INNOVATION has been the cornerstone to enhance competitiveness and accelerate economic growth.
Countries that make significant investments in research and development (R&D) supported by effective commercialisation, offering timely and adequate financing have nurtured companies to successfully introduce enhanced and new products and services nationally and worldwide capturing a significant global market share. A number of countries with several tech hot spots supported by venture capital and business angel financing, including the US and its Silicon Valley, the UK, Germany, France, Russia, Japan, China and South Korea have emerged as tech titans.
(A business angel or angel investor is a wealthy individual who invests personal capital in start-up companies.)
Innovation covers technological innovation as well as non-technological innovation (including organisation, market, business model and financial innovation).Post of science adviser to the prime minister was introduced in 1984 and Tan Sri Datuk Dr Omar Abdul Rahman was its first appointee. He held the post till he retired in 2001.
The science adviser had introduced a number of financial innovations to support technological innovation in Malaysia including introduction of a consolidated research and development grant referred to as IRPA (Intensification of Research in Priority Areas) to support R&D at national level covering industry, medical, agriculture and social sectors.
After observing that research findings require support of commercialisation to bring R&D products to the market place, Malaysian Technology Development Corporation (MTDC) was set up in 1992 to spearhead development of technology businesses in Malaysia offering commercialisation grants to support researchers wishing to commercialise their findings.
In 1993, Malaysian Industry Government Group of High-Technology (MIGHT) was set up under the Office of the Science Adviser in the Prime Minister’s Department. It was co-chaired by the science adviser and a captain of industry to offer feedback of industry needs and perspectives, and input to develop strategies and programmes to nurture and support technology-based businesses.
Recognising that innovation in financing was key to supporting technological innovation, the Office of Science Advisor and MIGHT organised a venture capital conference gathering international and national key stakeholders including representatives from the finance, business and academia to deliberate on the way forward for Malaysia.
A Report on Enhancing Venture Capital Financing in Malaysia was prepared and I was honoured to serve as chairman of the drafting committee of this report. To engage with all stakeholders, our team visited Bank Negara and other financial institutions as well as venture capital companies in and outside Malaysia to learn and then strategised on the best business model for Malaysia.
This report was then submitted to the Ministry of Finance and I was responsible to deliver a presentation of this report to the ministry.
After this report was submitted, it was observed that, in contrast to the western countries which managed the venture capital funds with strategies in place for risk management to ensure a viable investment, in the Malaysian context, the venture capital companies then were relatively more risk averse and budding entrepreneurs shared with us that it was difficult to access the venture capital funds.
I then approached the science adviser to propose that Malaysia urgently needs to introduce business angel financing as an alternative source of funding to help our start up companies.
With his support, I had conducted extensive review of international business angel financing and prepared a report serving as both strategist and author to outline recommendations to introduce business angel financing for Malaysia. This report was submitted to the Finance Ministry.
The Kuala Lumpur Business Angel Club established by Tan Sri TH Tan, chairman of Southern Bank was Malaysia’s first Business Angel Club. I was invited to deliver a presentation on business angel financing and recommendations for Malaysia at one of its functions, attended by the adviser to the Finance Ministry. Several recommendations were outlined and these were brought to the attention of the ministry.
Several recommendations from both reports produced by the Office of Science Adviser on Venture Capital Financing as well as Business Angel Financing, including enhancing tax incentives for venture capital companies and introducing tax incentives for business angel financing and attracting more sources of venture capital funds were incorporated in Chapter 7 of Bank Negara Malaysia’s 10-year Financial Sector Masterplan under the heading Alternative Modes of Financing.
Tax incentives were enhanced for venture capital companies and introduced for the first time to business angels. Additionally, RM300 million was offered for venture capital financing and RM200 million for high-tech financing as debt financing by banks.
Supported by the VC and Business angel incentives, Malaysia’s venture captalists have transformed the nation’s venture captal and business angel financing landscape accelerating the growth of more tech companies
Thus I am sure my former boss, Malaysia’s first science adviser to the prime minister, Tan Sri Datuk Dr Omar Abdul Rahman too is honoured and pleased to note that for Budget 2020, Finance Minister Lim Guan Eng had announced tax incentives to encourage alternative sources of funding for start-ups and to attract more foreign investments from venture capital and angel investors will be extended until 2023, supporting the continuation of the strategies the Office of Science Adviser had developed to support Malaysia’s technology-based businesses nearly two decades ago, laying the important foundation of innovation in financing to accelerate technological innovation.
Sheriffah Noor Khamseah Al-Idid Syed Ahmad Idid is former Special Officer to the Science Adviser to Malaysia’s prime minister.