MBAN commitee member Samantha Tee, ED Razif Aziz, president Dr V Sivapalan and TeAM programme manager Erica Forsell.
June 8, 2016: In the Malaysian angel investing landscape, 58 per cent of the companies invested in, and 70 per cent of investment funds either met or exceeded angel investors’ goals in 2015, a survey found. The survey, titled “The Emerging Business Angel Market in Malaysia – A State of The Nation”, was jointly supported by Malaysian Business Angels Network (MBAN) and Cradle Fund Sdn Bhd.
Among the 20 angel investors surveyed, 85 deals were cut, with an average of five investments done per business angel. The median amount committed from those deals was MYR1.7 million per angel investor. MBAN president Dr Sivapalan Vivekarajah noted that the angel investment industry was in its infancy in Malaysia and a lot more data need to be culled, although the initial numbers looked promising.
The survey found that the high net worth individuals and entrepreneurs in the country lack an in-depth understanding of angel investing. “Business angels are highly-educated hands-on investors who effectively co-invest primarily in seed and early stage companies that operate in Malaysia and the Asean,” Vivekarajah said.
The survey pinpointed a need to tell success stories in angel investing to further familiarise relevant stakeholders and parties. “We hope to persuade some of the angel investors and their investee companies to share about what kind of deals they have done, and whether the deals were good,” he said, noting that MBAN should have some stories to share within the next nine months. “One of the key things we are doing at MBAN is to get more information on how many deals are done (among the angel investors). We do a follow-up on these deals, we can’t release the information yet because we haven’t gotten all data,” he said. On average, Vivekarajah said, Malaysian companies look to raise between MYR300,000 and MYR500,000.
MBAN executive director Razif Aziz said aggregation of non-private data is possible but there needs to be a shift in culture for angel investors to open up about their deals. “The Asian culture is such that no one talks about their investments. In the UK and the US, angel investment is celebrated. But bear in mind in those markets, the angel investing has been around in that market for over 20 years and we have only just begun to do this in a structured manner. It’s something people needs to get used to,” he said.
More tax incentives needed To spur the angel investment activities further, the survey recommended the Malaysian government to expand its tax incentive to cover the industry more comprehensively. Currently, only investment deals in the high-tech startups, done by individual angel investors are eligible for the tax incentive. “We hope that the government will provide an incentive beyond the high-tech deals, and individual commitments,” Vivekarajah said. “Some angels wants to band together in, say, a group of five, and set up a company to invest. But companies cannot get deductions under the current Angel Tax Incentive Programme,” he explained.
Vivekarajah also noted that many angel investors feel there is a need to improve legal and financial institutions to protect minority shareholders that they are. “With the new Company Act coming, I’m sure there will be better protection for minority shareholders. But angel investors can protect themselves with terms sheets and shareholders agreements when they invest in a startup. Often they agree to invest and just issue a cheque, thinking that they only hold a small stake,” he commented. Malaysian angels Set up in December 2014, MBAN has recruited a total of 120 angel investor members as at June 2016.
The association aims to grow its membership to between 180 and 200 by the end of this year. To encourage deal flow, MBAN organises monthly pitches where five to six companies are selected by a committee to pitch to MBAN members. Vivekarajah noted that what started out as a monthly event where about 10 angel investors show up, is now a pitching session with a turnout of over 60 angel investors.
Over the course of 12 months from June 2015, MBAN has presented 95 companies to pitch at these events. There is also appetite to invest in non-tech businesses that MBAN is not ignoring, and the association is looking to bring in more non-tech entrepreneurs to pitch to the angel investors going forward. “Right now, about 95 per cent of the deals we curate are tech deals. What we want is a 50:50 spread of tech and other types of businesses pitching at our monthly sessions next year onwards,” he said.
Among the 120 MBAN members, 66 per cent earn an annual income of MYR180,000 to MYR500,000, and 34 per cent earn more than that. They have a total combined income of MYR123 million, verified data based on process mandated by the Ministry of Finance and Inland Revenue Board show. These are a mix of professionals, entrepreneurs and those in senior management. 94 per cent are in the Klang Valley, and 80 per cent are male. Of the 20 angel investors surveyed, the median investment size in first round deals is between $25,000 to $82,000. Later rounds have a median of $80,000 to $125,000.
Their aggregated investment fund is $15 million, with a median of $440,000 per angel.