Technopreneurs Association of MalaysiaProposals for Government of Malaysia Federal Budget 2003The 5 Key Focus Areas1) Funding for Technopreneurship2) Increasing Demand for Malaysian Technology & Services3) Global Marketing of Malaysian Technology4) Technopreneur Development5) Infrastructure/Hardware1) Funding TechnopreneurshipThe current state of Funding in the New Economy has not been satisfactory and thishas lead to the underachievement of the objectives of the Government to turnMalaysia into a leader in the k-economy. Inadequate funding and possibly, aninappropriate funding model to suitably cater to our stage of technological andentrepreneurial development, has also delayed the potential success of the MSC andMSC status companies.Since it is the policy of the Government to ensure that Malaysia completes asuccessful transformation from the production economy (p-economy) to theknowledge economy (k-economy), the avenue of Funding needs to be given greaterattention and funds provided on a fast-track and successful basis to ensure thesuccess of this policy and also that of the MSCThe idea and philosophy behind the objectives of these proposals is to introduce anelement of “developmental funding” which is crucial for most of the technopreneurs inMalaysia, who are still in their early stages and where the venture capital (VC)funding model might be found to be unsuitable in addressing local technopreneurs’needs.It is submitted that the overriding objective of “developmental funding” is to create acritical mass of successful technopreneurs, who will be able to participate in thesuccess of the MSC. It is also essential that “developmental funding” be combinedwith business building capabilities such as the ones provided by qualified andcapable business incubators.
1.1 ) Angel InvestmentsSeed and early stage funding is a key component for the success of technologycompanies. We define early stage funding as “not more than one round of fundingafter seed stage funding. This is not normally the purview of Venture CapitalCompanies (VCC) who prefer to fund later stage companies. The success of NewEconomy companies in America and Europe is primarily due to the availability ofAngel investors who fund the start-up of technology companies. a) Tax Deductions for Angel Investments Budget 2001 provided incentives for Angel investments including tax deductions for Angel-type investments into early-stage ventures. But it is only applicable to investments that eventually list on an exchange. The uncertainty of listing and lack of clarity of this incentive has generally not resulted in any increase in Angel investing. Proposal This incentive should instead be modified to allow deductions in investment in any MSC status company or a company located within any of the registered Technology Incubators, regardless of whether they list or not. Tax deductions should be for the full amount in the year of investment. b) Extension of Investment benefit to Corporations Currently there are no such incentives for Corporate investors. Again the role of corporate investors in R&D and technology companies especially in ICT & Biotechnology has played a major role in creating successful technology companies Proposal That investments by corporations be allowed a similar deduction as that of individual Angel investors. c) Broadening the role of Grant Providers Broaden the role of Grant providers to act like angel financiers and to broaden the objectives of the Grants provided to include “developmental funding” for viable technology ventures. This would entail the relaxation of grant terms and conditions, as well as reduction of grant amounts to as low as RM 100,000. Proposal We propose that the Government provide a budget of RM 300 million as a grant scheme (“Technopreneur Developmental Funding Grant Scheme”) which funds seed and early stage technology companies from a minimum funding of RM100,000 up to a limit of RM1,000,000 per company.
The objective of the Grant Scheme is to create a critical mass of successful local technopreneurs (targeting a minimum of 500 companies by the year 2010) to participate in the success of the MSC Management of the Fund This fund to be managed by the National IT Council (NITC) is to be provided to Technology Incubators within the network of registered technology incubators under the MDC Technopreneur Development Flagship (TDF). The funds are to be jointly administered and disbursed by a joint committee consisting of the NITC, Incubators under the supervision of the TDF and including industry partnership and input provided by TeAM. The processing time for approval of the Grant Scheme should ordinarily take no more than 3- 6 months, to ensure that the Fund’s objectives are achieved within the timeframe stipulated. Corporate Angel Funds. d) Corporate Venture Fund Currently Venture Capital Companies are given tax exemption on income from all sources for a period of up to 10 years or equivalent to the life span of the fund, whichever is lesser. There is no such exemption for corporations. Proposal We propose that corporations be allowed to set up In-house Investment Funds or subsidiary companies that provide such investment funds and be given tax exemption similar to VCCs. There should however be a requirement that a minimum of 75% of the investments must be in seed and early stage investments. Qualifying investee companies should either be MSC status companies or be located within a Technology Incubator.1.2) Credit Guarantee Corporation for Technology (CGC-T)To minimize the risk exposure and encourage Banks to lend to the ICT sector, weneed to have a specific CGC for Technology companies (CGC-T). This may be a partof the current existing structure of the CGC in Malaysia. Proposal a) The Government set up within the existing CGC a specific technology section - CGC-T, to guarantee loans to ICT Companies. b) The Government to provide additional funds towards specific technology guarantees by CGC-T. We propose a budget of RM 200 million with guarantee amounts under this proposal from a minimum of RM 50,000 to a maximum of RM 1 million per company. c) The funds provided to CGC-T must be at lower rates than existing cost of funds to encourage more guarantees. d) The guaranteed amount to be at least 80% of the loan thus minimizing the risk exposure of Banks.
1.3) The Banking SectorThe Banking sector in Malaysia is far too risk averse and generally does not providefinancing for Technology companies. Thus, while there is a large pool of funds withinthe banking system, very little is provided for Technology companies because of theperceived higher risks in technology. Without bank financing for working capital andequipment purchase, the cost of financing a technology business is very high inMalaysia and it retards the growth of the ICT sector.The CGC-T will help to minimise the risk, but more can be done. Proposal We propose that a portion of the funds disbursed through the banking system be to technology companies. Currently there is no requirement for Banks to fund technology companies. To encourage Banks to fund ICT Companies, Bank Negara, should make it a requirement for Banks to have a certain percentage of their loan portfolios in the ICT industry. We propose a graduated scale 3% in 2003, 6% in 2004 & 10% by 2005.1.4) Venture CapitalThere are inadequate funds for seed and early stage companies. Private VC fundsare more risk averse and generally avoid seed and early stage companies, therebymaking them relatively unsuitable for funding such ventures in Malaysia. It issubmitted that elements of “developmental funding” is still essential to ignite themomentum of technopreneurship in Malaysia and increase the level of technologycontent commercialised by our technopreneurs. Proposal a) We propose that the Government allocate RM 200 million to be disbursed through the Universities to fund companies or ideas that have been developed within the R&D of Malaysian Universities. This will also help spur R&D in local Universities. The R&D can then be commercialised through companies formed by researchers and spun out from Universities. b) As part of efforts to encourage the private sector to step up their R&D efforts and spending and to base them in our local universities, in order to increase industrial linkage and industry-specific R&D efforts by the private sector, a matching grant should also be allocated to private sector companies investing in R&D efforts in our local universities. We propose that RM 50 million be set aside for this purpose. c) Grants and incentives should also be given to private sector companies that are willing to help commercialise technological applications and innovations that had been made by SIRIM and other research organisations. We propose that an additional RM 50 million be set aside for this purpose.
2) Increasing Demand for Malaysian Technology & ServicesFunding technology ventures alone will not be enough if there is no usage of localtechnology & services. Initiatives to promote and encourage Malaysian companies touse and purchase Malaysian Technologies must be enhanced.It must be noted that currently even government agencies and large Malaysiancompanies prefer using imported software and applications. Several measures areneeded to enhance usage of local technology. a) Promoting the usage of local technology Proposal We propose the following incentives to encourage the usage of local products & services: i) Double tax deduction to all Companies that use local products & services up to a limit of RM 1 million per company. ii) Offer Ringgit for Ringgit grants for using local products/services up to a limit of RM1 million per company. iii) Companies intending to make a tender for a technology project from the Government must ensure at least a 40% local content for its technology applications and components, with exceptions allowed where there are no equivalent local alternatives available. Similar local content requirements should be imposed on national “Bridging the Digital Divide” projects initiated by the respective Ministries.The above should not be limited to software but other related ICT services such asthe following: - integration, hosting (inclusive of other managed services), security, networks (internal and external) wireless capability consultancy design; and trainingb) National Advertising CampaignWe propose that a budget of RM 10 mil be allocated towards developing a nationaladvertising campaign to promote the use of locally developed products and services(similar to the Buy Malaysian campaign). This campaign should create a sense ofvalue towards using local solutions and will build confidence in local Technopreneursand local products and services.
3) Global Marketing of Malaysian TechnologyOne of the key weaknesses of the ICT industry in Malaysia is the marketing andpromotion of Malaysian products and services both by the Malaysian governmentand by the companies themselves. India has been a powerhouse in its offeringsglobally and to compete effectively, we need the assistance of the extensiveresources of the Government.The following areas have been identified as the key to the success of the ICTindustry : 1. Promoting Malaysian Technology Abroad 2. Replicating Malaysia’s Manufacturing Success Story for the Technology Sectora) The formation of a specialised division in Matrade - “MyTechTrade” a MalaysianTechnology Trade Development CorporationTo be set up as a specialised division of MATRADE, MyTechTrade will undertakespecific activities to promote, advertise and “sell” Malaysian technology products &services worldwide.The focus will be on technology companies with the organisation’s personnel trainedin technology. Malaysian technology companies will be invited to complement tradedelegations, shows and exhibitions that are already planned and it will organisespecialised technology missions and showcase Malaysian technology. It will alsomatch-make Malaysian companies with the local partners in each country to facilitatejoint ventures and collaborative efforts with their partners.It should also be able to share resources like research materials, databases andsales leads and tenders globally with all the respective Malaysian technologycompanies. Proposal We propose a budget of RM25 million to set up this organisation.b) Database and Directory of ICT CompaniesMyTechTrade must also maintain a database and publish a directory of MalaysianICT companies for all to use and to search. This should be both in the form of awebsite and physical booklet for all to access easily. This directory will be distributedand marketed via all trade offices and embassies globally.The maintenance of such a database should be coordinated amongst all relevantagencies and validated to ensure accuracy and data integrity. Organisations likeTeAM can coordinate this effort. Proposal We propose a budget of RM10 million to set up this database.
4) Technopreneur DevelopmentThere is still currently a lack of business building capacity for the technopreneurs inthe country, especially the early stage companies. The Technopreneur DevelopmentFlagship, together with the National Incubator Network is intended to remedy the gapposed by the problem.a) IncubationProper expertise and ability is needed to further expand our incubation efforts toassist local technopreneurs. We should be looking at importing the requisite skillsnecessary from countries that have succeeded in their incubation, for instance likeSan Jose in the United States of America. For technopreneur development toflourish, incubators should be experienced business people with a track record ofvalue adding to the early stage companies, within their own respective countries. Proposali) That Immigration incentives and flexibilities are offered to recognised incubation experts from overseas such as tax exemptions, special discounts for purchase of properties in Cyberjaya, low interest rates on car loans and an option for citizenship after 5 years of residence.ii) That a sum of RM20 million be allocated to the Technopreneur Development Flagship for creating a suitable infrastructure and environment for technopreneurship and to make the MSC and BioValley, regional premier incubation centers for early stage companies and R&D in East Asia.b) Technopreneur TrainingA common notion is that there is very little training on business and entrepreneurshipskills at all levels of education as well as for young graduates and professionals.Thus young Technopreneurs have very little management skills and lack theadditional knowledge necessary to build lasting businesses. Proposal We propose that the Government allocate RM50 million towards providing grants to institutions and schools that incorporate training schemes for Technopreneurship/Entrepreneurship in the areas of business administration, Human Resource, marketing, financial planning, strategic planning etc.
5) Infrastructure/HardwareAlthough Malaysia generally has first class telecommunication infrastructure thereare several bottlenecks that have constrained the growth of the Internet and itsusage. The number of Malaysians connected to the Internet is still only slightly above10% while many Asian neighbours have exceeded 30 to 40% connectivity.For Malaysia to take the leap in using technology and to ensure the successfultransformation of the economy into a k-economy several measures need to be taken.a) Subsidy for Broadband connectionTo encourage the use of broadband and Internet connections for home andbusinesses. Proposal An annual tax incentive of RM 500 for individuals and RM2000 for corporations.b) Tax Deductions to Property DevelopersWe need to encourage property owners and property developers to install datainfrastructure, both wireless and broadband, in their real estate. The impact ofcreating this incentive is that it would instantly provide more business owners withaccess to faster connections thereby spurring the business community in general toadopt the Internet as their primary platform for doing business. Proposal We propose a double tax deduction on the cost of providing such infrastructure.c) Boosting e-Commerce consumerismTo boost e-Commerce consumerism a tax incentive of RM500 should be given to allindividuals who make online purchases from Malaysian e-Commerce companies. Wefurther propose an incentive of RM 50,000 for corporations that make such onlinepurchases.d) To encourage the use of smart CardsTo further the initiative of the Government in the use of smart cards, we propose thatall computer resellers who supply one smart card reader with every personalcomputer be given a tax incentive equivalent to the price of the reader, thus ensuringthat the reader is provided free to the consumer.
e) Electronic Payment MechanismsWhile the Government is encouraging and promoting e-Commerce activities toMalaysian companies, the mechanisms for small and medium businesses to takeadvantage of the use of e-commerce are largely inaccessible.Most local banks make obtaining a merchant account for e-commerce unwieldy atbest, requiring companies to deposit RM100, 000 of cash as a Fixed Deposit beforereceiving Merchant Accounts from the acquiring banks and also require thesecompanies to show a track record of successful trading operations.This severely stunts the growth of e-Commerce activities. Proposal i) We propose that the CGC be allowed to guarantee the deposit requirement of the Banks. ii) To encourage e-Commerce, Bank Negara should instruct Banks to reduce the deposit requirement to RM10,000 and remove all other requirements including that of a track record.ConclusionWe believe that the upcoming Budget 2003 creates a great opportunity to theGovernment in enhancing the development of the Technology sector in Malaysia.While policies have been in place to jumpstart technology in Malaysia, the necessaryincentives and benefit schemes can now be put in place to ensure sustained growthof technology businesses in Malaysia.The proposals above have been structured to meet all the fundamental requirementsof businesses and Technopreneurs.We remain hopeful that the Minister will consider our proposals favourably.