KUALA LUMPUR 21 Sept.- -Malaysia Venture Capital Management Bhd. (MAVCAP) mengumumkan bahawa Naib Presiden Kanan syarikat itu, Husni Salleh telah dilantik sebagai Ketua Pegawai Eksekutif (CEO) yang baru berkuat kuasa 1 September lalu.

Pengerusinya, Datuk Dr. Abdul Samad Alias berkata, Husni mengambil alih jawatan tersebut daripada Norazharuddin Abu Talib yang melepaskan jawatan itu untuk menjalankan perniagaan sendiri dalam bidang yang sama.

Norazharuddin telah berkhidmat dengan MAVCAP lebih enam tahun.

Dr. Abdul Samad berkata, Husni yang mula berkhidmat di syarikat itu pada tahun lalu sebagai Naib Presiden Kanan memiliki pengalaman luas dalam bidang pelaburan serta pengurusan teroka modal.

"Saya yakin dengan kebolehan dan pengalaman Husni untuk menerajui MAVCAP dan juga industri teroka modal di negara ini.

"Husni perlu mengetuai seluruh pengurusan MAVCAP untuk memenuhi mandat kerajaan bagi membawa kejayaan dalam bidang pelaburan serta membina syarikat-syarikat teknologi tinggi dan syarikat teroka modal yang baru di negara ini,"katanya dalam kenyataan, di sini hari ini.

Sebelum berkhidmat di MAVCAP, Husni memulakan kariernya sebagai Penganalisis Pelaburan di sebuah syarikat broker saham dan penasihat pelaburan di BBMB Securities, Nomura dan Natwest Market.

Selepas krisis kewangan Asia pada 1997/98, beliau telah menyertai BI Walden Management sebagai Penolong Pengurus Pelaburan.

MAVCAP ditubuhkan pada tahun 2001 sebagai syarikat milik kerajaan yang menguruskan dana bernilai RM1 bilion untuk pelaburan di syarikat-syarikat berteknologi tinggi berasaskan teknologi maklumat dan komunikasi.

MALAYSIA Venture Capital Management Bhd (Mavcap), a state-owned technology venture capital company, has promoted Husni Salleh as its chief executive officer.

Husni was previously the senior vice president, Mavcap said in a statement.

"This appointment was approved by the Second Finance Minister and it took effect from September 1 2007," it said.

Husni succeeds Norazharuddin Abu Talib, who resigned last month after serving Mavcap for more than 6 years.

Norazharuddin is starting his own venture capital firm.

Husni joined Mavcap in early 2006. He started his career in 1991 as an analyst with BBMB Securities, and later with Nomura and Natwest Markets.

In 1998, he joined BI Walden Management, a venture capital firm under the Walden International group, and later, MSC Venture Corp, an ICT focused VC firm under Multimedia Development Corp in 2000.

Mavcap's current fund size stands at RM1 billion and a portion of the fund is outsourced to several new venture capital firms.

It was a nice show of support from the investment community that assembled at the Ritz-Carlton Kuala Lumpur last week for Mavcap's announcement of its new outsource partners. Mavcap (Malaysia Venture Capital Management Bhd) is the wholly owned venture capital subsidiary of the Minister of Finance Inc (MoF).

Sighted among the crowd were representatives from CIMB and BI Walden. There was also former Malaysia Technology Development Corporation CEO Datuk Anuar Md Nor, who now runs a research consultancy called Bison Partners Consulting and is applying to be an outsource partner.

All were gathered to witness the unveiling of the three new outsource partners - Ethos Capital One Sdn Bhd, Expedient Equity Two Sdn Bhd and DTA-Plato Capital Sdn Bhd - which collectively received an RM80 million investment commitment from Mavcap. The occasion was also to announce that Mavcap had repaid its parent MoF RM100 million in June. This marks the first of five annual repayments for the RM500 million loan from MoF that led to the birth of Mavcap in 2001. So it is one down and four more to go for Mavcap.

But, according to its chairman Datuk Abdul Samad Alias, who made the announcement and signed the cheque, Mavcap may face problems meeting its loan obligations next year. Market conditions "are not favourable", says Samad, and Mavcap and MoF are in discussions to convert part of the loan into a grant. "A ratio of 50:50 would be ideal," he adds.

According to senior vice-president Husni Salleh, the actual loan amount is RM450 million as RM50 million has been converted into paid-up shares of Mavcap. The loan is interest-free and annual repayments of RM100 million were scheduled for 2007 up to 2010, with the final repayment of RM50 million in 2011.

De facto investment holding company
While Mavcap has done extremely well to even be able to return RM100 million, there are mixed feelings here. According to industry observers, the money should not have been given as a loan in the first place. "You should never give investment funds as a loan," says a veteran of the venture capital industry. And while Salleh says a penalty will be imposed should Mavcap default on any loan repayment, the venture capital veteran thinks that as a wholly owned subsidiary, Mavcap has little to fear in terms of repercussions. "What can MoF do?" he asks. "They can't sue Mavcap. Doing that would be like suing yourself."

A partial conversion of the loan to grant will undoubtedly help. Samad justified this by saying Mavcap is not a purely commercial venture capital company. "We do developmental investments as well. We would like the early-stage investments to be converted to grants while the late-stage investments can remain as loans."

Samad also says that Mavcap is increasingly operating like an investment holding company. "We do not have a finite timeline for our fund like other venture capital firms," he says. The industry veteran thinks converting Mavcap from a venture capital to investment holding company makes sense. "A change in status to investment holding company means that its investments are held in perpetuity, which will give Mavcap some stability," he says. "It can then focus on its nation-building agenda, which is to nurture the national ICT and venture capital industry."

And then there were three
But it is also Mavcap's nation-building agenda that has caused concern among some venture capitalists (VCs). While almost all private VCs are in agreement that Mavcap, as a government-linked company, has the financial means to spearhead the development of risky early-stage investments that will stimulate deal flow further down the line for private sector VCs, this developmental role is not acceptable when it comes to its outsourced funds. When Mavcap announced the sequel to its first Outsource Partner Programme (OPP) last year, it said that it was looking for seven partners to whom it could outsource funds.

Last week, only three were announced. Mavcap said that they were in discussions with a few more potential partners. An OPP alumni, Jerry Chin, who heads Photonics, says he is in the process of applying to be in the next batch of outsource partners.

A check with several VCs revealed that some of the strings attached to the outsourced funds made it unattractive to them. One such condition is that 50% of the outsourced funds must be invested in Malaysia and comprise ICT companies. "We should not be restricted to any country or sector but be flexible as long as we can generate return on investment," says one VC, adding that another major issue is that no divestments are allowed to be reinvested. "This is unacceptable," says another VC. "We should use the gains from our exits for reinvestment. This is the main reason why some VCs do not want to apply to be outsource partners."

Outsource partners are also expected to raise at least RM5 million on their own. But unless the fund is large enough, like Ethos' projected RM200 million, Mavcap — with its RM25 million commitment — would likely emerge as the majority shareholder of any outsource fund. Moreover, its terms and conditions have made it hard for some potential partners to find co-investors. "Putting in developmental criteria and then asking partners to raise matching funds is a contradiction," says one industry observer. He suggests that a more reasonable approach would be for the funds outsourced to the private sector to be managed on a purely commercial basis while Mavcap's own direct investments should be developmental in nature. "Otherwise," he says, "Mavcap will be competing with its partners."

This suggestion is bound to gain support from entrepreneurs who have argued that, in a nascent venture capital market like Malaysia (where venture capital is driven by institutions and not entrepreneurs), the risk appetite is lower. Therefore, the government needs to play a more interventionist role by putting its developmental cap ahead of its commercial cap. And while Mavcap has received a lot of flak for its overly commercial approach, a senior Mavcap official tells netv@lue2.0 that the manner in which it approaches investment is actually dictated by MoF. "They are the ones giving us the money and telling us we need to repay them. How much of a developmental role can we play when we have such a condition hanging over us?"

Conclusion
Whether Mavcap operates as a venture capital firm, investment holding company or a developmental agency, the important thing is that its goals of helping nurture a vibrant venture capital and ICT industry are met. Not an easy thing to accomplish, but with RM1 billion of public funds at stake, allocated under the Eighth and Ninth Malaysia Plans, expectations for Mavcap to perform are high

How new is Malaysia's private equity (PE) industry? "We are at the beginning of the beginning," says Rohana Tan Sri Mahmood, chairman and partner of Ethos Capital, which calls itself the first non-institutional Malaysian-owned PE firm. If the name rings a bell, that's because Ethos Capital is the PE arm of Ethos & Co, the boutique consulting practice set up five years ago.

One of its founding members, Omar Mustapha, the managing principal and director, is also a director and partner at Ethos Capital.
"We first had a discussion about setting up a PE fund five years ago, but felt that the time was not right yet; we wanted to build a strong consulting practice first," says Omar, who speaks in measured words.

Malaysian Venture Capital Bhd or Mavcap's search for its second batch of Outsourced Partners Programme (OPP) late last year proved to be the catalyst for the birth of Ethos Capital. Together with two other general partners to round up the team, Mohd Nagib Abdullah and Tony Yong, Ethos Capital swung into action and is well on its way to hit its fund size of RM200 million by year-end. It has raised RM90.9 million from high net-worth individuals and institutions, both local and foreign.

It is worth noting that Ethos Capital hit past the RM5 million matching fund target Mavcap required of its OPP. Suitably impressed, Mavcap gave Ethos Capital another RM5 million to make its total contribution RM30 million. Not bad for a new firm, which, says one venture capitalist, "has no track record". The other two OPP firms got RM25 million each.

Talking about their individual track records, Rohana says the rich experience of the four partners complements the team as a whole. "In addition to bringing diverse industry experience, we also collectively bring experience in deal sourcing, execution and value creation." She feels strongly that Malaysia needs "home-grown" PE funds that are managed by professionals who have the skill, network and knowledge to operate successfully within the local context.

Rohana herself has a very extensive business network in Malaysia and the neighbouring countries and brings a strong pipeline of proprietary deal flows. She has extensive knowledge in a diverse range of sectors, including plantation, property and education where she sits on the board of Paramount Corp Bhd. Her experience enables her to identify key value creation levers when the team evaluates deals.

Omar has a deep business network in Malaysia. His affiliation with Ethos & Co provides Ethos Capital with access to proprietary deal flows. In addition to formulating business strategies, he also brings extensive industry knowledge in a broad range of sectors.
Nagib is the team member with the most experience in venture capital, having spent the last six years at Mavcap. He brings an extensive business network in the ICT industry and execution experience.

Yong, like Omar, a former McKinsey and Co consultant, is a chartered accountant and brings a blend of experiences in strategy development, sales, operations and finance which he accumulated while working in the US, China, Australia and Malaysia. Omar points out that Yong has a track record of driving performance improvement at multinational companies and leading regional companies that operate in the telecommunication, electronics, semiconductor and financial services sectors.

The team believes that its unique value proposition comes through access to proprietary deal flows from its networks and that of Ethos & Co. Its ability to create value is another area it believes it can make a strong contribution. "We are all ready to roll up our sleeves and get to work in our investee companies," says Omar, confident that Ethos Capital has what it takes to wring maximum value out of firms it invests in. An area he sees great opportunity in is the ongoing rationalisation of business portfolios and spinning off of non-core businesses among conglomerates. "There are tremendous opportunities to create value in these businesses which are otherwise too small to warrant adequate management attention within a conglomerate."
Below, Omar elaborates on some specific questions about the fund.


What is the focus of the fund?
Omar: Our target fund size is RM200 million and we expect to achieve this by December this year. Currently, our limited partners [LPs] have committed about RM100 million to the fund [Ethos Capital One]. The fund has a charter life of six years. The fund will be focusing on growth and turnaround opportunities that exist in Malaysia and pursue opportunities in neighbouring countries.

Our minimum deal size is RM10 million. We are able to do larger deals because we can invite our LPs to co-invest with us when we find attractive deals that require large investments. Our preference is to nurture the investment for two to four years before exiting via trade sale or public listing. Generally, we do not invest in public-listed companies. However, if we have a compelling case for taking a listed company private, we will consult with our LPs.

With markets at new highs and valuations high, don't you think you are entering near the peak of the current economic environment?
As a practice, we do not participate in public auction and we focus on deals that we can add value. When investee companies understand the value we bring [in terms of strategy formulation, market development and so on], they are more reasonable with valuation. There are many businesses in Malaysia that still have tremendous growth potential and value waiting to be unlocked.

What is your differentiator versus other PE firms?
Firstly, the general partners' deep network in Malaysia provides access to proprietary deals, so the fund rarely participates in auctions. These proprietary deals include small and medium enterprises [SMEs] as well as non-core business units currently embedded within large government-linked companies [GLCs].

Secondly, the general partners actively leverage on the strategy and consulting practice [of Ethos & Co] to create value in investee companies, focusing on stimulating growth and improving operations. Malaysia alone has more than 800,000 SMEs, many of which are seeking growth funding, business development support and professional managerial talent to complement the original founder entrepreneurs. In addition to receiving capital from our fund, the SMEs we invest in will also benefit from 'hands-on' management guidance to help operationalise management best practices that otherwise are only available to large MNCs. We believe this tight linkage between funding and consulting support is what is required to help nurture SMEs over a multi-year time horizon and position them for growth.

Thirdly, the fund is structured to allow LPs co-investment opportunities in the large deals which exceed the fund's single investment limit. Although our RM200 million fund size is relatively small, we are able to consider large deals because most of our LPs have expressed a strong desire to selectively co-invest with our fund in deals that fit their own investment thesis. Given the regional spread of our LPs, we are also well-positioned to look at regional opportunities on an opportunistic basis. Additionally, the fact that our LPs comprise significant high net-worth individuals allows the fund to tap their personal networks across the region to support the growth and expansion of our investee companies.

KUALA LUMPUR: Malaysia Venture Capital Management Bhd (Mavcap) is investing RM80mil in three venture capital (VC) funds under its RM200mil second outsource partners programme (OSP-2).

Having signed up with the recipients - Ethos Capital One Sdn Bhd, Expedient Equity Ventures Sdn Bhd and DTA - Plato Capital Sdn Bhd - it now has a total seven outsourced VC funds, including four from the outset of OSP-1 programme in 2001.

More Malaysian technology companies would be benefiting from the OSP - 2 programme that was launched last year, Mavcap said in a statement.

"Under OSP - 2, we are currently finalising a few more new VC funds, including one Islamic VC fund," it said.

Malaysia Venture Capital Management Bhd (Mavcap) may not be able to meet its second instalment of debt obligations of RM100 million with its parent, Minister of Finance Inc (MoF), next year.

Mavcap chairman Datuk Abdul Samad Alias said that as such, its board and management hoped to convert part of the RM500 million loan that had been disbursed to it by MoF since 2001 towards spearheading the development of the country's venture capital (VC) industry.

"Ideally, Mavcap's funds should be restructured with a grant to loan ratio of 50:50," he told The Edge Financial Daily yesterday.

He said the outlook for meeting the second instalment next year was in doubt. "The market conditions are not favourable at the moment," he said.

Abdul Samad said discussions were ongoing and MoF board members were sympathetic but there was no timeframe to conclude the talks.

"As we are not a purely commercial VC but also have national developmental obligations where we take on the risky pre - seed and seed stage investments, we would like the seed and pre-seed investments to be considered grants, while the less commercially risky late stage investments will remain as loans," he said.

Speaking to reporters earlier at the launch of Mavcap's Outsource Partner II programme (OPP2) here yesterday, Abdul Samad said Mavcap had repaid the first installment of RM100 million last month. The repayment was sans interest, which will be paid later.

Samad also defended Mavcap's investment track record during the past six years saying that it had made decent returns despite not being a purely commercial VC firm.

He declined to disclose its exact rate of return on investment but said that it invested in success stories such as Jobstreet Corporation Bhd, e-Pay Asia Ltd, Mems Technology Bhd and UnrealMind Interactive Bhd. It had also written off 17 investments worth RM35 million.

OPP2 saw three companies officially announced as Mavcap's outsource partners – Ethos Capital One Sdn Bhd (ECO), Expedient Equity Two Sdn Bhd (EET) and DTA-Plato Capital Sdn Bhd (DTAP). The latter two were partners under the first outsource partner programme while the former is a new private equity firm.

ECO received a RM30 million commitment from Mavcap which boosts its fund size to RM90.9 million, while EET and DTAP received RM25 million each.

Samad said ECO received a larger commitment, because it had greatly exceeded the RM5 million minimum threshold of matching funds.

ECO expects to raise its fund size to RM200 million by end- 2007 from GLCs, local and foreign financial institutions, and high net worth individuals.

MALAYSIA Venture Capital Management Bhd (Mavcap) has invested RM80 million in three new venture capital (VC) funds under its RM200 million Outsource Partners Programme 2 (OSP2) launched last year.

Mavcap has also repaid RM100 million this year to parent Ministry of Finance, which had initially lent it RM500 million six years ago to kickstart operations.


MoF subsequently gave another RM500 million under the Ninth Malaysia Plan to help Mavcap spur VC investments in the ICT and other related high-growth sectors.

Mavcap chairman Datuk Dr Abdul Samad Alias said it needed to pay the same amount to MoF for the first RM500 million loan every year until 2010.

"About 95 per cent of the initial fund of RM500 million under Mavcap's management has been committed and allocated for. Since the past six years, we have written off and incurred some provisional losses in 17 investments amounting to RM35 million," he told reporters after announcing the first three recipients of Mavcap's OSP-2 programme in Kuala Lumpur yesterday.

He also noted that Mavcap had taken to IPOs (initial public offerings) and listed seven companies including Jobstreet Corp Bhd, e-Pay Asia Ltd, ISS Consulting Bhd, Mems Technology Bhd and GPRO.

Meanwhile, the first OSP-2 recipients are Ethos Capital One Sdn Bhd, Expedient Equity Ventures Sdn Bhd and DTA Plato Capital Sdn Bhd. Ethos received the largest portion of RM30 million, while Expedient and DTA Plato will each get RM25 million.

OSP2 was launched last July, while the first programme was introduced in 2001 with a fund of RM100 million. Four VC funds of RM25 million each were set up and managed by Mavcap's outsource partners under OSP1.

Mavcap chief executive officer Norazharuddin Abu Talib said OSP2 is to sponsor seven new funds from existing OSP1 partners and new ones.

Norazharuddin said Mavcap was finalising several new VC funds including one Islamic VC fund and would announce "a couple of recipients" in the next six months.

Mavcap, together with its OSP partners, has invested in 83 companies since its inception in April 2001.