The local venture capital (VC) industry saw a new kid on the block recently with the launch of Kanzun Ventures Management Sdn Bhd. It invests mainly in Asian financial technology (fintech) companies and those involved in future tech, including blockchain, artificial intelligence (AI) and machine learning (ML).
“We are investing in digital asset management companies, as we foresee substantial growth in blockchain over the next 10 to 20 years. It has also brought about the evolution of NFTs (non-fungible tokens) and, now, the metaverse,
where we’re seeing big corporations such as Facebook, Microsoft and Apple competing in this market by coming up with instruments to enable virtual and augmented reality,” says CEO and managing partner Loganathan Suveraniam.
The firm is looking to invest in early-stage fintech start-ups that provide payment infrastructure, alternative credit, digital banking and personal financial management through the Kanzun Fintech Fund.
Launched on Dec 21, the fund caters for sophisticated investors who share and believe in the firm’s vision, mission and core value of investing, and are open to incubating future-proof tech companies. The Kanzun Fintech Fund has a fund size of RM100 million, with a minimum lock-in period of three years. The fund’s tenure is five years, with the option to add on a year. Investors will also be subject to a management fee of 2.5% a year.
As at January, the Kanzun Fintech Fund had invested in two companies: namely Riipay, a buy-now-pay-later firm, and Quoqqa Pty Ltd, a digital asset management company.
Loganathan is particularly keen on fintech companies, owing partly to his interest in technology and his experience in the financial industry. He had wanted to become an economist from a young age. Growing up, he observed and adopted his father’s reading habit and, eventually, started picking up financial books and magazines.
He studied finance and economics in university, which eventually landed him a job with Citibank. Over the last 20 years, prior to joining Kanzun Ventures, Loganathan worked at HSBC Bank and Qatar National Bank, gaining experience in the financial and professional services industry, as well as leading corporate strategy, business development and product development in Malaysia and the Middle East.
Loganathan has lived through the changing economic and investment trends around the world in the last two decades. When the pandemic hit in 2020, he noticed that while many businesses either suffered or closed down, companies that adopted digitalisation and invested in future tech were the ones that remained resilient. This then prompted him to dig a little deeper into technology companies for investment opportunities.
“The pandemic pushed the world into a digital era and tech companies didn’t just survive the pandemic, but did better than in pre-pandemic periods. And if we look at how previous technology trends unfolded, such as the evolution of the personal computer into the smartphone, technology will never fail.
“In fact, companies that continue to innovate to improve people’s lifestyle and the digital landscape are the ones that are making waves at the moment,” he says.
Upon further research into the tech landscape, Loganathan and his team discovered that companies that focused on future tech, such as AI, ML and blockchain technologies were the ones with the potential to survive and excel in the next decade or two. He deems these companies as “future-proof tech companies”, which is also the foundational element of the Kanzun Fintech Fund.
“We have a tight process to select companies to invest in. We have an investment committee at the firm that vets potential companies we put forward, which will then present to the advisory board before we invest in a company. We gather the consensus before making an investment,” he says.
Navigating challenging market conditions
Tech stocks took a hit early this year, following expectations of imminent interest rate hikes by the US Federal Reserve. Financial analysts predict that investment sentiment will move away from tech stocks and back to those that were favoured pre-pandemic, such as airlines, hospitality and food and beverage (F&B).
Loganathan says if interest rates rise, the supply of liquidity will fall and this will affect companies that focus mainly on valuation. He says that while there are tech start-ups that have hefty valuations to raise funds, Kanzun Ventures would employ auditors to reasonably evaluate a company prior to investing.
To ensure that the firm is investing in a start-up with proper valuation, Loganathan explains that the key metrics that are weighed include the company’s market opportunities, future profitability and potential risks to the business, products, early traction achieved as well as the background and intention of the founders and management team.
He says: “A company’s valuation depends on its sustainability and profitability. Well-managed companies that evolve according to market forces and serve the real needs of society will be accurately valued in any market conditions. It all comes down to the way we manage our funds, aligning it with our investment philosophy.
“Our investment philosophy has always
been on fundamentally nurturing entrepreneurs whose companies serve the real needs of society [while realising] sustainability and profitability.
“We have a different investment approach, where we mitigate the risks by investing in both low- and high-risk companies. There’s no guarantee with investing, but we can make sure the investment grows eventually. Bear in mind that we’re also helping these companies grow.”
There are several trends that are evolving. Loganathan says blockchain technology is one of the interesting areas for VCs and private equity to look into. Other attractive industries are space exploration and healthtech.
“In Malaysia, we don’t see a lot of work done in space exploration but, globally, especially in the US, venture capital firms have been investing in this industry. However, we have seen investments made in technologies that aim to improve the healthcare sector, such as biomedical study or the study of DNA,” says Loganathan.
“There is quite a large opportunity in healthtech at the moment because the pandemic has proven that the medical sector is one of the most economically resilient sectors because it gained more momentum during the pandemic.”
Start-ups focused on climate tech will also be attractive. Loganathan says companies with a focus on decarbonisation and making renewable energy affordable for all consumers will be in demand for incubation and investment.
Incubating companies for the future
Kanzun Ventures has recently set up an incubation centre, Kanzun Incubation Startups, which will also come under the Kanzun Fintech Fund. Loganathan says the incubation centre will not only focus on companies the firm has invested in, but on any technology start-up.
He adds that they will also be looking into setting up a joint venture with Malaysia Venture Capital Management Bhd (Mavcap) to gain funding to incubate companies.
“We don’t want to be passive investors. We want to grow companies to their full potential, and help them seek market opportunities and even gain business partners to further their business.”