negotiating for yourself the best possible package with all the trimmings, now your priority is in seeing that your company succeeds;

starting a company is very difficult and strenuous. Therefore there is the need to work very hard, make all the sacrifices necessary. It doesn’t matter what you were getting before as an employee of a high-powered consultancy or merchant bank. If you want lifestyle without liability, you’re probably not cut out to be an entrepreneur:

be alive to the risk involved; as good as your idea is it may not work. Learn how to fail gracefully. If you dig in your heels and refuse to do the necessary such as winding up the company when it’s clear that there is no point in going on, it will serve as little other than a time-wasting device and believe me, nothing that a court order wouldn’t cure;

needs to take personal responsibility. It may be tempting to blame everyone else for your failure, but while those listening may sympathise, they will not respect you for it. An entrepreneur may be many things but he or she is not a victim. Other investors will be watching very closely to see how you carry yourself. Your behaviour at this point will determine whether you will be able to raise money for future schemes.

Mavcap has obligations to its shareholder, in this case, the Government hence the fund is not a grant but a loan, which needs to be paid back within a specified time frame.

Tax Incentives For The Venture Capital Industry

slang — Wed, 01 Nov 2006 14:53:57 +0000

[ Go to Content Page to view ALL articles written on Venture Capital Companies ]

The following incentives are available :

(a) Venture Capital Companies Investing In Venture Companies:
Venture Capital Companies (VCC) investing in venture companies are given full tax exemption on all sources of income for 10 years of assessment or the years of assessment equivalent to the life span of the fund (if any) established for the purpose of investing in the venture company whichever is the lesser. Where a VCC incurs a loss from the disposal of shares in a venture company in the basis period for any year of assessment within the exempt period, such losses shall be carried forward to the post-exempt period.
Conditions to qualify for the exemption :

• at least 70% of the funds be invested in venture companies in the form of seed capital, start-up or early stage financing; and

• VCC should not invest in a venture company which is its related company at the point of first investments.

VCC must obtain annual certification from the Securities Commission that the conditions imposed for the incentives have been complied. The letter of certification must be attached with the income tax return form for submission to the Inland Revenue Board. This incentive is effective from the year of assessment 2000 in respect of the basis period ending in the year 2000.

(b) Companies or Individuals Investing In Venture Companies

A company or an individual having a business source, having invested in a venture company at start-up, seed capital and early stage financing are entitled to a deduction from the adjusted income equivalent to the value of the investment made in the venture company. If the company or individual does not have sufficient adjusted income to offset the investment, the deductions will be allowed to be carried forward.

Conditions to qualify for the deduction :

• the investment in a venture company is in the form of the holding of shares which at the point of acquisition are not listed for quotation in the official list of a stock exchange;
• VCC should not invest in a venture company which is its related company at the point of first investments;
• the company or the individual has not disposed its shares in a venture company prior to its listing on the official list of a stock exchange.

A company or an individual must obtain annual certification from the Securities Commission that the conditions imposed for the incentives have been complied. The letter of certification must be attached with the income tax return form for submission to the Inland Revenue Board. This incentive is effective from the year of assessment 2001. For a company the incentive 9(i) and (ii) are mutually exclusive.

Useful Links Relating to Venture Capital Companies

slang — Wed, 01 Nov 2006 14:53:14 +0000

[ Go to Content Page on ALL articles written on this category on Venture Capital Companies ]

Append below are some useful link to:

Venture Capital Associations:

www.hkvca.com.hk – Hong Kong

www.tvca.org.tw – Taiwan

www.cvca.com.hk – China

www.kvca.or.kr – Korea

www.svca.org.sg – Spore

www.nvca.com – North America

www.evca.com – European

Venture Capitalist:

MALAYSIAN Venture Capitalists

www.waldenintl.com

www.commerce-ventures.com.my

www.dtacapital.com

www.firstfloorcapital.com

www.ispringcapital.com

www.mavcap.com

www.mayban-ventures.com.my

Others:

www.alphainvestmentbank.com

www.technopreneurs.net.my

www.team.net.my

Minimum Information Required For Discussion With Venture Capitalist

slang — Wed, 01 Nov 2006 14:52:17 +0000

[ Go to Content Page on ALL articles written on Venture Capital ]

Sometimes, we would like to explore with an initial discussion with Venture Capitalist. What then are the minimum information that you need to prepare? Of course, you already have a business plan it’s even better.

Otherwise, the following represent a sample for minimum information require for an initial decision by Venture Capitalists:

(a) Management Team

Include the names of the management team, academic credentials, work experience and current or proposed role in Company.

(b) Product/Service Offerings

What the company’s products/services are and include as much technical detail as possible.

Describe the following:

Market size for your business

Competitors-who and where are they?

Barriers to entry

(d) Financials

Your revenue model (ie, How do you propose to charge and bring in revenue?)

Summary of historical and forecast financial results

Venture Capital: Introduction & Common Questions Asked

slang — Wed, 01 Nov 2006 14:49:42 +0000

[ Go to Content Page on ALL articles on Venture Capital Category]

Venture capital is another source of fund that is worthwhile to explore.

(a) What really is venture capital?

Venture capital is a form of “ risk capital” where the capital is invested in a project/business with substantial element of risk relating to the future creation of profits and cash flows.

Furthermore, this “risk capital” is invested as shares (equity) rather than as a loan and the investor requires a higher”rate of return” to compensate him for his risk.

They have the characteristic of long-term in nature and “committed” capital, to help unquoted companies grow and succeed.

There is a significant contrast between a loan versus venture capital funding.

In the case of a loan, the lender has a legal right to both interest and principal repayment irrespective of the success or failure of a business.

For the Venture capital, it is invested in exchange for an equity stake in the business. As a shareholder, the venture capitalist’s return is dependent on the growth and profitability of the business. This return is generally earned when the venture capitalist “exits” by selling its shareholding when the business is sold to another owner.

(b) What kind of business is attractive to venture capitalists?

Normally, venture capitalist can assist an entrepreneur when he/she is looking to:

start-up,
expand,
buy-into a business,
buy-out a business in which he works,
turnaround or revitalise a company,

However, venture capitalist prefers to invest in “entrepreneurial businesses”. This does not necessarily mean small or new businesses. Rather, it is more about the investment’s aspirations and potential for growth, rather than by current size. Such businesses are aiming to grow rapidly to a significant size.

As a norm, unless a business can offer the prospect of significant turnover growth within five years, it is unlikely to be of interest to a venture capital firm. Venture capital investors are only interested in companies with high growth prospects, which are managed by experienced and ambitious teams who are capable of turning their business plan into reality.

Areas That Venture Capitalists Are Interested In:

Internet
Information Technology
Semiconductors
Electronics
Telecom And Networking

Venture capital firms usually look to retain their investment for not more than five (5) years.

The term of the investment is often linked to the growth profile of the business. Investments in more mature businesses, where the business performance can be improved quicker and easier, are often sold sooner than investments in early-stage or technology companies where it takes time to develop the business model.

(d) Where do venture capital firms obtain their money?

Similar to any management teams vying for finance, venture capital firms raise their funds from several sources like pension fund, insurance companies, financial institutions ( note that many venture capital companies are actually subsidiary arm of financial institution)

Hence, venture capital companies also need to demonstrate a good track record and the prospect of producing returns greater than can be achieved through fixed interest or quoted equity investments.

Of course, there is always a back to back element when coming to venture capital companies’ investment preference. Don’t forget that they too are committed to return the investors’ original money plus any additional returns made. This generally requires the investments to be sold, or to be in the form of quoted shares, before the end of the fund.

(e) What is involved in the investment process?

The investment process, from reviewing the business plan to actually investing in a proposition, can take a venture capitalist anything from one month to one year but typically it takes between 3 and 6 months. There are always exceptions to the rule and deals can be done in extremely short time frames. Much depends on the quality of information provided and made available.

The key stage of the investment process is the initial evaluation of a business plan. Most approaches to venture capitalists are rejected at this stage. In considering the business plan, the venture capitalist will consider several principal aspects:

· Is the product or service commercially viable?

· Does the company have potential for sustained growth?

· Does management have the ability to exploit this potential and control the company through the growth phases?

· Does the possible reward justify the risk?

· Does the potential financial return on the investment meet their investment criteria?

In structuring its investment, the venture capitalist may use one or more of the following types of share capital:

Ordinary shares
These are equity shares that are entitled to all income and capital after the rights of all other classes of capital and creditors have been satisfied. Ordinary shares have votes. In a venture capital deal these are the shares typically held by the management and family shareholders rather than the venture capital firm.

Preferred ordinary shares
These are equity shares with special rights.For example, they may be entitled to a fixed dividend or share of the profits. Preferred ordinary shares have votes.

Preference shares
These are non-equity shares. They rank ahead of all classes of ordinary shares for both income and capital. Their income rights are defined and they are usually entitled to a fixed dividend (eg. 10% fixed). The shares may be redeemable on fixed dates or they may be irredeemable. Sometimes they may be redeemable at a fixed premium (eg. at 120% of cost). They may be convertible into a class of ordinary shares.

Loan capital
Venture capital loans typically are entitled to interest and are usually, though not necessarily repayable. Loans may be secured on the company’s assets or may be unsecured. A secured loan will rank ahead of unsecured loans and certain other creditors of the company. A loan may be convertible into equity shares. Alternatively, it may have a warrant attached which gives the loan holder the option to subscribe for new equity shares on terms fixed in the warrant. They typically carry a higher rate of interest than bank term loans and rank behind the bank for payment of interest and repayment of capital.

Venture capital investments are often accompanied by additional financing at the point of investment. This is nearly always the case where the business in which the investment is being made is relatively mature or well-established. In this case, it is appropriate for a business to have a financing structure that includes both equity and debt.

Other forms of finance besides venture capitalist equity include:

Normal Banking facilities like overdrafts, short to medium-term loans at fixed or variable rates of interest;
Merchant banks which organize the provision of medium to longer-term loans, usually for larger amounts than banks;
Finance houses – various forms of installment credit, ranging from hire purchase to leasing, often asset based and usually for a fixed term and at fixed interest rates;
Factoring companies – provide finance by buying trade debts at a discount, either on a recourse basis (you retain the credit risk on the debts) or on a non-recourse basis (the factoring company takes over the credit risk).
Mezzanine firms – provide loan finance that is halfway between equity and secured debt. These facilities require either a second charge on the company’s assets or are unsecured. Because the risk is consequently higher than senior debt, the interest charged by the mezzanine debt provider will be higher than that from the principal lenders and sometimes a modest equity “up-side” will be required through options or warrants. It is generally most appropriate for larger transactions.

Making the Investment – Due Diligence

To support an initial positive assessment of your business proposition, the venture capitalist will want to assess the technical and financial feasibility in detail.

External consultants are often used to assess market prospects and the technical feasibility of the proposition, unless the venture capital firm has the appropriately qualified people in-house. Chartered accountants are often called on to do much of the due diligence, such as to report on the financial projections and other financial aspects of the plan. These reports often follow a detailed study, or a one or two day overview may be all that is required by the venture capital firm. They will assess and review the following points concerning the company and its management:

- Management information systems
- Forecasting techniques and accuracy of past forecasting
- Assumptions on which financial assumptions are based
- The latest available management accounts, including the company’s cash/debtor positions
- Bank facilities and leasing agreements
- Pensions funding
- Employee contracts, etc.

The due diligence review aims to support or contradict the venture capital firm’s own initial impressions of the business plan formed during the initial stage. References may also be taken up on the company (eg. with suppliers, customers, and bankers).

Main Content Page on Category On Venture Capital

slang — Wed, 01 Nov 2006 14:34:54 +0000

Articles On Venture Capital:

1.0 Introduction and Common Questions Asked

2.0 Minimum Information Required for Initial Decision for Venture Capital Companies

3.0 Useful link to Venture Capital Companies

4.0 Brief History Of the Malaysian Venture Capital Industry

5.0 Malaysian Tax Incentives for Venture Capital Companies

6.0 Malaysian Association of Venture Capital (MAVC) & Malaysia Venture Capital Management Bhd