N3064 Final QUESTIONS 4 (25 MARKS) The news below is extracted from The Edge Malaysia. Answer the following questions, Cover Story: Growing the local venture capital industry By Khairani Afifi Noordin August 12, 2020 11:30 am +08 Deal-related activity in the venture capital industry may have slowed as a result of the tough economic conditions for many businesses due to the ongoing pandemic. But Malaysia Venture Capital Management Bhd (Mavcap), the country's largest venture capital firm, is showing no signs of pulling back and intends to keep investing in promising companies amid this landscape. 00 Doints Dell 8. Decor "Mavcap aims to take this opportunity to continue investing in start-ups. As many institutions will be holding back on new investments, this presents greater opportunities for us and our partner funds," says acting CEO Shahril Anas. The venture capital firm is a wholly-owned subsidiary of Minister of Finance Inc. Private equity (PE) and ventuke capital activity across Southeast Asia was slow in 102020 umid the Covid-19 pandemic, according to EY's Private equity briefing: Southeast Asia report published on July 8. A total of 141 deals worth US$1.4 billion were announced during the quarter--a decline of 9% and 65% in aggregated volume and value respectively compared with the previous corresponding period. The impact of the pandemic has been different for cach company and industry, says Maveap chairman Datuk Noharuddin Nordin. Some companies will find that the situation is benefiting their businesses while others will find their market dwindling or totally disappear. While this is a challenging time, it is also an opportunity for companies to showcase their capabilities "Most companies can perform in good times. But when the times are tough. [only] resilient companies are able to survive and subsequently thrive. There are many Malaysian start- ups and entrepreneurs that possess the potential and capabilities to weather the storm, with the necessary support. That is what venture capital firms such as Mavcap should be here for," says Noharuddin Mavcap has been monitoring and guiding its portfolio companies to adapt and navigate through the pandemic. This can be seen through the collaborative partnerships between start-ups, corporations, government agencies and investors. One example is the collaboration between drone-as-a-service company Aerodyne Group and the Royal Malaysian Police to operate drones for surveillance and enforcement during the second phase of the Movement Control Order period. The firm is currently helping its investee companies to pivot their businesses. For example, the expansion of parcel delivery service EasyParcel into Pgeon and The Lorry's new service to deliver other products such as groceries. "The environment has changed and all businesses must adapt, including the venture capital industry. There are tremendous opportunities for venture capitalists (VCs) who are smart and nimble enough to identify them. This is not a time for VCs to retreat, but a time to refocus," says Noharuddin. "Exit strategies will have to be different. Previously, getting listed was the dominant exit strategy. However, we have seen financial markets across the globe being hammered by the impact of the Covid-19 pandemic and other economic factors. It is time for investors and start-ups to look for creative exit strategies." Mavcap believes there will cntinue to be significant opportunities in the market among sound entrepreneurs with viable business models, even amid the challenging environment. Consequently, the firm intends to continue investing in such companies through its funds. Noharuddin points out that historically volatile periods such as wars, economic downturns and natural disasters normally precipitate a surge in innovation. Hence, businesses will be looking at new ways of doing business post-pandemic. "As Mavcap participates in this sandbox of technology companies and is nurturing companies in this field, we believe there will be many opportunities ahead for SMEs (small and medium enterprises) to leverage innovation and cater for the changing lifestyles that the pandemic has brought, and will bring, about. This includes working from home, online shopping, last-mile delivery in Malaysia and the whole ecosystem that goes with it. Other areas will also open up," says Noharuddin. Mavcap has remained active since the beginning of the year. It has invested in two funds, the first being the Asia Greentech Fund I. The newly launched fund is set to invest in companies operating in the green energy sector such as those involved in solar energy. hydro energy, waste-to-energy and other green energy projects in Asia. The fund was established in partnership with Asia Greentech Capital Ltd (a Malaysia and Hong Kong- based venture capital firm) and Cardina International as the initial investor. In early May, it was announced that Mavcap had invested in LuneX Ventures, a seed-stage blockchain fund by LuneX and Golden Gate Ventures. Launched in 2018, the fund is dedicated to accelerating the adoption of blockchain across Southeast Asia through funding and supporting homegrown global entrepreneurs. The portfolio companies include smart contract-powered derivatives trading platform Sparrow Exchange, cryptocurrency wallet provider BlueWallet and digital asset custody solution provider Propine Capital Evolution of the funding model Mavcap has come a long way since it was established in 2001 with the mandate of developing the nation's venture capital sector, stimulating the domestic economy and driving greater economic wealth for Malaysia through its support for start-ups, particularly in the tech sector. The government entity was created following the rise of Silicon Valley as a hub for technology innovation and development. At the time, funding for tech start-ups was scarce with just banks and PE firms providing the financing. Silicon Valley was providing these start-ups with funding and a platform on which to grow. That was how the venture capital model came about and began to thrive. Recognising the immense potential of cultivating start-ups and entrepreneurs, the Malaysian government established Mavcap to develop the local venture capital scene. The firm has since evolved. Now, it not only focuses on information and communications technology-related companies but also bricks-and-mortar businesses that have progressed to digital platforms such as Fashion Valet, TheLorry and EasyParcel. The list of ICT-related companies that Mavcap invested in in its early days includes JCBNext Bhd (which runs the JobStreet.com platform), Diversified Gateway Bhd (which runs ISS Consulting Sdn Bhd), Fibon Bhd, Censof Holdings Bhd (which runs Century Software Sdn Bhd) and Aemulus Holdings Bhd. These companies have since gone public and are currently listed on Bursa Malaysia. Meanwhile, its portfolio companies that have been acquired include Youth Asia Sdn Bhd, WebBytes Sdn Bhd, Aexio Sdn Bhd, Tranglo Sdn Bhd and ADA Cellworks Sdn Bhd.. Source: This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on August 3, 2020 - August 09, 2020, (1) Interpret venture capital (4 marks) (i) Classify the differences between a venture capitalist and private equity. (6 marks) (iii) Assess the exit strategies and the common exit strategies for start-ups (6 marks) (4 marks) (iv) Why is it important to have an exit plan? Provide two arguments. (v) Based on your opinion, what are the two possible challenges faced by the venture capitalist industry in Malaysia