Malaysian angels expected to invest US$3mil over next 12mths

• By year-end, MBAN hopes to have 150 members and to have them close 10 deals
• Has submitted a proposal to MoF for changes in Angel Tax Investment Incentive

THE Malaysian Business Angel Network (MBAN) hopes that its members will make about RM10 million (about US$2.6 million) worth of investments over the next 12 months, partly helped by the network’s collaboration with London Business Angels (LBA).
 
“We know it’s a large amount, but we hope we will get at least RM10 million invested in startups by (our) angels,” MBAN president Dr V. Sivapalan (pic above) said after the launch of the ‘Angels in the City’ programme in Kuala Lumpur on Aug 10.
 
The Angels of the City programme is the result of a collaboration between MBAN and LBA, which is also one of the oldest angel networks in Europe.
 
Under the collaboration, MBAN has been given an exclusive licence and will receive full support from LBA to run and operate the programme in Kuala Lumpur.
 
Sivapalan said he hopes that with the help of the Angels in the City programme, MBAN would be able to grow its members from approximately 100 currently to 150 by the end of this year.
 
“We also hope that we are able to close 10 deals by the end of this year. Currently, we have about four to five deals in the pipeline that are close to completion,” he claimed.
 
According to Dr Mohd Irwan Serigar Abdullah, Secretary General to the Treasury at Malaysia’s Ministry of Finance, the country’s angel community plays a critical role in helping local entrepreneurs achieve success.
 
“The Government, via various entities like Cradle Fund Sdn Bhd, Malaysia Venture Capital Management Bhd (Mavcap), Malaysian Technology Development Corp (MTDC) and others, has been very supportive in providing funding support to local entrepreneurs.
 
“However, at the end of the day, public funding is limited,” said Irwan, who officially launched the Angels in the City programme.
 
Cradle Fund chief executive officer Nazrin Hassan said that the growth of the angel community also “syncs well” with Cradle’s own game plan to grow the startup ecosystem.
 
“Cradle’s original thrust has always been about facilitating early stage funding. We want more private investments to happen so that we can rely less on government funding.
 
“It also gives our entrepreneurs another avenue to go for their next funding.
 
“Angels want deals that are already verified. They know it’s a solid deal with our participation on the funding side very early on, and we get them at a stage where it’s already at the commercialisation phase.
 
“We believe this will attract more angels to invest in the next stage,” Nazrin added.
 
Cradle actually founded MBAN in December, 2012, and acted as its secretariat in the early days.
 
London calling
 
According to MBAN, the Angels in the City programme developed by LBA acts as a catalyst in recruiting and providing investor-readiness training for potential angel investors, with the aim of increasing the local pool of active angels.
 
The programme also bring its pool of angel investors together with vetted and prepared early-stage locally-based businesses at its quarterly bespoke Angels in the City investment pitching events.
 
“[These] investors are able to interact with each other both socially as well as potential co-investors, and consequently, more easily able to make syndicated angel investments,” said LBA cofounder and chief executive officer Anthony Clarke.
 
MBAN already holds monthly entrepreneur pitching events, but Sivapalan said the partnership with LBA is essentially about not having to “reinvent the wheel.”
 
“At the end of the day, we are still very new in what we are doing. London has a far more advanced angel ecosystem, and we want to learn more from them,” he said.
 
“Instead of doing it by ourselves, [and perhaps] not doing it well, the partnership would allow us to learn faster and [adopt] the best practice.
 
“In fact, one of the important things LBA has learnt is that angels want to do syndicated deals. Today, 95% of the deals by angels are syndicated deals.
 
“So we can learn from them how they do syndicated deals … and learn new skill sets. With this partnership, they will be providing us with all the tools, materials and training programmes. We can use the content to train our angels on how to invest.
 
“It is also to get companies to be investor-ready,” Sivapalan added.
 
Earlier at the event, Sivapalan highlighted the importance of angel investors in the US and European startup ecosystems.
 
In the United States, angels invested US$24.1 billion, versus the average of US$30 billion annually that venture capitals invested, from 2011-2013.
 
“More importantly, the total number of companies that received angel investments in 2014 was 73,400, but those that received VC funding were only 4,356,” he said in his speech at the Angels in the City programme.
 
Sivapalan said there are over 298,000 active angels in the United States and 271,000 angels in Europe.
 
By contrast, MBAN is aiming to have 150 angel investors by year-end.
 
Fine-tuning needed

While Cradle’s Nazrin (pic above) was confident that the Angels in the City programme would help grow the base of angel investors in the country, he believes that equity crowdfunding will also be a strong catalyst.
 
“With MBAN getting into gear on the programme, what you will see is a lot more angel investors participating in deals.
 
“I am kind of hopeful that what will trigger this is the equity crowdfunding side, where I think our angels will start making small bets on equity crowdfunding platforms and this … will spur the angel market onwards,” he added.
 
Last year, the Securities Commission of Malaysia (SC) announced its intention to enable equity crowdfunding in the country, as an alternative source of funding for startups and small and medium enterprises (SMEs). In June this year, it approved six registered equity crowdfunding platforms.
 
Meanwhile, the Malaysian Government is also giving up to RM500,000 in income tax relief as an incentive to encourage more angels to invest in local entrepreneurs.
 
This Angel Tax Incentive has a few conditions tied to it – both the angel and the startup must be accredited, and the angels are only eligible for the tax relief after two years of holding the investment.
 
This may not be sufficient, argued LBA’s Clarke.
 
“Whilst Malaysia’s angel tax break scheme provides some essential downside protection to angel investors, it alone is not the magic bullet to bring more angels to the table here,” he said.
 
“Based on our experiences in the United Kingdom, Malaysia’s angel tax break scheme may also need some fine-tuning to make it more ‘user-friendly’ and attractive for would-be angel investors.
 
“For example, in the United Kingdom, angels receive a 50% income tax break upfront for seed investments, and 30% for post-seed investments made in the tax year they invest – and there is no need for them to formally prequalify with our tax office as an eligible investor.
 
“We also get income tax loss relief on failed investments,” he added.
 
Sivapalan said MBAN has already submitted a proposal to the Ministry of Finance suggesting changes to the existing Angel Tax Investment Incentive.
 
“We believe that if we can make it similar to London’s [incentives], we will encourage more angel investments,” he said.
 
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