New fund to build US$50m bridge between Silicon Valley, SEA

By Karamjit Singh January 9, 2014

Malaysians hope to benefit from impending Series A crunch in US
To acquire stakes in promising US startups, match them in Malaysia

New fund to build US$50m bridge between Silicon Valley, SEA

IF you have been following the investment news that comes out from Silicon Valley, you would be familiar with talk of an impending Series A crunch.

The large number of startups that have been funded in Silicon Valley over the past five years, mainly by angel investors and so-called ‘super angels,’ are about to run into a funding crunch at the Series A level.

According to ome estimates from the United States, up to 10 times more seed-stage startups have been invested in over the last five years. These startups have been fed by the rise of angel investors, incubators and the crowd-sourcing phenomenon.

This broader pool of investors has disrupted the venture capital model which has resulted in many VCs moving to the mezzanine stage and above.

And while some super angels even invest in the US$3-million (RM9.8-million) to US$5-million (RM16.4-million) range, the prediction is that the hundreds of companies that would need further funding to help them increase their traction, will not find enough money waiting for them in the Series A cycle.

That’s bad news for them, but good news for Winston Choe, a Malaysian who has lived in Silicon Valley for over a decade. He sees an opportunity to match these Silicon Valley companies with suitable technology companies in Malaysia.

Towards this purpose, he and two other general partners – Mark Mah and Charles Tan – both also Malaysians who have lived in the United States for over a decade each, have launched Tech Growth Ventures, a growth accelerator and fund.

They are targeting to raise US$50 million (RM164 million) with some of the money coming from Malaysia, especially government agencies.

The game plan, according to Choe, is to take a stake in the companies they find promising and to then match them with companies in Asia – but starting with Malaysia as this is where he has found interested partners, in the shape of government agencies tasked with supporting tech companies to go global.

On a trip to Kuala Lumpur last November, Choe found sufficient interest among various government agencies in his idea.

“These various agencies have got companies that have hit either a technology crunch or market crunch, and the agencies would love for them to license relevant intellectual property (IP) to strengthen their ability to penetrate markets, or for a partner in the United States to be their beachhead into the US market,” he tells Digital News Asia (DNA).

New fund to build US$50m bridge between Silicon Valley, SEA But he also envisions this working the other way. “Many of the startups that are going to face this Series A crunch in the United States have good technology, some market traction, and good teams.

“However, without further funding, they could end up closing down – and this is where we want to be in a position to take stakes in some of them, and to turn them to look for growth opportunities in South-East Asia,” he says.

Acknowledging that while US tech companies have previously been focused on China for their Asian market entry, he thinks South-East Asia is poised to be the next big market.

Tech Growth Ventures will focus on three key areas – ICT, green tech and the E&E (electrical and electronics) sector – all areas Malaysia is focusing on too. These also happen to be areas Choe and his two partners, Mah and Tan, are strong in.

He describes their Malaysia-US link as their differentiator. “Our strength comes from our access to US companies with proven technologies; a clear growth roadmap for Malaysian companies; and a scalable platform through our venture-partner network,” claims Choe.

He expects to have a clear idea of what Malaysian companies would need in terms of technology, and market access through a series of workshops that he will run when back in Kuala Lumpur for his next trip. The workshops will be conducted at the premises of interested government agencies.

At the same time, Choe expects Tech Growth Ventures to act like a co-invest fund and tap some of the co-investment grants and matching funds available in Malaysia, especially those for technology acquisitions and cross-border partnerships.

Being able to invest is one thing. Choe has quickly latched on to the problem of exits for investors in Malaysia, but he believes that his fund can build an exit roadmap.

“I am aware that there are very few M&As (mergers and acquisitions) between US and Malaysian companies, but I feel that using our networks in the United States, we can structure some deals,” says a confident Choe.

He would first need to raise his US$50 million however.

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