Kanzun Ventures – Exemplifies Art Of Raising Capital To Structuring Money-Spinning Investments And Exits
A comprehensive metrics to weigh a company’s market opportunities, future profitability and potential risks which faces a business, in terms of products, early demand achieved as well as the background and vision of the management team are vital factors for Venture Capitalists (VC) to ensure that capital is placed correctly to ensure growth, while mitigating risk.
VC investments into start-ups lies solely with a proper valuation which would depict its sustainability and profitability. Well-managed companies that evolve according to market forces and serve the real needs of society will be accurately valued in any market conditions. It all comes down to the way VCs manage funds, aligning it with a guiding investment philosophy.
In 2023, the venture capital (VC) outlook in Malaysia remains positive, with continued growth and expansion. Malaysia has been identified as one of the top emerging markets for venture capital investment in Southeast Asia and has a vibrant and dynamic startup ecosystem.
The Malaysian government has taken steps to promote and support the development of the startup ecosystem, including providing tax incentives for venture capital firms and startups, and setting up several funds to provide funding to startups. For example, the Malaysian Technology Development Corporation (MTDC) has launched the MTDC Venture Capital Fund to provide early-stage financing for Malaysian startups in various sectors.
Malaysia’s infrastructure and digital connectivity have continued to improve, further supporting the growth of the startup ecosystem and attracting more venture capital investment. Malaysia has also been recognised as one of the most innovative countries in the region, and has a diverse and highly-skilled workforce, making it an attractive destination for both local and foreign investors.
Securities Commission of Malaysia stated the total committed VC funds under management in Malaysia as at end-2022 was RM5.37bil, slightly higher than 2021’s RM5.18bil. VC investments in 2022 concentrated on the growth stage (48.18%), followed by early stage (36.53%) and seed (10.54%) opportunities. In total, 34 VC deals were recorded last year.
In seeking to address the dearth of money flowing into the local VC industry, Budget 2023 proposed for government-linked investment companies (GLICs) such as the Employees Provident Fund and Khazanah Nasional to invest up to RM1.5bil into highly innovative start-ups.
In light of the present position of the industry, new Venture Capitalist — Kanzun Ventures Management Sdn Bhd (Kanzun) believes in fundamentally nurturing entrepreneurs whose companies serve the real needs of society varying its investment approach by investing in both low and high-risk companies.
“We can make sure the investment grows eventually. We’re helping these companies grow,” Kanzun’s Managing Partner and CEO Loganathan Suveraniam (Logan) told BusinessTodayrecently on the take up in VC funding, stemming from the fundamental role played by capital in business.
Kanzun provides funding and strategic support to early-stage companies. It typically invests in startups with high growth potential, often in exchange for equity. They also provide mentorship, networking opportunities, and other resources to help the startups succeed.
As a VC, Kanzun manages pooled investments (only open to accredited or ‘sophisticated’ investors) into start-ups or early-stage companies. “Not being a passive investor, we proactively engage in and develop promising start-ups by select, work with, evaluate and improve the management to build a solid foundation for their future viability and profitability.”
Logan explained Kanzun takes an ownership perspective and views each investment, not as engagement for short term profit, but as an asset that we strive to improve over time in fulfilling its responsibilities to stakeholders. It’s essential for us to conduct thorough due diligence on potential investments. This includes evaluating the management team and its founders, market potential, competitive landscape, and financials of the company which mitigates risks and ensures investments have the potential to generate lucrative returns.
VCs need to make strategic investments that have the potential to disrupt existing markets or create new ones. They must be willing to take risks and invest in businesses that may not have a proven track record but have the potential for growth; meaning they, or rather we, must be actively involved in the businesses invested in to provide strategic guidance, mentoring the management team, and giving access to their network of contacts.
It’s also important that VCs have clear exit strategies in place. This can include selling the business to a larger company, taking the company public, or looking at mergers. A clear exit strategy helps to ensure the venture capitalist realises a return.
Logan, who has over 20 years of experience in the financial and professional services industry, said he enjoys discovering how each company plans to scale and evolve and then assessing how they put their plans into practice. As opposed to studying established companies, observing new ones is exciting as their initial plans don’t always correspond with reality, and they often have to show creativity in overcoming challenges.
Logan has witnessed the shifting economic and investment trends around the world. When the pandemic struck in 2020, he observed that while many businesses suffered or shut down, those that embraced digitalisation and invested in future technology remained resilient. This realisation led him to explore mainly technology companies for potential investment opportunities.
Assessing Value
On the valuation process, Logan stands by five criteria which needs to be analysed.
Importance of resilience: The pandemic highlighted the importance of resilience in businesses. VCs are now looking for companies that can withstand unexpected shocks and have a strong foundation to weather downturns.
Flexibility in valuation: It’s now challenging to predict future events and performance accurately. As a result, VCs have become more flexible in their valuation process and may place more emphasis on a company’s potential for growth rather than current financial performance.
Focus on technology: With an accelerated adoption of technology across many industries, VCs are now focusing on businesses that leverage technology to drive growth and efficiency.
Supply chain issues: On supply chain resilience issues, VCs are now looking for companies that have diversified supply chains and adapt quickly to market changes.
Rising prices: The situation is more challenging today to identify undervalued opportunities where VCs need to keenly focusing on businesses that can create value in a market which is saturated.
Overall, the Covid-19 pandemic has made the valuation process more challenging for VCs. However, it has also highlighted the importance of resilience, flexibility, and technology, which can help businesses navigate uncertain times ahead.
On setting a value to a potential investment, Logan would first put an upper limit on the valuation by estimating the company’s growth potential in the best-case scenario. “I would then use that number to determine the maximum price our firm can pay to still consider it a sound investment. I usually aim for a 40% growth per year or a 10-time return on our invested capital over a period between five and seven years. After determining the maximum amount worth investing in a company, I try to make a deal with its founders for a minimal initial outlay with the rest being staged over key millstones.”
In his experience in leading corporate strategy, business development, and product development throughout Malaysia and the Middle East with leadership roles in Qatar National Bank and HSBC Bank Malaysia, he said having a strong passion for working with early-stage companies and helping them thrive. His interest in technology and experience in the financial industry has made him particularly drawn to fintech companies and sees venture capital as the perfect way to combine his interests and skills.
Apprehension Towards Venture Capital
On apprehension towards VCs taking on new proposals and ways to improve its viability under current market conditions, Logan said many entrepreneurs may not be familiar with the process of seeking VC funding or may not understand what VCs are looking for in an investment proposal. By providing awareness and training on the VC process, entrepreneurs can present better proposals that resonates well with VCs.
Develop a strong ecosystem: VCs often operate in ecosystems where there are many players, including other VCs, angel investors, incubators, and accelerators. By developing a strong ecosystem which supports entrepreneurship, VCs can gain access to a wider range of high-quality investment opportunities.
Building trust: VCs are often hesitant to invest in new proposals because of the high level of risk involved. Building trust with entrepreneurs and developing strong relationships can help to mitigate some of this risk and encourage VCs to take on new proposals.
Focus on value creation: VCs are primarily interested in creating value for their investors. By focusing on the potential for value creation in a new proposal, VCs may be more likely to take on the risk involved.
He argues, in Malaysia, the acceptance factors that would make VCs a more viable alternative as compared to bank loans, for example, include:
Access to funding: Many entrepreneurs in Malaysia struggle to secure funding from traditional sources like banks. VCs can provide an alternative source of funding that may be more accessible for some entrepreneurs.
Strategic guidance: VCs often have a wealth of experience and expertise that can be valuable to entrepreneurs. By providing strategic guidance, VCs can help entrepreneurs grow their businesses and achieve their goals.
Access to networks: VCs often have extensive networks of contacts in the business world. By providing access to these networks, VCs can help entrepreneurs connect with potential partners, customers, and investors.
Building Relationships
Building strong relationships with stakeholders play a critical role in the success of VCs to identify and evaluate potential investment opportunities, gain access to new markets, and ultimately drive returns for their investors.
When VCs build strong relationships with entrepreneurs, they can gain valuable insights into emerging trends and technologies, as well as a deeper understanding of the challenges and opportunities facing startups. This can help VCs identify high-potential companies that align with their investment thesis and support these companies through the various stages of growth.
Strong relationships with ‘High Network Individuals’ can also be beneficial for VCs, as it can provide access to additional capital, expertise, and networks. This can help VCs to expand their reach and support portfolio companies through the various stages of growth. In short, relationships are a critical component of the VC ecosystem.
Kanzun’s Portfolio Company – Quoqqa Pty Ltd (Treta Exchange)
Treta is a regulated digital asset currency exchange registered with AUSTRAC. Governed by the strict regulations of Australia, Kanzun is able to provide a diverse range of facilities to customers and traders in leveraging opportunities to purchase and sell crypto assets, spot and margin trading, among others. These opportunities enable both retail and institutional investors make the most from a veritably complex world of digital asset management.
Both beginners and seasoned investors can leverage the cryptocurrency market by Kanzun enabling seamless actions like trading, buying, selling, and staking. High-quality projects where spot, margin and futures trading are then enabled with Treta providing greater depth and market opportunities for investors and traders globally.
Our emphasis to only have verified customers through a rigorous KYC valuation process ensures transactional legality within the ecosystem. These services are underpinned by market-leading liquidity and custodial services, alongside competitive fees, thereby assuring our customers of a vibrant marketplace.
Healthcare: Infinity Health Group Berhad
Investing in healthcare can be particularly attractive to investors because it’s a rapidly growing and highly demanded industry.
If I were to pick sectors to invest in today, it would be the information technology and healthcare sectors. It has a plausible record of profitability compared to other S&P sectors, and the potential to grow even in periods of economic stagnation. What seems problematic with this is the relatively low number of companies holding high valuations, but there are still plenty of relatively new companies with huge investment potential.
Malaysia’s healthcare industry has been growing rapidly in recent years, driven by an aging population, rising incomes, and demand for healthcare services. This growth is expected to continue, providing investors with opportunities with favourable government policies to promote the industry and encourage investment, for example, tax incentives for companies that invest in healthcare, and various grants, funding programs available to support the development of new healthcare technologies and services. Investors will then look for a company with an experienced management team, innovative products, a large and growing market, and competitive advantages over other players.
With an aging population and an increasing burden of chronic diseases, there is a high demand for healthcare services in Malaysia. This provides opportunities. Malaysia also has a well-established regulatory framework for healthcare, which provides investors with a clear and stable environment to operate in. This framework ensures that healthcare products and services meet the highest standards of quality and safety.
These investments reflect Kanzun’s ongoing commitment to promote innovation and access in healthcare. The test case was seen when Kanzun invested in a healthcare startup known as Infinity Health Group Berhad in the first quarter of 2023. The Infinity group is composed of strong management team with combination of 70 years of experiences in healthcare and corporate industries members who are bound to achieve great success with their combined skills and dedication.
Automotive Industry Potential: Carkee-Automotive Sdn Bhd
Malaysia’s automotive sector continues to see strong market demand, specifically in the essential repair and maintenance services which carry a high barrier to entry due to the segment needing professional technical personnel and having a short turnaround cycle which can lead to high gains.
As big as the sector is, it is highly fragmented, rather disconnected and information exists in silos and rarely contextualised. This nature causes several negative impacts seen, like inefficiencies and service duplications, limited access to resources which reduces quality of service – leading to price wars and existence of unethical business practices. These factors present a sector digitalisation opportunity.
Kanzun believes the sector will see a relatively stable revenue stream based on strong pointers towards scalability whereas with more vehicles sold, service offerings will rise and across new locations which presents a significant upside potential in the long term over the fund cycle.
Overall, Malaysia’s continued growth, improving infrastructure development supported by a strong government, a dynamic startup ecosystem allows for the VC outlook to remain positive. However, as with any industry, challenges and uncertainties can arise, such as geopolitical risks and economic fluctuations, which can impact its landscape.