What’s Next 2016: CEO of Khazanah-owned VC firm Xeraya joins line-up

• Fares Zahir on some investments made, including two Nasdaq listings
• Low-key fund invests in healthcare biotech, bio renewables, and medical tech

 
DIGITAL News Asia (DNA) is pleased to welcome Fares Zahir (pic above), chief executive officer of Xeraya Capital, one of the most low-key venture capital (VC) companies in Malaysia, to our What’s Next conference on July 28.
 
Xeraya Capital is owned by Khazanah Nasional, the Malaysian Government’s strategic investment arm.
 
Fares will be a panellist at a session titled Combustible Combination: Meet the VCs Fuelling the Startups After Your Markets – and yes, we may have gone overboard with the title!
 
Xeraya Capital focuses on medical technologies, healthcare biotech and bio renewables, so he will be bringing something different to the session.
 
The other two panellists are Jamaludin Bujang, chief executive officer of the Government’s venture capital arm Malaysia Venture Capital Management (Mavcap); and Ku Kay-Mok, of Chinese venture capital (VC) firm Gobi Ventures; both are VCs focusing on Internet-based startups.
 
Xeraya was named after Seraya, one of the tallest tropical trees in the world, found in the East Malaysian state of Sabah.
 
According to the company, the idea was to create a firm focused on bringing life science breakthroughs to humanity via a three-pronged vision: React quickly to opportunities; take a long-term view on investments; and ensure portfolio companies make a difference to the lives of Malaysians and people around the world.
 
In the following Q&A, Fares offers an update on some of the investments made by Xeraya Capital.
 
DNA: It seems like it is in medical technologies that you have made direct investments, while leaving the other two areas to the Malaysian Life Sciences Capital Fund (MLSCF) and Springhill Bioventures. Why is this?
 
Fares: Xeraya Capital signed its first fund management agreement (FMA) in 2013 that resulted in us managing life sciences investments from Khazanah, and received capital commitment for new investments.
 
Since then we have made four new direct investments. The rest of them were inherited from Khazanah.
 
As we continue to make new investments, we expect more representation from the other two sectors, namely healthcare biotech and bio renewables, in addition to medical technologies where we are visibly represented.
 
As for MLSCF, the previous managers made 12 investments mainly on very early stage bio greentech companies, whilst Springhill Bioventures’ previous manager made nine investments in the therapeutics and diagnostics healthcare area.
 
Xeraya also inherited two orthopedic companies held directly by Khazanah, namely SBI and Conformis.
 
DNA: Has Xeraya made any Internet investments? Where does the investment in Garena, Skyscanner and others come from?
 
Fares: Xeraya focuses its investments only in the life sciences sector. Any new Internet-related opportunity that we would consider would need to have a life sciences angle to it. We have seen some pass through our deal pipeline, but have not made any life sciences Internet investments yet.
 
Garena and Skyscanner are not amongst Xeraya’s portfolio. Khazanah invested in them directly.
 
DNA: What is the mandate for Xeraya that guides your investment choices? Do all the companies have to establish some engineering or R&D (research and development) base in Malaysia? Or hire Malaysians for their R&D/ engineering operations?
 
Fares: We have two direct FMA mandates – one with Khazanah and the other with the Ministry of Finance (MOF) via the Mudaharabah Innovation Fund (MIF).
 
The Khazanah mandate requires us to provide a financial return on investments. In addition to that, we will also strive to deliver indirect returns emanating from ‘sub-deals’ that could improve the prospects of Khazanah’s other portfolio companies, such as IHH Healthcare or its agriculture investment initiatives.
 
With respect to the MIF, we are required to have a ‘Malaysian-centricity’ in all our investments. Whilst not specific, Malaysian-centricity can be covered by any of the above that you have mentioned. It can also include activities like clinical development; enticing new Malaysian investors; outsourcing of components, etc.
 
DNA: Quite a few of the MLSCF investments (GEVO, Mascoma, Segetis, Sentinext, Cerca) are still in your portfolio today from when they were first invested in since 2008. Are these companies just hanging on or are they thriving? Does their longevity just reflect the fact that any investment made in the biotech space has to be with a five- to eight-year minimum timeframe?
 
Fares: MLSCF is a fund that Xeraya inherited. The previous managers invested in early stage life sciences companies, which have longer gestation period relative to tech-based investments.
 
Additionally, the managers made investments in many bio industrial companies in the early years, which performed well initially, particularly up till when oil prices were above US$100 a barrel.
 
Things took a turn for the worst when oil prices fell. A shock to the industry and market dynamics such as this will only serve to lengthen the gestation period.
 
Gevo, which is a listed entity, has since been divested. Some of the other private entities we are still nurturing for possible monetisation routes.
 
DNA: One measure investors use to determine the success of their investments is the follow-on rounds the companies raise. How do your companies here rate on that card?
 
Fares: The ability to measure successful companies varies. The follow-on metric generally indicates that the entities have achieved their milestones to attract investors to continue to fund them.
 
With respect to our direct investments, some of the companies have received follow-on investments and also received funds through the IPO (initial public offering) route.
 
With respect to inherited companies, many of these were reaching the tail end of the investment period, and thus had limited investment follow-on opportunity.
 
Conformis and Viewray were listed on Nasdaq in 2015 and 2016 respectively, while Prime Biologics has received further follow-on investment.
 
With respect to the MLSCF and Springhill Bioventures portfolio companies, the experience has been mixed. Sentinext was one of the companies that received follow-on investments from other Malaysian venture firms.
 
What’s Next
 
You can hear more from Fares and other speakers at What’s Next: The Business Impact of Disruptive Technology on July 28 at the Sime Darby Convention Centre in Kuala Lumpur.
 
Register directly at http://digitalnewsasia.com/whats-next-2016 or call Suraini Sarip at 6013 295-3498 for details.
 
Related Stories:
 
Startups, don’t knock the competition if you want Khazanah’s money
 
Introducing What’s Next 2016 and Vincent Tan
 
SEA’s most valuable startup, Garena Interactive, joins What’s Next 2016
 
 
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