GOVERNMENT venture capital funds (GVCs) can be defined as government-established, owned and operated venture capital firms.
In Malaysia, all GVCs are placed under the Science, Technology and Innovation Ministry.
These GVCs invest in the information, communication and technology sector and other high-growth industries for the creation of new businesses and generation of economic wealth for Malaysia.
GVCs are normally clustered under the domains of entrepreneurial finance and venture capital.
GVCs are created by policymakers around the world to support young, innovative companies with the aim of "bridging the equity gap".
A study of GVCs operating in Europe showed that GVC-funded companies have a high probability of receiving additional funds from private venture capital investors and, ultimately, changes in their growth and innovation outcomes.
Other high-growth industries consist of life sciences, agriculture sciences/agricultural engineering, environmental sciences, advanced materials sciences, chemical sciences, physical and mathematical sciences, engineering, medical and health sciences, and social sciences and humanities.
In my opinion, that is pretty ambitious given the size of our country, but let's go with that for now.
In the wake of the United Nations Conference on Trade and Development report which saw a sharp 68 per cent decline in foreign direct investment (FDI) into Malaysia last year to a mere US$2.5 billion, turning to our GVCs for growth is not a bad idea since the purpose of their creation is to generate new businesses and economic wealth for Malaysia.
The government has spent billions upon billions of ringgit to this end for close to three decades now. The time for pay-off is long overdue.
While some GVCs reported commercial success, in total their contribution is not yet visible or socio-economically felt, even in the domestic market.
The question is, how so? Could they have been spending the billions on the wrong companies, wrong entrepreneurs or even wrong technologies? If so, what could have been the causes? Is it the innovation policy adopted, the key personnel tasked to oversee and manage them, or the criteria deployed to screen the aspiring entrepreneurial technology companies?
These are questions which are relevant to the activities of GVCs that are hard to answer largely due to the absence of data for any form of investigation to take place.
First thing first, the database must be there so feedback can be derived to gauge the effectiveness of GVC programmes.
GVCs should make public their achievements and failures in detail because they are running on public funds.
Furthermore, these are data that can be analysed and used to re-formulate innovation policies, screening criteria, human capital related factors and decision-making models to improve the overall performance of GVCs.
Please note that in the context of measuring the performance of GVCs, the financial and non-financial performances of portfolio companies are used as proxy. In other words, the success or failure of GVC portfolio companies determines the success or failure of GVC programmes.
Granted, not many GVC programmes are successful, but I believe all we need to do is to follow those which are, because the function of GVCs is to provide access to financial capital for local entrepreneurial technology companies. This factor, along with access to human capital, has long-term and substantial influence on performance of these companies.
The effect is far superior to subsidies, which have been found to be marginal and short-lived.
Some successful GVCs are the Small Business Innovation Research programme in the United States, the Yozma programme in Israel and the Innovation Investment Fund in Australia.
Admittedly, studies have revealed that FDIs positively impact the economic growth of a country, and while Malaysia performed badly (68 per cent decline) compared to other developing countries (12 per cent decline), it was at the same level when compared to developed nations that saw a 69 per cent decline.
With the continued political uncertainty engulfing the country in the last two years and more on the horizon, as well as declining gross domestic product growth in the last 15 years or so, we have to deal with whatever cards we have on the table to achieve the objective of becoming a high-income nation and regain our rightful place economically, if not in Asia, then at least in Southeast Asia.
One of these cards is the GVC.
Mohd Suhaimi Mohamed Ariffin is a Malaysian Mensa member and a part-time lecturer at UniKL