FINANCING ICT COMPANIES: THE EXPERIENCE OF MULTIMEDIA SUPER CORRIDOR (MSC), MALAYSIA

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1 FINANCING ICT COMPANIES: THE EXPERIENCE OF MULTIMEDIA SUPER CORRIDOR (MSC), MALAYSIA Sohaimi Mohd Salleh Abstract This paper examines financial environments, including venture capital issues for information and communication technology (ICT) companies in MSC, Malaysia. The breakdown of demand and supply situation shows that government s financing has dominated the financial intermediation between financiers and ICT companies. However, financial intermediation between demand and supply as a whole has been low. Factors responsible for this poor performance have to be identified. At this stage, venture capital in Malaysia is just emerging with little success evidence. Although government s involvement is a doubleedged sword, its supportive role may be recognized for a successful operation of venture capital. Keywords: Financing Sources; Venture Capital; ICT companies; Multimedia Super Corridor (MSC) ; Malaysia. JEL Classification: G24; G32; O16; R58 1 INTRODUCTION Technological development contributes to economic development by increasing productivity in numerous ways; for instance, by increasing production from existing scarce resources, by expanding the economy resources base, and by providing new products. Entrepreneurs and venture capitalists are involved in this economic process. This aspect has been increasingly important in the information and communication technology (ICT) companies 1. The managements of ICT companies are strongly influenced by external factors, especially financial environment. Financial resource shortage is very common, and venture capital is considered to be the most important factor for ICT companies solving their financial problems. In the Malaysian context, the success of ICT companies has been considered crucial in having its economic future prospect. The Multimedia Super Corridor (MSC) is deeply related to this policy considerations and one of the main objectives of MSC is to create a successful cluster of ICT companies 2. In many cases, financial environment determines their destination. The following section explains the methodology used in this paper. Then, section 3 examines the financial environments in MSC. Section 4 discusses indirect roles of government in the financial environment to support ICT companies, follows by the conclusion. 2 METHODOLOGY In this paper, financial environments in MSC are examined first in the framework of demand and supply of funds. This framework also provides the breakdown of the demand and supply of funds in the current financial environments of MSC. The framework analysis is supplemented by useful data and information from several Malaysian experts on the subject of this paper. The nature of demand and supply of funds is substantiated by data and information from the Survey of Venture Capital Financing in Malaysia conducted in March - April 2003 by the author and MSC Impact Survey ; and Multimedia Corporation Development (MDC) s database. To analyze the data and information, related economic literatures have been reviewed. 3 FINANCIAL ENVIRONMENTS IN MSC 3.1 Demand of Funds The demand for funds by ICT companies is growing. Potentially, there is a very broad range of ICT companies involved in various technological focuses, of different sizes and at different stages of growth. Their financing requirements vary considerably because of their needs and Waseda University, Ph.D Candidate of the Graduate School of Global Information and Telecommunication Studies (GITS). ( sohaimimy@yahoo.com ) 1 ICT companies broadly refer to small and medium-sized enterprises (SMEs) involved in the ICT and multimedia businesses in MSC, Malaysia. 2 Malaysia intends to be a member of the developed nations by year The Survey on Venture Capital Financing in Malaysia was conducted in March - April 2003, to 24 venture capital and 100 ICT companies 140 operating in or around MSC with an effective response rate of 49.6%. The MSC Impact Survey was conducted by MDC on 650 MSC-Status companies as at May 15, 2002 and was targeted at 508 active companies (267 local; 85 foreign; 118 joint-ventures; and 38 world-class). The response rate was 91% or 461 companies (241 local; 75 foreign; 107 joint-ventures; and 38 world-class) and no adjustment made for the balance of 9% or 47 companies. The breakdown of the 142 inactive companies comprises of 5 closed, 11 unincorporated, 43 dormant, 58 revoked and 25 others.

2 barriers are different when seeking external financing. The proliferation of ICT companies in MSC is increasing which indicates the demand of funds will also increase. The total ICT and MSC-Status companies increased significantly from 247 and 97 in 1997 to 1,716 and 745 in 2002 respectively. They are expected to increase further to 1,900 and 850 companies by 2003 respectively (figure 1). Their diversity of technology focus that can be seen from figure 2 with capitalintensive businesses (e.g. software development, internetbased businesses, telecommunications & networking and etc) constituted 71% in comparison to 29% of less capitalintensive businesses of consultancy & incubation and others (e.g. life sciences). Figure 1 Figure 2 Distribution of Technology Focus of MSC-Status Companies 66% of these companies were small (less than a million paidup capital), they are at important stage of their growth and require financing from various sources to grow larger. Their profile of growth stages are as follows: 4% (18 companies) are at seed stage; 29% (133 companies) are at start-up stage; 59% (270 companies) are at growth stage; 7% (34 companies) are at Pre-IPO stage; and 1% (6 companies) is at Post-IPO stage. Majority of them (92%) were at growth stage and below, that is, in the critical stage of building their track records and proven products or services. Thus, they require adequate funds for these purposes. According to the same survey, RM700 million of venture funds is required by these companies for the period of 2002 to Judging from their technology focus (figure 2), these companies involved in new technology-based production, which normally have many intangible assets (e.g. trade secrets and applied knowledge) and were also considered as high-risk new businesses. Thus, their readiness to disclose important information and dilution of ownership are barriers when seeking financing. According to BNM (1999), investment activity has been held back due to reasons such as reluctance to dilute ownership and lack of awareness on venture capital financing. In a study on SMEs financing in Malaysia, JBIC (2001) contends that a low incentive for increasing disclosure of information to outsiders (especially about R&D investment) as one of factors that create difficulty in obtaining financing 4. The above demand breakdown implies that financing of ICT companies as a whole is increasingly important for MSC. Source: Multimedia Development Corporation (MDC) Databaseas at July 22,2002. The variety of needs and barriers of their financing requirement can be derived as follows. Based on MSC Impact Survey 2002, for MSC-Status ICT companies, their profile of paid-up capital are as follows: 50% (230 companies) have paid-up capital of less than RM500 thousand; 16% (75 companies) have RM500 thousand to RM1.0 million; 21% (96 companies) have RM1.0 million to RM5.0 million; and 13% (60 companies) have more than RM5.0 million (RM stands for Ringgit Malaysia, i.e. the local currency). Although 3.2 Supply of Funds The supply of funds can be categorized into three sources as follows: i) private equity financing; ii) debt financing; and iii) developmental grants financing. (Discussion on self-financing and commercial project financing of these companies were excluded as there is no reliable data available). Private equity financing usually conveys a dilution of ownership in a company (as borrower) to equity investor. Basically, equity investor gives up the right to a predetermined repayment schedule and a preferential claim on borrower s assets in exchange of a share of future profits. This source can be obtained from informal and formal venture capital. High net worth individuals or business angels are examples of informal venture capitalists. In Malaysia, most of business angels were from property and construction sectors and generally does not invest in ICT companies at earlystage. For formal venture capital, it is relatively new and in a state of government-funded kind of financial segment (Ariff and Lim, 2001; Mani and Bartzokas, 2002). Venture capital 4 JBIC (2001, pp ) found that there are four factors on the part of these small and medium enterprises that contribute to the difficulty in obtaining financing as follows: i) reluctant in disclosure of information; ii) inadequate physical collateral for new loans; iii) fragile foundations in human, technological resources, and business strategies; and iv) fragility in managerial resources (e.g. capabilities of managers and making use of trade associations and industry information). 141

3 financing also involves meticulous processes of deal screening, due diligence, deal evaluation and structuring, monitoring and other post-investment activities. Based on recent survey, 65% of venture capital companies in the sample were incorporated less than 7 years old (Figure 3) and 67% of them employed venture capital executives of less than 7 persons (figure 4). Figure 3 Distribution of Year of Incorporation of VC Companies Figure 4 Distribution of Venture Capital Executives of VC Companies Source: Survey on Venture Capital Financing in Malaysia conducted in March - April 2003 According to BNM Annual Report (2001), there were RM2.00 billion of venture funds in the capital market (of which RM1.13 billion resided with ICT and multimedia focused funds) as at end of Venture capital companies increased to 36 in 2001 with 180 companies invested in comparison to 31 in 2000 with 159 companies invested. According to MDC there were 19 active venture capital companies currently in ICT and multimedia industry of which 9 were government initiated companies and managing government agencies funds of more than RM950 million 5. For venture funds, government allocated RM220 million for 1996 to 2000 and another RM778 million for 2001 to At this stage, these investors were risk averse and focusing on building profitable track records, thus would minimize their investment s exposure in high risk ICT companies. Based on business angels financing was selective, and venture capital s meticulous process and at its developing stage, ICT companies may have some difficulties in getting this source of financing. Debt financing can be obtained from informal sources (i.e. loans from partners, family members, friends, and trade creditors) and also formal sources (i.e. government s schemes through special development finance institutions, commercial banks and finance companies). Besides government s allocation of almost RM500 million, funding from bilateral sources (e.g. OECF and Japanese government) were also allocated in these schemes. This source of financing requires some collaterals and repayments of principal and interest over a specified tenor of the loan. Specific obligations were created for borrower to repay the loan on a predetermined repayment schedule. Failure with, it allows financier to recover the outstanding debt (i.e. principal plus interest and other penalties) even if borrower is forced into bankruptcy. The costs associated with initial evaluation and monitoring are high, thus stringent financing covenants were imposed by financier in order to counter adverse selection and moral hazard problems. Besides above features, application was based on market-driven criteria (e.g. specific sector, eligibility, limitation of loan amount, and commercial term and condition). Certain schemes required borrower to have good track record, which make this condition not achievable for some of these ICT companies. Currently, there are seven schemes available for ICT companies and these schemes were managed by specific institutions 6. Due to market-driven application criteria it can be inferred that ICT companies may have some difficulties in getting financing from this source. In addition, commercial banks and finance companies involved may also lack of necessary skills to evaluate the technicalities of ICT companies for funding purpose. Developmental grants financing is another option. In order 5 These companies are Amanah Ventures Sdn. Bhd.; BPMB-NIF Modal Teroka Sdn. Bhd.; BI Walden Management Sdn. Bhd.; CAV Private Equity Management Sdn. Bhd.; DTA Ventures Management Sdn. Bhd.; FirstFloor Capital Sdn. Bhd.; Intelligent Capital Sdn. Bhd.; ispring Venture Management Sdn. Bhd.; Malaysia Venture Capital Management Bhd.; Mayban Ventures Sdn. Bhd.; MCM Technologies Bhd.; MSC Venture Corporation Sdn. Bhd.; Netval Ventures Sdn. Bhd.; OptixLab Sdn. Bhd.; OSK Venture Equities Sdn. Bhd.; Photonics Venture Capital Sdn. Bhd.; PNB Nomura Jafco Management Sdn. Bhd.; Perbadanan Usahawan Nasional Bhd.; and Technology Asia Ventures Sdn. Bhd. [Sdn. Bhd. Stands for private limited] 6 These schemes are as follows: a) New Entrepreneurs Fund manage by Bank Negara Malaysia (BNM) through participating financial institutions; b) Fund For Small And Medium Industries 2 - manage by BNM through participating financial institutions; c) Graduate Entrepreneurs Fund - manage by Ministry of Entrepreneur Development; d) JBIC Fund (SMI - OECF) - manage by Bank Pembangunan & Infrastruktur Malaysia Berhad (BPIMB), Bank Industri & Teknologi Malaysia Berhad (BITMB), and Malaysia Industrial Development Finance Berhad (MIDFB); e)fund For Medium And Large Industries - manage by BPIMB; f) Direct Access Guarantee Scheme (Conventional only) - manage by the Credit Guarantee Corporation (CGC) Malaysia Berhad; and g) MAVCAP Debt Ventures.

4 Table 1: Summary of Differences of the Financing Sources Source: MDC, (2002),"Funding Guide & Directory for ICT/Multimedia Industry", 1st. Edition, May to provide equality in financing technological and business developments of ICT companies, the government has introduced specialized grant schemes for them. Total funds allocated were RM1.10 billion in 1996 to 2000 and another RM1.90 billion in 2001 to These schemes covered wide spectrum of activities (e.g. R&D, marketing, and acquisition of intellectual property). Basically, no equity dilutions or collaterals were needed to obtain these grants and also no principal and interest repayments involved. Currently, there are ten grant schemes offered to these companies 7. There are few problems related to this financing source (e.g. the difficulty in obtaining information about the availability of the grants; the stringent and market-driven application criteria; and the lack of clarity regarding level of funds and their associated terms). Approval process may take longer time because of many different agencies to contact. Usually, ICT companies funded by grants were assumed to have minimal private sector linkage and commercial value. The differences between the above mentioned financing sources available to ICT companies in MSC are summarized in table 1 below. 3.3 Characteristics Based on discussion above, financial environment in MSC can be characterized as follows. Firstly, financial intermediation between financiers and ICT companies was low 8. Judging from the sources and amounts of funds available, these companies should not be facing any problem but they still seemed to have difficulties in getting actual financing from these sources. On the part of ICT companies, their business culture especially disclosure of information and dilution of ownership in their financial contracting should be changed as it can affect the availability of their financing sources. This is important in order to fulfill their financing needs and barriers from these sources. On the part of financiers, the market-driven application criteria, lack of knowledge about technicalities of ICT companies for funding purpose and risk aversion of equity investors could be among the main obstacles. Equity financing from business angels and venture capital companies were found to be selective and minimal. For instance, Boocock and Ismail (1997, p. 7) state that business angels only involved "the tightly-knit Chinese and Bumiputera communities". For venture capital, 180 companies or 11% that are venture-backed in 2001 were considered low in comparison to total ICT companies of 1,601. Total amount invested also was far less than the amount of funds available (i.e. RM131.3 million or 7% in 2000 and RM109.3 million or 5% in 2001 in comparison to RM2.00 billion worth of funds in the industry). Figure 5 shows small amount of investments made (i.e. 61% below RM50 million) by venture capital companies and figure 6 shows longer time taken for investment decision to be made (i.e. 88% for 3 months to more than a year). 7 These grants are as follows: a) Commercialization of R&D Fund (CRDF) - manage by Malaysian Technology Development Corporation (MTDC); b) Demonstrator Applications Grant Scheme (DAGS) - manage by MIMOS Bhd.; c) E- Commerce Grant For Small & Medium Scale Industries - manage by Small & Medium Industries Development Corporation (SMIDEC); d) The Industry R&D Grant Scheme (IGS) - manage by Ministry of Science, Technology, and the Environment (MOSTE); e) Intensification of Research in Priority Areas (IRPA) - manage by MOSTE; f) Market Development Grant (MDG - formerly known as ITAF 4) - manage by Malaysia External Trade Development Corporation (MATRADE); g) MSC R&D Grant Scheme (MGS) - manage by MDC; h) Rosettanet Grant (RNG) - manage by SMIDEC; i) Technology Acquisition Fund (TAF) - manage by MTDC; and j) Technology Acquisition Fund For Women (TAF - W) - manage by MTDC. 8 Financing from IRPA s developmental grant for ICT industry was only RM35 million or 5% of RM698 million allocated in 1996 to For MSC R&D grant, only RM31 million invested as at August Debt financing through NEF 2 was also low at RM176 million in

5 Figure 5 Distribution of Amount of Investment made by VC Companies Figure 8 Distribution of Type of Business Risk Preferred Figure 6 Distribution of Average Time Taken for Investment Decision Source: Survey on Venture Capital Financing in Malaysia conducted in March - April 2003 Based on recent survey also, on average and per year basis, venture capital companies received 125 proposals and out of this, 75 or 60% were reviewed, but only 5 or 4% were invested. Even if invested, they still faced agency problem (i.e. 73% experienced this problem sometimes and often/constantly) in managing their business as can be seen in figure 7 below. In addition, 72% venture capital companies in the survey preferred medium-risk type of businesses (figure 8) and this was not compatible with high-risk type of businesses of ICT companies. These facts imply that actual financial intermediation between financiers and ICT companies were low, especially in venture capital. Figure 7 Distribution of Agency Problem Experienced Source: Survey on Venture Capital Financing in Malaysia conducted in March - April 2003 Secondly, the supply of funds has been dominated by public sector financing. The government involved directly by allocating substantial amount of funds (as discussed in Section 3.2). Financing from public sector seemed to be in line with government s policy to develop ICT and multimedia industry and to create critical mass of ICT companies in MSC. However, this financing source has certain setbacks (will be discussed in the next two characteristics). For venture capital, government s direct involvement also substantially be found in the numbers of venture capital companies initiated (i.e. 9 active venture capital companies in ICT and multimedia industry) and amount of funds allocated (i.e. RM950 million or 84% of total amount of RM1.13 billion specialized in same industry). Thirdly, private corporations financing to ICT companies were minimal. The involvement of private corporations to provide financing is important to expand the source of financing and also to diversify the risk of investment. According to industry sources, besides government initiated venture capital companies, there was minimal involvement from private corporations in providing financing to ICT companies. At present, there are only a few small private venture capital companies associated with financial institutions (e.g. Mayban Ventures, Amanah Ventures etc.), but not with large private corporations. This is different from advanced countries where large corporations were involved in providing financing to these companies through their corporate venture capital companies (Ehrlich et al, 1994; McNally, 1995; Abetti, Masaki, and Rice, 2000) 9. Finally, the existence of government s developmental grant schemes has unintentionally turned into a double-edged sword. On one edge, these grant schemes provided more financing option to ICT companies but indirectly made them more complacent by only eyeing this source of financing since no repayments of principal and interest are needed. On the other edge, these schemes also made private sector see no urgency for them to provide similar schemes or initiatives to foster the technological and business developments of ICT 144

6 Figure 9: MSC s Financial Environment and its Characteristics companies. Based on discussion above, improving financial intermediation between financiers and ICT companies and financiers may be needed in order to increase the volume of investment activity in MSC 10. On the part of ICT companies, they need to improve their knowledge about these financing options that are suitable to their technological and business developments. Their business culture (i.e. pertaining to disclosure of information and ownership dilution) should also be changed in view of their diversified financing needs and barriers. On the part of financiers, they need to improve their market-driven application criteria and of expertise about technicalities of ICT companies for funding purpose. These factors may be responsible for poor performance of financial intermediation in MSC. On the whole, the supply of funds for financial intermediation has been dominated by public sector financing. The MSC s financial environment and its characteristics (as discussed above) can be illustrated in figure 9 below. INDIRECT SUPPORTIVE ROLE OF 4 GOVERNMENT FOR VENTURE CAPITAL Generally, by encouraging ICT entrepreneurship, government is principally creating a more dynamic economy, which would essentially lead to increase in private equity financing. At this stage, venture capital in Malaysia is relatively new and remains unsuccessful (as discussed in Section 3). Venture capital is important because it was known to be one of main risk-financiers for high-risk businesses of ICT companies. Besides providing financing, venture capital also has other value-added features such as financial expertise and strategic alliance. Thus, improving financial intermediation between ICT companies and venture capitalists may be needed. The creation of an environment in which ICT companies and venture capital can thrive is critical for MSC. At this stage, government has directly involved in venture capital by allocated substantial amount of funds (RM998 million from 1996 to 2005) and initiated many venture capital companies. For a successful operation, it is felt that venture capital may require further government s indirect involvement through its institutional supportive role. Government s policies can affect the growth of venture capital of an economy (Lerner, 1999; Jeng and Wells, 2000). According to Kenney, Han, and Tanaka (2002), in every nation government has played some role in development of venture capital since it was a very sensitive institutional form due to high-risk nature of investments involved. In this respect, indirect government s supportive role in following aspects is discussed accordingly. Firstly, the new economy needs knowledge-based workforce and the risk-taking kind of venture capital financing. Very large pools of local talent and management are required so that there will be a situation of significant inflows of innovative ideas and venture business deals. By increasing the supply of knowledge-based workforce and awareness about 9 According to McNally (1995), corporate venture companies (CVC) investment involves a corporate organization making minority equity investments in smaller unquoted companies and is often referred to as corporate venturing. 10 In relation to this, Kitamura (2001) in discussing organizational approach to financial systems in Central Asia, argues that the financial infrastructure in these countries was fragile; the information systems are incomplete and biased; and the financial sector contributed partially to the general economic activities - thus making financial intermediation between fund surplus and deficit units very difficult. These arguments to some extent are applicable to the current financing environment in MSC, Malaysia. 145

7 Table 2: Expectations of Venture Capital and ICT Companies Source: Survey on Venture Capital Financing in Malaysia conducted in March - April 2003 venture capital financing will also lead to a more vibrant ICT entrepreneurship. Variations in entrepreneurial activities, venture capital investment skills, and networks of professional business-support intermediaries are crucial for an effective venture capital (Harding, 2000; Harrison and Mason, 2000) 11. Secondly, tax incentives on venture capital investment and deregulation in financial sector 12. Tax policies (especially capital gains taxes) have substantial impact on supply of venture capital and ability of entrepreneurs to finance new business ventures (Carleton, 1986; Libecup, 1986). Even though various flexible incentives were already given to venture capital companies, further deregulation in the financial sector may be needed 13. Table 2 below shows expectations by venture capital and ICT companies on what government should do to encourage faster growth of private sector financing, particularly for venture capital. Based on the survey, respondents expect government to uplift restrictions on investing in private equity by insurance companies and pension funds so that these institutions can allocate funds to venture capital companies. They also expect to be able to use other instruments (e.g. private debt securities) without approval of Securities Commission. A better supervision may also be needed so that investors confidence (e.g. long-term and institutional investors) will be secured 14. In addition, promotion of early-stage financings for ICT companies is important. As for private sector financing to flourish, more co-managed venture capital funds between them and public sector may be established and directed towards early-stage financings. The encouragement of more foreign venture capitalists to invest in Malaysia will expedite transfer of technology and expertise, increase inflows of funds, and diversification of risks. Thirdly, measures pertaining to exit mechanisms (i.e. sale of investment) for venture capital investments. The availability of channels for acquiring liquidity is a critical factor affecting development of venture capital as experienced in developed countries. Black and Gilson (1998) contend that growth of venture capital depends fundamentally on a vibrant public market that acts as an important means for new firms to raise capital and creates exit mechanisms for investors. The Malaysian Exchange of Securities Dealing and Automated Quotation Bhd. (MESDAQ) created in 1997, is an "over-thecounter" market specifically to cater for ICT companies. However, MESDAQ failed to reach critical mass with only 20 companies listed on it (against the original expectation of 100 companies) due to minimal presence of retail investors and foreign funds 15. The rules of MESDAQ need to remain flexible (but not to affect investors confidence and liquidity) to provide one of crucial channels to raise capital for homegrown ICT companies. Other liquidity-facilitating provisions (e.g. convertible loans, equity backed by put options and etc.) may also be encouraged in order to facilitate growth of venture capital. Finally, enforcement of agreements and protection of technology should be assured to attract foreign venture 11 For instance, according to Harding (2000), there are three key features for the U.K. government in the development of regional venture policy: i) a program of mentoring and investor readiness training to stimulate effective demand for venture capital; ii) a program of venture capital guarantee schemes to share or spread risks on riskier investments; and iii) the supply of greater information in the venture capital market. 12 According to International Finance Group (1986), tax incentives specific to venture capital are as follows: i) up-front incentives (e.g. rebates, tax credits, deductions from taxes or taxable income) of amounts invested in venture capital institutions; ii) incentives to the venture capital institutions (e.g. tax reliefs, exemptions from corporate tax for a predetermined tenor) on income received from investee companies; and iii) post-investment incentives (e.g. tax breaks or exemptions for 146 investors on income received from investment in a venture capital institution) [c.f. Sagari and Guidotti, pp ]. 13 For example, full tax exemption on income received for 10 years or according to the tenor of the funds, whichever the earlier; expansion of definition on early stage financing to includes the growth and pre-ipo stages; expansion of definition on venture capital companies to includes corporation and joint-venture schemes or funds that invest in venture capital companies; and tax exemption applies to three layers, that is, the company, institutional shareholders, and individual shareholders. 14 According to Ministry of Finance, Malaysia, currently there is no one-stop agency that supervises venture capital per se except that the need for venture capital companies to register and submit annual reports to the central bank, Bank Negara Malaysia (BNM).

8 capital. The security of ownership of intellectual property (IP) and a clear legal remedy for theft of IP or breach of contract are important to attract foreign funds, technologies, companies, and management expertise into venture capital in Malaysia. Even though few cyber laws were enacted since 1997, their enforcement yet remains to be seen. 5 CONCLUSION The establishment of MSC in 1996 as new engine of economic growth for Malaysia was timely since it encompasses on dynamic of high-technology cluster of ICT companies. The endogenous development strategy of MSC (i.e. focuses on the generation of local technological and ICT entrepreneurship developments) may be smoothly implemented by increasing financial intermediation between financiers and ICT companies. ICT companies need to improve their knowledge about financing sources available and consider the suitability of each source for their technological and business development purposes. Their business culture also has to be changed in view of their diversified financing needs and barriers. Financiers need to improve their market-driven application criteria and expertise about technicalities of ICT companies for funding purpose. Overall, the supply of funds has been dominated by public sector financing. Venture capital in Malaysia is just emerging and remains unsuccessful at this stage. Although government s involvement has unintentionally turned into a double-edged sword, its supportive role may be recognized for a successful operation of venture capital financing for ICT companies in MSC. [All errors are the sole responsibility of the author]. Bank Negara Malaysia [BNM] (1999), The Central Bank and the Financial System in Malaysia, BNM, Kuala Lumpur, pp and Annual Report 2001, BNM, Kuala Lumpur. Black, B. and Gilson, R. (1998), Venture Capital and the Structure of Capital Markets: Banks versus Stock Markets, Journal of Financial Economics, Vol.47, pp Boocock, G. and Ismail, A. W. (1997), The Financing Practices and Problems of Growth-oriented Small Firms in Malaysia, Journal of International Business & Entrepreneurship, Vol.5, No.2, pp Carleton, W. T. (1986), Issues and Questions Involving Venture Capital, In G. Libecup, (ed.), Advances in the Study of Entrepreneurship, Innovation, and Economic Growth: A Research Annual, Volume 1, JAI Press Inc., pp Ehrlich, S. B., De Noble, A. F., Moore, T. and Weaver, R. R. (1994), After the Cash Arrives : A Comparative Study of Venture Capital and Private Investor Involvement in Entrepreneurial Firms, Journal of Business Venturing, Vol.9, pp Eighth Malaysia Plan (2001), Prime Minister s Department, Malaysia, Percetakan Nasional Malaysia Berhad, Kuala Lumpur. Harding, R. (2000), Venture Capital and Regional Development: Towards a Venture Capital System, Venture Capital, Vol.2, No.4, pp REFERENCES Harrison, R. T. and Mason, C. M. (2000), Editorial: the Role of the Public Sector in the Development of a Regional Venture Capital Industry, Venture Capital, Vol.2, No.4, pp Abetti, P. A., Masaki, K., and Rice, M. P. (2000), Emerging Trends in the Japanese Venture Capital Industry, Institutional Investor Journals:The Journal of Private Equity, winter, Vol.4, No.1, pp JBIC (2001), Issues of Sustainable Development in Asian Countries: Focused on SMIs in Malaysia, JBIC Research Paper No.8-2, Research Institute for Development and Finance, Japan Bank for International Cooperation. Ariff, M. and Lim C. C. (2001), Mobilising Domestic and External Resources for Economic Development: Lessons from the Malaysian Experience, Asia-Pacific Development Journal, Vol.8, No.1, June, pp Jeng, L. and Wells, P. (2000), The Determinants of Venture Capital Funding: Evidence across Countries, Journal of Corporate Finance, Vol.6, pp This scenario is changing though because on March 18, 2002, MESDAQ has been merged with Kuala Lumpur Stock Exchange (KLSE). With KLSE s stronger profiled internationally, it is hope that MESDAQ be able to address fierce competition coming from other similar markets such as in Singapore and Hong Kong. For the near future, MESDAQ is expected to has a total of 50 listed companies, comprising of 20 listed and the other 30 waiting for approval for listing ( as of June 27, 2003). 147

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