Southeast Asia, which has been said by many experts and investors to be the next big startup market after China and India. Malaysia certainly has one of the most active startup activities in the region. What roles do angels play in the country? VC Insider News spoke to Razif Abdul Aziz, Executive Director of Malaysian Business Angels Network (MBAN) to understand the angel investment landscape in the country.
“Angel investing is still a relatively young sector in comparison to the US and Europe. Angel investing in those market is very common. In Malaysia, it will take at least a few more years for the market to mature,” explained Razif, who is heading the operations of MBAN.
Angels are crucial in the development of a robust entrepreneurial ecosystem. The US, with about 300,000 angels and about 400 active angel groups, the country has one of the most established angel markets.
According to surveys by the Center for Venture Research at University of New Hampshire, angel market in the US grew from US$17.6 billion in 2009 to US$24.1 billion in 2014. a 27% increase in five years. The same surveys also stated that angel investing is on the rise around the world – the market doubled in Europe and tripled in Canada during the same period of time.
MBAN was formally launched in December 2012 as a result of the Malaysian Government’s effort to address the early-stage funding gap for startups by mobilising private funds. In the same year, MBAN accredited seven angel investors and registered the first certified angel club. Now, at the time of writing, MBAN has 132 accredited angel investors and seven angel groups under their wings.
MBAN serves as an official governing body for angel investors and angel clubs in Malaysia. It promotes and creates awareness for angel investing, build capacity among its members, as well as sourcing and managing deal flow.
“We organise a private pitch session every month. We gather the angel investors and other ecosystem players on the last Friday of the month and we hand-pick a few highly potential startups to showcase their businesses,” said Razif.
MBAN works with a few startup incubators and accelerators in sourcing new ideas and entrepreneurs.
“Since the inception of the pitch session, we have received good response from the investors. The number of attendance increases with each session,” Razif expressed. The last pitch session held in July recorded the highest number of participation, exceeding 100 attendees.
Despite the active involvement of the angel investors, MBAN has faced challenges in measuring the deals and investments facilitated. Razif said that this is because many investments are made on an individual basis and many investors are reluctant to disclose their investment amount. Razif did stress that this attitude of angels should change so that the angel market can be more organised and efficient.
Most Malaysian Angels are High Income Earners
According to the 2015 Annual Report of MBAN, 95.5% of the accredited angels are salaried employees and they are mostly from the legal, accounting, audit & tax, tech & software, banking & investment, engineering and manufacturing sectors.
The total combined income of MBAN members is RM123 million or approximately US$30 million, with 19 members having income more than RM1 million.
In the 2016 “State of the Nation” Report released by MBAN this year, the executive summary reads:
“Business Angels in this [Malaysian] sample are impressive as they are highly-educated hands-on investors who effectively co-invest primarily in seed- and early-stage companies that operate in Malaysia and ASEAN. These business angels have access to significant amounts of investment capital and generally report favourable returns in spite of their limited time of private-equity investing in an emerging economy that provides minimal protection to minority shareholders.”
According to the same report, the median size of angel investment funds is US$440,000 and investments are primarily made for seed- and early-stage companies (85%).
Razif believes that the angel market in Malaysia is developing fast and vibrant despite the global economic slowdown. Startups continue to emerge and investors are actively looking for deals.
Nonetheless, Razif pointed out there are rooms to improve for the angel market in Malaysia.
Awareness of angel investing is generally low in Malaysia, be it among entrepreneurs or investors. Therefore, there must be more efforts to promote the benefits of angel investing to the ecosystem players.
Razif also noted that more regulatory changes and more attractive incentives need to be put in place to encourage more angel investment activities, acknowledging that Malaysia has taken a significant steps to support the market by providing tax relief and other incentives. However, the package can be more comprehensive and appealing.
In order for the entrepreneurial scene in Malaysia to flourish, its angel investing market must also be developed in a systematic manner. Beyond cash, angels play crucial role in contributing to business success by leveraging their experiences, expertise and networks.