ASIA NEWS NETWORK
WE KNOW ASIA BETTER
Brunei SMEs urged to not rely on grants, loans
Publication Date : 13-09-2013
Brunei businesses are urged to explore new avenues to raise capital for future growth and not rely heavily on government grants and loans.
This was stressed by the chairman of the Brunei Economic Development Board (BEDB) and deputy minister at the Prime Minister's Office Dato Paduka Hj Ali Apong at the launching of the 11th SME Dialogue held at Radisson yesterday.
In his opening remarks, the chairman urged entrepreneurs to look at venture capital (VC) funding as a viable source of funding to help accelerate growth.
He said that while local businesses are fortunate to have access to a range of government grants and loans, they can only provide a "leg-up" or short-term boost, and that heavy reliance could lead to an undesirable effect of creating a crutch mentality amongst local SMEs.
Dato Paduka Hj Ali also urged entrepreneurs to adopt an A-plus leadership with a sense of urgency, addressing the need for leaders of the businesses to recognise the importance of good corporate governance such as transparency, fairness, integrity, discipline and accountability.
This crucial sense of urgency, the chairman said, would aid in securing VC for their business.
"It is not about being 'talented' nor is it about winning internationally or regionally acclaimed awards for that 'innovative idea'. It is about a leader having a vision and a realistic roadmap of how to get there with a clearly defined timeline," he said.
VCs or private equity funds are invested in exchange for an equity stake in the business. As a stakeholder, venture capitalists' returns are dependent on the growth and profitability of the business.
"VCs that have invested in the early stage obviously expect higher returns. This is why it is crucial to have a sense of urgency to ensure that the timelines in the roadmap are met," he added.
The chairman said that VC typically look out for qualities such as innovative technology, potential for rapid growth especially in a fast growing, under-served market, a well-developed business model and a strong management team.
He added that the government perceives VC as fostering entrepreneurship, helps job creation, produce a knowledge economy and used as a proxy measure for innovation.
Citing statistics from the National Venture Capital Association in the US, the chairman said that 11 per cent of private sector jobs are created by venture-backed companies, with revenues accounting for about 21 per cent of US GDP.
Dato Paduka Hj Ali also urged SMEs to recognise the value in seeking venture capital in terms of technical and managerial expertise as well as industry networks that the venture capitalists bring on board.
"It is not about losing or giving up control of one's company. It is an alignment of objective with the venture capitalist to grow the company, be profitable and to enhance company valuation within a reasonable timeframe of exit," the chairman said.
Depending on the nature of business and risk, he said, it is not surprising to have VCs expecting returns of more than 10 times the investment amount that they put into a company within a period of five to 10 years.
He gave an example of Viki, a Singapore startup in crowdsourced video established three years ago with backing from VCs, which was recently bought over by Japanese e-commerce giant, Rakuten for US$200 million.
"The VCs which invested in Viki in the early stage could expect returns of at least 10 times their original investment," said the chairman.
About 50 local entrepreneurs across different industries attended the half-day dialogue yesterday, which was facilitated by Singaporean venture capitalist John Wu.
The dialogue was focused specifically on VC funding, whereby Wu discussed with audience on the fundamentals of acquiring funding for their businesses through VC mechanisms.
Wu is the co-founder and managing director of F&H Fund Management Singapore, who is a veteran internet industry investor and entrepreneur. He has overseen the successful investments and operations of the company with a fund size of US$150 million, substantially invested as at the end of 2012.