Starting a dot.com?
THERE WAS a time when the doors would be slammed in your face the moment
you mention `Internet start-up’.
The tide is changing in Malaysia, though. Catching up in what seems to
be the playing field of the future, Malaysian venture capitalists (VCs)
and investors are opening their pockets to finance Internet start- ups and
e-commerce enterprises. `Then, we had a tough time looking for investors,’
says Alex Kong of Asiatravelmart.com. `Now, we have a tough time selecting
`This year is the year of the dot.coms in Malaysia,’ says Richard
Jacobson, senior Internet analyst with International Data Corporation
(IDC). An increased interest in Internet start-ups, he says, is attracting
investors far and near. He estimates that there are 27 VCs and incubators
in Malaysia, most of which emerged within the past year.
According to Malaysian Network Information Centre (Mynic) statistics, in
1998, there were 2,061 registered private and corporate sites
(dot.com.my). In 1999, that number more than doubled to 4,738. In the
first quarter of 2000 alone, there has already been 3,517 registered
dot.com.mys. Although these figures do not necessarily equal the number of
e-businesses, with a projected 68 million Internet users in Asia by 2001,
the boom is just beginning.
A surge of interest in the industry and an increase in the number of
participants is indicated by the numerous events and forums around town
linking VCs and technopreneurs. First Tuesday (www.firsttuesday.com) is
one such global organisation that draws technopreneurs and VCs to get-
togethers the first Tuesday of each month.
But while the hype and media attention is beneficial to start- ups,
Jacobson stresses that it all boils down to business. `E-business is still
business without the “e”,’ he says. E-businesses that are not sound will
drop out at the shakeout and consolidation phase, as seen on Nasdaq this
past April. Statistics show that nine out of 10 start-ups fail. Local
players place the risk at one in 25.
Possible sources of funds
`The best way to fund your start-up is to get your own money from your
aunty or your sugar daddy,’ says Richard Arnold, business development
director from Euro Asia Connection, a firm that connects technopreneurs to
VCs (firstname.lastname@example.org). Relying on outside sources for funds
always means giving up part of the control or stake in the company, he
says. But not every one has a grandmother with hordes of dollar bills
stashed in a pillow case. That’s why technopreneurs have to knock on
different doors for their seed capital.
VCs – your best bet
`Next to family and friends, VCs are your next best friends,’ says Kong
of Asiatravelmart.com. There are several types of VCs, Kong says. Some are
into start-ups while others are into infrastructure or mature companies.
The key is to do one’s homework and find the right one.
Kong advises technopreneurs to think globally and not put all their eggs
into one basket. `The Internet is a global business,’ he says.
Technopreneurs should divide their funding sources between Malaysia,
Singapore and Hong Kong. Anywhere further and you’d find that the VCs
won’t have the time to fly over and research your business.
David Yong, CEO and founder of asiaONair.com, says that a year ago,
Silicon Valley wasn’t interested in investing thousands of miles away.
Now, many American VCs are looking into Asia. `If you want to grow
regionally, get strategic partnerships,’ he says. `A branded VC will help
you grow your business a lot quicker.’
Incubators – the place to hatch
Incubators provide startups with all they need, from funding, physical
space and technical and business networks, to get started. Many companies
are quick to set up their own incubators – Dijaya, IBM, Sun Microsystems,
Hewlett Packard, 3V Ventures and not forgetting the Multimedia Super
Corridor, to name a few – but services and facilities offered vary.
G-Lab Sdn Bhd (www.g-lab.com) is Malaysia’s first private incubator for
technology and dot-com start-ups. Opened in late March 2000, G- Lab is
already the mother hen to six little dot-com chicks.
G-Lab funds technopreneurs right from the concept and ideas stage (up to
RM5 million each), provides management expertise and rent-free facilities,
and helps them build up their business plans into viable business entities
over a period of six months. (To track each start-up’s progress and as a
prodding reminder, a 150-cm measuring tape hangs outside every cubicle,
with one cm snipped off every day. The remaining 30 days are marked off a
calendar.) Residents also have access to G-Lab strategic partners such as
IBM, PricewaterhouseCoopers, BMC Software, Azure Technologies, Grey
Advertising and Naga DB.
`We take them from A to Z and back again,’ says Bettina Chua Abdullah,
G-Lab’s media and communications advisor. `Ideas are very, very precious
things to people,’ she says. `Our people trust our ability to help them
make it happen.’
Corporations – at a cost
Most corporations seeking to invest in Internet start-ups are looking
for controlling shares, says Kong of Asiatravelmart.com. `They have vested
interests, and many do not understand a company well.’ Whoever invests in
a technopreneur should believe in him and give him a free hand, he adds.
However, there are certain business ideas, he says, that require a
High net-worth individuals – if you’re really lucky
First, you have to cross paths with them. Second, you have to get their
trust … enough trust for them to invest millions in your start- up. More
often than not, says Euro Asia’s Arnold, these Internet `angels’ would
pool their funds with the VCs and let the VCs find them viable Internet
Banks – don’t waste your time
`Banks are not going to give you a loan,’ says Asiatravelmart.com’s
Kong. `They regard an Internet-based company more as a liability than an
asset.’ IDC’s Jacobson says this is hardly surprising as investments are
not part of banks’ business models.
Euro Asia’s Arnold says local banks are more conservative and rely on
bureaucratic decisions. Technopreneurs should give foreign banks a try, he
What investors look for commitment
Kong of Asiatravelmart.com urges technopreneurs to look long- term. VCs,
he says, aren’t interested in part-time ventures. `VCs don’t just look at
the business plan,’ he says. `They want you to put in your own money, your
life savings and your time. You have to have passion and absolutely
believe in your business.’
Even with three successful rounds of funding, Catcha.com’s chief
operating officer Nic Lim is far from relaxing. He stays next to his
office, works 18-hour days and is determined to build the leading digital
media corporation in Southeast Asia.
Understanding of the business and industry
`There is no Internet bandwagon,’ says Kong. He advises start-ups to not
be greedy on valuations. `Take whatever you can get,’ he says. `Focus on
the business and its value will go up by five to 10 times. The market will
Profitability is an important factor. `VCs want to see returns in two to
three years max,’ says Arnold. VCs are currently focusing on business-to-
business (B2B) portals, he says. `They are sure Malaysia’s businesses and
corporations will embrace the Internet much faster than consumers.’ B2B
portals must show that they have, or will have, a lot of transactions to
generate revenue, by way of commissions or subscriptions.
AsiaONair’s Yong says e-commerce websites have to prove that they have
reputable merchants, high-quality products and excellent service. `If in
the first few months you can give your customers a confident shopping
experience, they will come back to you.’
Former brick and mortar companies have a slight advantage, Kong says,
because most VCs are comfortable with someone who has started something
that sells. Catcha.com used mergers and acquisitions of existing portals
to start its company. Lim says that VCs were more receptive when they had
something with tangible value to show instead of just plans on paper.
The right crew
Catcha.com boasts of its strong management team. Catcha’s Lim says its
team is complementary, with each person bringing in different strengths
from technology to management, and all four of these Internet- savvy
personnel share a common vision.
Sometimes, the idea is superb but the technopreneur lacks the competence
for execution. `If it’s too big, say so,’ says Euro Asia’s Arnold. The VC
who believes in the idea will source the right management team.
Asiatravelmart.com’s Kong says hiring the right people is investing in
intellectual property, which will yield big returns.
An out-of-the-world, one-of-a-kind concept
`We’re not looking for copycats,’ says Euro Asia’s Arnold. The start-
up’s concept should have characteristics that are unique, at least in
Catcha.com played this card to its advantage. Lim says that he and his
management team realised that there was no regional search engine portal
in Southeast Asia. As the first mover and local equivalent of comparable
models worldwide, Catcha has created a niche for itself and filled a gap.
AsiaONair’s Yong says that asiaONair.com had to find its own niche with
the increasing number of Asian Internet portals. Realising the lack of
Asian and audio-visual (AV) content, the newly launched start-up aims to
cater to that market with a wide range of interactive multi-media AV clips
alongside entertainment, lifestyle and business news and products.
In the United States and Europe, the heyday for Internet start- ups is
dying down as the market consolidates. In Asia, however, it is just
beginning. `This is a good year for Asia,’ says Euro Asia’s Arnold. `But
they have to move fast.’ Arnold foresees that in 12 months, American
Internet companies will be moving into the region. `In these 12 months,
Asia has to try to do it first.’
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