Government and venture capital

MALAYSIA has a history of its government seeking to support its local technology and innovation efforts by providing venture capital (VC) money.

This week, the Securities Commission called upon VC management companies to apply for the RM1bil fund committed by major institutional investors, as announced in Budget 2018.

The RM1bil is said to be provided by large government-linked investment funds such as the Employees Provident Fund and the Retirement Fund Inc to venture capitalists on a matching basis.

The Malaysian government has a history of providing VC money to boost the innovative companies in taking root. But the question is, how effective has it been? Billions of ringgit have been spent on VC funding of local companies, mostly tech start-ups since the 1990s. The Multimedia Super Corridor had a venture fund called MSC Ventures. Malaysia also had and still has the Malaysian Technology Development Fund. There are various other government grants targeted at the same area. Then there is Malaysia Venture Capital Management Bhd or Mavcap, a Finance Ministry-owned VC company, which has invested about RM1bil in 130 technology companies since it was set up in 2001.

The question is, how effective have all these investments been? Perhaps, an extensive study should be done to establish how effective these efforts have been.

There is a school of thought that only private money should go into VC, as that kind of money comes with very strict conditions, meaning that only the best of ideas and entrepreneurs get funded and even then, tight targets are set for the investee to hit. The flip side is that private VC tends to bypass Malaysia. So, the thinking is that without government funding, young startups will not be able to be nurtured. And we would then not see a company like Grab leave Malaysia’s shores.

But what then explains great tech companies that come from markets where there is hardly any government VC? Consider the case of Go-Jek in Indonesia. How did it become a global tech name without government VC funding, while Malaysia is still struggling to produce such a big tech firm? Perhaps, there is more to the story than just providing funding.