Funding criteria in technology based firms in Malaysia

Abstract

Venture capital as a method to finance technology based firms started in America over three decades ago. Since the early 1990‘s, it has gained considerable attention in Malaysia when the government established agencies to promote the concept. These firms have difficulties raising enough capital to finance their businesses, thus, there is need to encourage fund managers to take up equity stakes and partake in managing these firms to enable them to become independent. Although the Malaysian government has disbursed huge amounts of capital through various support agencies, stakeholders in the industry are worried that the commercialisation rate is still low. This could be due to the lack of awareness concerning the funding criteria for technology based firms adopted by venture capital firms. Hence, the main purpose of this research is to determine the funding criteria for technology based firms in Malaysia. The qualitative methodology used multiple case studies based on 47 respondents. Semi-structured questions in interviews were used to collect the data. The recorded and transcribed data were analysed using case by case and cross case analysis. In the cross case analysis, organisational units of analysis from multiple data sources such as venture capital firm managers and technology based firms owners were combined into a single document and then grouped based on coding category into a single file. The major finding from this study is that venture capital firms consider six important criteria in the award of funds which are: returns on investment, team members, cash-out, product attraction, intellectual property and public policy in the decision making process. From the findings, this study recommends that government encourage training of more venture capital professionals to help technology based firms understand the funding criteria as well as provide government guarantee prior to sourcing external capital.