Launch Partners

Sunday, February 25, 2024

Launch Partners

PODCAST: Ficus Capital tackling chicken-and-egg problem of a first-time fund

Ficus Capital is targeting to close its inaugural Islamic Southeast Asian Tech Fund in the third quarter of this year. ISFI spoke with Rina Neoh, the managing partner of Ficus Capital, to learn about some of the challenges of managing an inaugural fund as well as how the venture capital (VC) firm has shifted its focus toward sustainability.

Shariah compliant Ficus Capital received its final approval for its establishment from Securities Commission Malaysia in 2019 and formed its RM60 million (US$13.33 million) Ficus SEA Fund with a focus on the tech sector with fintech, edutech, green tech and martech being subcategories that the VC has a particular interest in.

While the VC invests in seed to pre-IPO companies, around 40% of its assets under management (AuM) are allocated toward seed and Series A funding, Rina shared. With Malaysia Venture Capital Management as its anchor investor, the fund has a mandate to invest at least half of its AuM in Malaysian companies, with the remaining 50% focusing on Southeast Asia.

“Having a mandate of investing 50% of our AuM in Malaysia is a challenge as well, because what if we can’t find good companies in Malaysia? … Of course, there is a way to get around it.

“In the event that we have to deploy our fund and there’s not enough good companies to invest in Malaysia, we do have the freedom to invest outside,” Rina detailed.

One of the reasons Ficus Capital invests in Southeast Asia is because Malaysia as a market is relatively small and Southeast Asia is a region that it thinks has more opportunities for growth.

As a first-time fund, Rina shared that Ficus Capital is facing a couple of chicken-and-egg challenges. On the one hand, investors tend to be hesitant to invest in first-time funds, with a preference to invest in VCs with a proven track record. In order to prove a track record, however, the fund must get investment.

“Having an anchor investor is important, especially for a new fund. Just like any new start-up, you need to show your track record … For example, when we go to GLCs [government-linked companies] in Malaysia, we were told that they don’t invest in first-time funds,” Rina noted.

On the other hand, the VC needs to raise funding from investors to deploy its funding in start-ups but some investors are keen on seeing a pipeline of the VC’s start-up investment deals before they invest in the fund.

After having launched the fund, Ficus Capital pivoted its focus toward sustainability, having identified the convergence between Islamic finance and ESG. ISFI previously reported that the VC is developing an ESG investment framework to provide guidelines for start-ups and SMEs to comply with Shariah and ethical investment standards.

According to Rina, while a number of investors including family offices and GLCs have a mandate to invest in ESG as well as ESG compliance, potentially contributing to a better evaluation for start-ups, many start-ups are still skeptical of ESG adoption.

“Most people think that [ESG compliance] is extra work for them. If you are just doing it for the sake of doing it like passing an exam, without really knowing how to apply it and how to capitalize on it, then it will be a chore.

“But if you really look at it, it is basically risk management so if you are able to manage risk well, definitely the company will be more attractive,” Rina shared.

It is Rina’s view that while ESG adoption and compliance are voluntary now, we are approaching a point where companies that do not comply will lose business, especially when they do business with regions with higher ESG standards and scrutiny.

This is an excerpt from an interview with Rina Neoh, the managing partner of Ficus Capital. Listen to the full discussion on IFN OnAir.

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