1. WORKSHOP ON FINANCING FOR ASEAN MSME IN THE 21ST CENTURYBy
Ms Darawati Hussain, Chairman of Malaysian Venture Capital & Private Equity Association
July 2011

2. CONTENTS Page Introduction to MVCA 3
Private Equity as an Alternative Asset Class 9
Insights into PE Investing 15
The Malaysian Challenge 22 2 2

3. INTRODUCTION TO MVCA 3

4. OUR MISSION & OBJECTIVES
To promote, develop and maintain the venture capital industry in Malaysia as a source of equity financing for business enterprises principally for the start-up and/or development of small and medium sized enterprises.
To promote cooperation among members, encourage joint efforts and business undertakings as well as to provide a regular forum for the exchange of views amongst members and also foreign industry players and regulators.
To represent, express and give effect to the views and opinions of persons or companies engaged in the venture capital industry, including making representations to all governmental or public authorities or bodies.
To develop and encourage the highest standard of professional ethics in the venture capital industry. 4

5. OUR TARGETS
To promote private sector’s participation in the VC/PE industry and thus, expanding the fundraising opportunities for the Fund Managers.
To develop and expand the VC/PE industry in Malaysia by increasing the number of VC/PE firms and VC/PE Funds as a supporting engine to innovation.
To develop the skills and experience of the local VC/PE companies by providing a larger funding platform and thereby, encouraging the companies to invest regionally and globally.
To increase the number of VC/PE professionals and introduce more structured human capital development programmes in Malaysia for talent development and succession for the VC/PE industry.
To support Government-backed programmes to produce quality entrepreneurs and technopreneurs
To support Government initiatives to promote Malaysia as the hub of Islamic VC/PE which will be an integral part of the strategy to turn Malaysia as the hub for global Islamic finance. 5 5

6. INDUSTRY OVERVIEW INDUSTRY PARTICIPANTS 2010 2009 % Change
No of Registered VC Funds or Companies 58 59
-1.69%
No. of Registered VCMCs 55
0.00%
No. of Investee Companies
389
445
-12.58%
SHAREHOLDING STRUCTURE
100% Local Ownership
102
104
-1.92%
Joint Ventures 9
100% Foreign Ownership 2 1
100.00%
VENTURE CAPITAL INVESTMENTS
As at Dec 2010
As at Dec 2009
% Change
Total Committed Funds Under Management
RM 5.9 billion
RM 5.3 billion
11.45%
Total Investment
RM 3.4 billion
RM2.6 billion
31.05%
Investment in Investee Companies
RM 453 million
RM 597 million
-24.12%
Divestments
RM 89 million
RM 43 million
106.98%
Source: Securities Commission 6

7. INDUSTRY OVERVIEW
Source: Securities Commission 7

8. INDUSTRY OVERVIEW Number of Islamic Venture Capital Firm: 2
The number of venture capital professionals currently stands at 160 people. This number is based on professionals with at least 4 years experience in the venture capital industry.
28 venture companies were divested in 2010 compared to 21 in However, only 1 VC-backed company was listed on ACE Market of Bursa Malaysia in 2010.
Source: Securities Commission 8

9. PRIVATE EQUITY AS AN ALTERNATIVE ASSET CLASS

10. WHAT ARE ALTERNATIVE ASSETS?
Traditional asset classes available to investors include equities and bonds
Alternative assets simply describes NON TRADITIONAL asset classes
Asset Classes
Asset Classes
Public
Derivatives
Debt Securities
Equities
Non-traditional/Alternative assets include:
Real estate
Private equity
Venture capital
Hedge funds
Commodities
Others, e.g. wines, antiques, art
Common features of alternative assets:
Less liquid than traditional assets
Caters to institutional or high net worth individuals
Has mid-to-long term investment horizons (3 years or more)
Real Estate
Private
Private Equity &Venture Capital
Commodities
Others
Cash
Fixed Income 10

11. HOW A PRIVATE EQUITY & VENTURE CAPITAL FUND WORKS
PE/VC MANAGEMENT TEAM (e.g. CIMB PE & VC)
INVESTORS (e.g. GLCs)
PE/VC FUND CO (e.g. CIMB PE Fund 2)
x% equity
PORTFOLIO COMPANY 1
100% Preference Shares
y% equity
PORTFOLIO COMPANY 2
z% equity
PORTFOLIO COMPANY 3 11

12. PRIVATE EQUITY IN A BUSINESS LIFECYCLE
Seed - For initial concept for R&D of a product
Early - For product development and initial marketing; the company may be in the process of being organised or may have been in business for a short time, but has not yet sold its product commercially
Expansion - For growth and expansion of a company that has built up a short track record; used for increasing production capacity, market/product development and/or additional working capital
Growth/Mezzanine - Financing to help a company go public/trade sale
Late Stage - Financing in form of loan/equity to enable MBOs or MBIs of an existing product/business
Turnaround - Financing to re-establish a business which has encountered some performance difficulties
Own funds
Own funds
Angel Investors
Angel Investors
Venture Capital
Sales
Growth
Mezzanine
Private Equity
Late Stage
Late Stage
IPO/MBO/MBI/LBO
IPO/MBO/MBI/LBO
Turnaround
Distressed situation
Expansion Stage
Expansion Stage
Early Stage/Start up
Early Stage/Start up
Time
Seed Stage VC PE 12

13. Private Equity and Venture Capital Annual Returns
IRR
All calculations are done at the fund level, based on cash flows and NAVs of US PE funds.
*Source: Thomson Reuters, through 31/3/2008 13 13

14. PRIVATE EQUITY AND VENTURE CAPITAL-BACKED COMPANIES
In the United States, Europe and Australia...
Company
Company
Company
Closer to Home...
Company 14

15. INSIGHTS INTO PE INVESTING15

16. Extremely In-depth Investment Process
Deal
Sourcing
Preliminary
Deal
Assessment
In-depth
Strategic
Due Diligence
Accounting,
Tax and
Due Diligence
Legal
Documentation
Monitoring /
Business Plan
Implementation
High
Quality Deals
Only
Growth potential
Attractiveness
of industry
Strength of
management
Competition
Financials
Indicative valuation
5-year business
plan and projections
Product and pricing
strategy
Marketing strategy
R&D strategy
Customers
Suppliers
Competitive strength
Detailed
Financial Evaluation
Tax
Compliance
Contingent
Liabilities
Material
Contracts and
Agreements
Licenses
Deal
structuring
Share
Purchase
Agreement / subscription agreement
Shareholders’
Agreement
Others – Put/Call Option agreement etc.
Business process improvement
Active participation at Board and Management level
Preferential Rights
Network
Understanding of business and analysis beyond financial ratios is done. Stringent and in-depth deal evaluation by the investment team to filter out non-quality deals.
Extensive due diligence reports prepared by accountants, lawyers and industry consultants will help Fund Managers to get a more qualified representation of the business.
An appropriate deal structure (eg. Call / Put Option / Profit guarantee / Deferred payment / RPS etc.) is used to protect the fund manager from certain risks. The term sheet will always have conditions fair to both parties attached. (e.g. No adverse due diligence findings)
The Investment Committee (IC), independent to the investment team, will assess a deal and give approval before any investment is made.
Disbursement will typically take place within 6 to 7 weeks of signing of the term sheet, barring any adverse findings in the due diligence report.
Number of deals:
100 25 12 5 3
T = 0
T + 2 wks
T + 6 wks
T + 12 wks
T + 16 wks
3 – 5 yrs
Time: 16 16 16

17. INVESTMENT CRITERIA Strong industry fundamentals
High or increasing market share
Strong product or service branding
Relatively low cost position
Attractive margins
Opportunities for value enhancement
Proven business model
Integrity of management
Right Fit – Willingness to admit and work with a PE/VC Investor 17

18. Common Risks Encountered by the Fund Manager
Type of Risk
Selected Examples
Business Risk
Misrepresentation by the entrepreneur
Risk of misalignment of interest of the entrepreneur with passive investors
Lack of management performance
Lack of management focus
Risk of misalignment of management interest with passive investors
Product development risk (including achievement of commercial break-even)
Technology risk
Financial risk
Operational risk (not related to management)
Liquidity Risk
Illiquid investment in private companies
No readily available secondary market
Country Risk
Change in regulation or government policy
Foreign-exchange risk
Market Risk
Interest rate risk
Global economic cotangent effect
Private equity investments aim to achieve alpha returns, by combining thorough pre-investment due diligence with subsequent proactive participation in the business. 18

19. Post-Investment: Proactive Monitoring Initiatives
Review all aspects of the business and implementation of post-acquisition initiatives.
On-site visits to ensure company’s operations and performance are in line with expectations or projections.
Attend board and management meetings.
To ensure:
Alignment of Interest
Focused Efforts towards
Goals
Optimal Performance
Operational Efficiency
Corporate Governance
Transparency
Regular basis
Monthly performance report (including management, operational, financial and industry performance).
Monthly basis
Report to a risk oversight committee (including business model, competition & current position, exit strategy, risk & risk mitigation initiatives).
Quarterly basis 19 19

20. Post-Investment: Role at BOD and EXCO
Preferential and veto rights over key decisions items such as:
Replacing CEO, CFO and members of senior management
Alteration to the terms of employment conditions
Changes to pre-agreed business plans: including new business focus, marketing & strategy
Capital expenditure above agreed figure
Property/equipment leases above set value
Annual CAPEX
Operating budgets
Issuance & repayment of debt
Dividend policy
Entering or accepting contracts above pre-agreed quantum
Right to conduct special audit as and when necessary 20 20

21. Case Study 1: Post Acquisition Initiatives for a F&B chain
Pre-acquisition
Post-acquisition
CAGR: >22%
CAGR: >30%
Revenue
Net Profit
Careful selection of new stores increases revenue
Business performance improvements via implementation of action plans
Operational efficiency contributed to higher net margins
Improvements in organizational structure to ensure efficient decision making process
Improvements in procurement procedures to obtain best prices 21 21

22. THE MALAYSIAN CHALLENGE22

23. WHERE WE ARE 23 GDP Growth GNI Per Capita 2009 US$ Thousand
Sources: Economy Watch, IMF, Bloomberg, World Bank, Malaysia Productivity Corporation
GDP Growth
GNI Per Capita 2009 US$ Thousand
High Income Economies
M&A as % of GDP
Productivity Levels, 2009 US$ Thousand Per Worker 23 23

24. Source: Bank Negara Malaysia
GDP BY SECTOR
Source: Bank Negara Malaysia
Over the years the trend has been clear: the role of the services sector.
Annual Disposable Income 24 24

25. POPULATION BY COUNTRY
Source: World Bank 25 25

26. Middle and Lower Income Economies
THE NEED TO GROW
Current Income
$7000
~$15,500
~$17,500
Average Annual Growth of 6.5%
Middle and Lower Income Economies
High Income Economies
2010
2020
Per Capita Income USD 26

27. FUNDING LANDSCAPE IN MALAYSIA
Financing Outstanding as end-May 2009 (RM billion)
Banking Institution’s SME Loan Approval Rate; %
Source: Bank Negara Malaysia 27

28. INNOVATION MODEL 3 – 5 years 10 – 15 years 3 – 5 years
Source: Ministry of Science, Technology and Innovation
3 – 5 years
Aggressively
pursue market
driven
innovation and
capture short-
to-medium term
opportunities
for value
creation
Malaysia’s Strategic Positioning and Market Niche
Technology
Market Identified
Market Driven Innovation
Risk Capital
Continue to
actively support
and facilitate
technology
driven
innovation for
medium to long
term benefits
Science (Basic Research)
Technology
Market
(to be
Identified)
Technology Driven Innovation
Science
Grants
Technology Grants
Risk Capital
10 – 15 years
3 – 5 years 28

29. OUR CONTACTS
(Pn) Darawati Hussain Chairman (Pn) Ariza Norhalim Secretariat Malaysian Venture Capital & Private Equity Association 26-3, Medan Setia 2, Plaza Damansara, Bukit Damansara Kuala Lumpur Tel: Fax: 29