Iris Capital Partners: Nurturing Malaysia’s Next High Impact Startups

Disruptr MY speaks to Syarina Zakaria, Associate Director at Iris Capital on nurturing Malaysia’s next generation of high impact startups and bridging the gaps in the local startup ecosystem. She also shares on venture debt structures, concerns founders may have and why the ecosystem for startups in Malaysia is perfect for disruption.

Iris Capital Partners is Malaysia’s first privately led venture that aims to finance high impact startups from Malaysia and the ASEAN region. How would you define high impact startups?

[SZ] High impact startups bring benefits to more than just their shareholders. For instance, these are companies that are committed to creating more jobs, driving innovation and wealth creation, creating products and markets that did not exist before, as well as generating new networks. Most importantly, these are companies that are committed to nurturing talent and knowledge in the world.

These objectives are aligned with Penjana Kapital’s mission to support Malaysian and Asean startups, particularly for post-pandemic recovery efforts.

What other factors will you consider before choosing to finance a startup?

[SZ] Aside from a great product or service – because it’s a debt product – we look at companies that are stable, with strong business plans for revenue growth.

Is there a ratio to how many startups are you looking to finance from each country in the region?

[SZ] Currently our mandate allows for 50% Malaysian and 50% Southeast Asian companies. Key countries we’re looking at in the region include Singapore, Vietnam, and Indonesia.

What are some of the gaps you have identified in the local startup ecosystem? How would you differentiate the startup scene between Malaysia and our neighbours in the region?

[SZ] The local market is still young and more education on alternative financing options is key in developing the ecosystem. Compared to startups in neighbouring countries, startups in Malaysia are still in fledgling stages and ripe for disruption. We’re seeing emerging trends in the local fintech and agritech spaces and, with the soon anticipated award of digital banking licences, we’re expecting the emergence of more fintech startups.

Syarina Zakaria, Associate Director at Iris Capital

What more can be done to elevate the startup ecosystem in the country?

[SZ] This is where venture debt comes in as a complimentary source of alternative financing to complete the funding ecosystem available to startups. Typically, a founder will go the venture equity route but, in the process, ends up giving valuable equity away. Venture debt comes in as a useful tool that can help minimise founders’ equity dilution.

Can you share more about Iris’ partnership with Hanwha Asset Management Co? How did the partnership come about and what do you hope to achieve in the long run?

[SZ] Our chairman, Dato’ Wan Kamaruzaman Wan Ahmad was introduced to Hanwha Asset Management (HAM) through the VC network in the region. Even before this partnership, HAM already had a presence in SEA as it has partnered other funds before in the region like Golden Gate Ventures and Vertex Ventures in Singapore.

For those who may not be familiar with the concept of venture debt, can you share further details on the structure of it?

[SZ] If you are going to raise venture capital to build and grow your business, it’s worthwhile to consider using venture debt to complement the equity you raise. Venture debt is a type of loan offered by banks and nonbank lenders that is designed specifically for early-stage, high-growth companies with venture capital backing.

The thing to remember is that venture debt follows equity, it doesn’t replace it. While it’s a new offering in the region, it has been an instrumental tool in the US since the 1980s when it was first introduced. In fact, some 30% of startups in the US have received venture debt.

What are some of the concerns startups may have with regards to venture debts?

[SZ] Founders usually tend to follow the herd just because “everyone is doing it”. But a startup should weigh their options and decide which is the best for them at the current stage of their business, and stack the option with the most advantages in their corner.

We’re sometimes met with concerns about financing and payment options, but what we’ve most often noticed is that founders were not even aware that venture debt was an option in the market. It’s opened a whole new world to local startup founders.

How will it be able to help them grow? And what stage startups should apply for the financing?

[SZ] Iris Venture Debt is a fund manager under Dana Pejana Nasional. Penjana Kapital functions as our biggest Limited Partner (LP) and matches funds raised on a one-for- one basis – providing founders with DPN’s support through the Ministry of Finance. Additionally, Hanwha Asset Management is part of one of the largest South Korean conglomerates and has an extensive global venture capital network.

There isn’t a particular stage that startups have to be in to apply for venture debt financing, as long as the company has a strong business plan, robust financials, and a proven management track record, they’re eligible to apply for financing.

Are you eyeing for startups from specific industries or are you open to any?

[SZ] We are sector and stage agnostic at this juncture.

Edutech and agritech startups have been the focus of many other investors recently. What focus areas do you think have high potential?

[SZ] Some key sectors that have caught our eye are in consumer, healthcare, edtech, and fintech industries. But again, the ecosystem for startups in Malaysia is perfect for disruption and as long as companies have steady financials and a comprehensive action plan, they’ve got the potential for venture debt

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