Malaysian government-owned Cradle Fund, a key influencer in the nation’s startup scene, has unveiled a new investment product which will make direct equity investments in early-stage startups.
DEQ800 is a step away from Cradle’s role as co-investor and marks its continuous move from grants towards equity investing. The goal is to wean startups off public grants.
Cradle has allocated a total of US$1.8 million for DEQ800, which will inject between US$67,000 and US$180,000 into tech startups, Cradle’s chief investment officer Juliana Jan tells Tech in Asia. Target sectors include “National Key Economic Areas” such as financial services, tourism, business services, electrical and electronics, wholesale and retail, education, healthcare, communications, agriculture, and oil, gas and energy.
“We hope that DEQ800 could close the funding gap in the nation’s seed stage, where there are very few players that invest below [US$180,000],” notes CEO Nazrin Hassan.
Cradle has been crucial in the Malaysian startup ecosystem’s growth for over a decade because of the financial support it provides tech entrepreneurs. The agency was created by the Ministry of Finance in 2003, awarding grants to startups through the US$22 million Cradle Investment Programme. An additional US$39 million was added to this allocation under the 2011-2015 Malaysia Plan.
By 2014, Cradle began to evolve from its grant model by launching equity investing through a “co-investment program.” Under it, the fund matches the startup funding given by more than 30 investor-partners, including local and regional venture capitalists, angel clubs, and crowdfunding platforms.
DEQ800 is its latest initiative towards equity investing, and means Cradle will now invest on its own.
Of the agency’s US$4.5 million total appropriation from the government this year, half will be given out as grants and the other half as equity investments. 80 percent of the latter will be direct.
“With the government’s stance on reducing dependence on grants, equity investments such as DEQ800 should be able to serve as an alternative to stimulate the growth of high-potential Malaysian tech startups and make early-stage funding in Malaysia more robust eventually,” explains Nazrin.
He adds that the new program brings more value to the table than just capital infusion. “Rather than just putting money in their ventures […] we will help build them through value-added services in the areas of mentoring, commercialization support, and many others.”
DEQ800 portfolio companies will have access to Cradle’s network of key ecosystem players and investors who can help them as they scale beyond their home markets.
Cradle is also revamping both its grant and co-investment programs.
Cradle’s grants have been suspended since end-2016 as the agency prepares for a new grant product to be launched in the second quarter.
The co-investment program, on the other hand, will roll out a two-to-one investing ratio, wherein Cradle will double every matching contribution from co-investors in deals.
The ticket size for co-investment will also see an increase to US$180,000 from US$112,000 in previous years.
Cradle has planned up to 10 direct equity and about three co-investment deals in 2017.
Converted from Malaysian ringgit. Rate: US$1= RM4.45.
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