1. Technopreneurs Association of Malaysia
Proposals for Government of Malaysia Federal Budget 2003
The 5 Key Focus Areas
1) Funding for Technopreneurship
2) Increasing Demand for Malaysian Technology & Services
3) Global Marketing of Malaysian Technology
4) Technopreneur Development
5) Infrastructure/Hardware
1) Funding Technopreneurship
The current state of Funding in the New Economy has not been satisfactory and this
has lead to the underachievement of the objectives of the Government to turn
Malaysia into a leader in the k-economy. Inadequate funding and possibly, an
inappropriate funding model to suitably cater to our stage of technological and
entrepreneurial development, has also delayed the potential success of the MSC and
MSC status companies.
Since it is the policy of the Government to ensure that Malaysia completes a
successful transformation from the production economy (p-economy) to the
knowledge economy (k-economy), the avenue of Funding needs to be given greater
attention and funds provided on a fast-track and successful basis to ensure the
success of this policy and also that of the MSC
The idea and philosophy behind the objectives of these proposals is to introduce an
element of “developmental funding” which is crucial for most of the technopreneurs in
Malaysia, who are still in their early stages and where the venture capital (VC)
funding model might be found to be unsuitable in addressing local technopreneurs’
needs.
It is submitted that the overriding objective of “developmental funding” is to create a
critical mass of successful technopreneurs, who will be able to participate in the
success of the MSC. It is also essential that “developmental funding” be combined
with business building capabilities such as the ones provided by qualified and
capable business incubators.

2. 1.1 ) Angel Investments
Seed and early stage funding is a key component for the success of technology
companies. We define early stage funding as “not more than one round of funding
after seed stage funding. This is not normally the purview of Venture Capital
Companies (VCC) who prefer to fund later stage companies. The success of New
Economy companies in America and Europe is primarily due to the availability of
Angel investors who fund the start-up of technology companies.
a) Tax Deductions for Angel Investments
Budget 2001 provided incentives for Angel investments including tax
deductions for Angel-type investments into early-stage ventures. But it is only
applicable to investments that eventually list on an exchange. The uncertainty
of listing and lack of clarity of this incentive has generally not resulted in any
increase in Angel investing.
Proposal
This incentive should instead be modified to allow deductions in investment in
any MSC status company or a company located within any of the registered
Technology Incubators, regardless of whether they list or not. Tax deductions
should be for the full amount in the year of investment.
b) Extension of Investment benefit to Corporations
Currently there are no such incentives for Corporate investors. Again the role
of corporate investors in R&D and technology companies especially in ICT &
Biotechnology has played a major role in creating successful technology
companies
Proposal
That investments by corporations be allowed a similar deduction as that of
individual Angel investors.
c) Broadening the role of Grant Providers
Broaden the role of Grant providers to act like angel financiers and to broaden
the objectives of the Grants provided to include “developmental funding” for
viable technology ventures. This would entail the relaxation of grant terms
and conditions, as well as reduction of grant amounts to as low as RM
100,000.
Proposal
We propose that the Government provide a budget of RM 300 million as a
grant scheme (“Technopreneur Developmental Funding Grant Scheme”)
which funds seed and early stage technology companies from a minimum
funding of RM100,000 up to a limit of RM1,000,000 per company.

3. The objective of the Grant Scheme is to create a critical mass of successful
local technopreneurs (targeting a minimum of 500 companies by the year
2010) to participate in the success of the MSC
Management of the Fund
This fund to be managed by the National IT Council (NITC) is to be provided
to Technology Incubators within the network of registered technology
incubators under the MDC Technopreneur Development Flagship (TDF). The
funds are to be jointly administered and disbursed by a joint committee
consisting of the NITC, Incubators under the supervision of the TDF and
including industry partnership and input provided by TeAM. The processing
time for approval of the Grant Scheme should ordinarily take no more than 3-
6 months, to ensure that the Fund’s objectives are achieved within the
timeframe stipulated. Corporate Angel Funds.
d) Corporate Venture Fund
Currently Venture Capital Companies are given tax exemption on income
from all sources for a period of up to 10 years or equivalent to the life span of
the fund, whichever is lesser. There is no such exemption for corporations.
Proposal
We propose that corporations be allowed to set up In-house Investment
Funds or subsidiary companies that provide such investment funds and be
given tax exemption similar to VCCs. There should however be a
requirement that a minimum of 75% of the investments must be in seed and
early stage investments. Qualifying investee companies should either be
MSC status companies or be located within a Technology Incubator.
1.2) Credit Guarantee Corporation for Technology (CGC-T)
To minimize the risk exposure and encourage Banks to lend to the ICT sector, we
need to have a specific CGC for Technology companies (CGC-T). This may be a part
of the current existing structure of the CGC in Malaysia.
Proposal
a) The Government set up within the existing CGC a specific technology
section - CGC-T, to guarantee loans to ICT Companies.
b) The Government to provide additional funds towards specific technology
guarantees by CGC-T. We propose a budget of RM 200 million with
guarantee amounts under this proposal from a minimum of RM 50,000 to
a maximum of RM 1 million per company.
c) The funds provided to CGC-T must be at lower rates than existing cost of
funds to encourage more guarantees.
d) The guaranteed amount to be at least 80% of the loan thus minimizing the
risk exposure of Banks.

4. 1.3) The Banking Sector
The Banking sector in Malaysia is far too risk averse and generally does not provide
financing for Technology companies. Thus, while there is a large pool of funds within
the banking system, very little is provided for Technology companies because of the
perceived higher risks in technology. Without bank financing for working capital and
equipment purchase, the cost of financing a technology business is very high in
Malaysia and it retards the growth of the ICT sector.
The CGC-T will help to minimise the risk, but more can be done.
Proposal
We propose that a portion of the funds disbursed through the banking system
be to technology companies. Currently there is no requirement for Banks to
fund technology companies. To encourage Banks to fund ICT Companies,
Bank Negara, should make it a requirement for Banks to have a certain
percentage of their loan portfolios in the ICT industry. We propose a
graduated scale 3% in 2003, 6% in 2004 & 10% by 2005.
1.4) Venture Capital
There are inadequate funds for seed and early stage companies. Private VC funds
are more risk averse and generally avoid seed and early stage companies, thereby
making them relatively unsuitable for funding such ventures in Malaysia. It is
submitted that elements of “developmental funding” is still essential to ignite the
momentum of technopreneurship in Malaysia and increase the level of technology
content commercialised by our technopreneurs.
Proposal
a) We propose that the Government allocate RM 200 million to be disbursed
through the Universities to fund companies or ideas that have been
developed within the R&D of Malaysian Universities. This will also help spur
R&D in local Universities. The R&D can then be commercialised through
companies formed by researchers and spun out from Universities.
b) As part of efforts to encourage the private sector to step up their R&D efforts
and spending and to base them in our local universities, in order to increase
industrial linkage and industry-specific R&D efforts by the private sector, a
matching grant should also be allocated to private sector companies investing
in R&D efforts in our local universities. We propose that RM 50 million be set
aside for this purpose.
c) Grants and incentives should also be given to private sector companies that
are willing to help commercialise technological applications and innovations
that had been made by SIRIM and other research organisations. We propose
that an additional RM 50 million be set aside for this purpose.

5. 2) Increasing Demand for Malaysian Technology & Services
Funding technology ventures alone will not be enough if there is no usage of local
technology & services. Initiatives to promote and encourage Malaysian companies to
use and purchase Malaysian Technologies must be enhanced.
It must be noted that currently even government agencies and large Malaysian
companies prefer using imported software and applications. Several measures are
needed to enhance usage of local technology.
a) Promoting the usage of local technology
Proposal
We propose the following incentives to encourage the usage of local products
& services:
i) Double tax deduction to all Companies that use local products & services
up to a limit of RM 1 million per company.
ii) Offer Ringgit for Ringgit grants for using local products/services up to a
limit of RM1 million per company.
iii) Companies intending to make a tender for a technology project from the
Government must ensure at least a 40% local content for its technology
applications and components, with exceptions allowed where there are no
equivalent local alternatives available. Similar local content requirements
should be imposed on national “Bridging the Digital Divide” projects
initiated by the respective Ministries.
The above should not be limited to software but other related ICT services such as
the following: -
 integration,
 hosting (inclusive of other managed services),
 security,
 networks (internal and external)
 wireless capability
 consultancy
 design; and
 training
b) National Advertising Campaign
We propose that a budget of RM 10 mil be allocated towards developing a national
advertising campaign to promote the use of locally developed products and services
(similar to the Buy Malaysian campaign). This campaign should create a sense of
value towards using local solutions and will build confidence in local Technopreneurs
and local products and services.

6. 3) Global Marketing of Malaysian Technology
One of the key weaknesses of the ICT industry in Malaysia is the marketing and
promotion of Malaysian products and services both by the Malaysian government
and by the companies themselves. India has been a powerhouse in its offerings
globally and to compete effectively, we need the assistance of the extensive
resources of the Government.
The following areas have been identified as the key to the success of the ICT
industry :
1. Promoting Malaysian Technology Abroad
2. Replicating Malaysia’s Manufacturing Success Story for the Technology
Sector
a) The formation of a specialised division in Matrade - “MyTechTrade” a Malaysian
Technology Trade Development Corporation
To be set up as a specialised division of MATRADE, MyTechTrade will undertake
specific activities to promote, advertise and “sell” Malaysian technology products &
services worldwide.
The focus will be on technology companies with the organisation’s personnel trained
in technology. Malaysian technology companies will be invited to complement trade
delegations, shows and exhibitions that are already planned and it will organise
specialised technology missions and showcase Malaysian technology. It will also
match-make Malaysian companies with the local partners in each country to facilitate
joint ventures and collaborative efforts with their partners.
It should also be able to share resources like research materials, databases and
sales leads and tenders globally with all the respective Malaysian technology
companies.
Proposal
We propose a budget of RM25 million to set up this organisation.
b) Database and Directory of ICT Companies
MyTechTrade must also maintain a database and publish a directory of Malaysian
ICT companies for all to use and to search. This should be both in the form of a
website and physical booklet for all to access easily. This directory will be distributed
and marketed via all trade offices and embassies globally.
The maintenance of such a database should be coordinated amongst all relevant
agencies and validated to ensure accuracy and data integrity. Organisations like
TeAM can coordinate this effort.
Proposal
We propose a budget of RM10 million to set up this database.

7. 4) Technopreneur Development
There is still currently a lack of business building capacity for the technopreneurs in
the country, especially the early stage companies. The Technopreneur Development
Flagship, together with the National Incubator Network is intended to remedy the gap
posed by the problem.
a) Incubation
Proper expertise and ability is needed to further expand our incubation efforts to
assist local technopreneurs. We should be looking at importing the requisite skills
necessary from countries that have succeeded in their incubation, for instance like
San Jose in the United States of America. For technopreneur development to
flourish, incubators should be experienced business people with a track record of
value adding to the early stage companies, within their own respective countries.
Proposal
i) That Immigration incentives and flexibilities are offered to recognised
incubation experts from overseas such as tax exemptions, special discounts
for purchase of properties in Cyberjaya, low interest rates on car loans and an
option for citizenship after 5 years of residence.
ii) That a sum of RM20 million be allocated to the Technopreneur Development
Flagship for creating a suitable infrastructure and environment for
technopreneurship and to make the MSC and BioValley, regional premier
incubation centers for early stage companies and R&D in East Asia.
b) Technopreneur Training
A common notion is that there is very little training on business and entrepreneurship
skills at all levels of education as well as for young graduates and professionals.
Thus young Technopreneurs have very little management skills and lack the
additional knowledge necessary to build lasting businesses.
Proposal
We propose that the Government allocate RM50 million towards providing
grants to institutions and schools that incorporate training schemes for
Technopreneurship/Entrepreneurship in the areas of business administration,
Human Resource, marketing, financial planning, strategic planning etc.

8. 5) Infrastructure/Hardware
Although Malaysia generally has first class telecommunication infrastructure there
are several bottlenecks that have constrained the growth of the Internet and its
usage. The number of Malaysians connected to the Internet is still only slightly above
10% while many Asian neighbours have exceeded 30 to 40% connectivity.
For Malaysia to take the leap in using technology and to ensure the successful
transformation of the economy into a k-economy several measures need to be taken.
a) Subsidy for Broadband connection
To encourage the use of broadband and Internet connections for home and
businesses.
Proposal
An annual tax incentive of RM 500 for individuals and RM2000 for
corporations.
b) Tax Deductions to Property Developers
We need to encourage property owners and property developers to install data
infrastructure, both wireless and broadband, in their real estate. The impact of
creating this incentive is that it would instantly provide more business owners with
access to faster connections thereby spurring the business community in general to
adopt the Internet as their primary platform for doing business.
Proposal
We propose a double tax deduction on the cost of providing such
infrastructure.
c) Boosting e-Commerce consumerism
To boost e-Commerce consumerism a tax incentive of RM500 should be given to all
individuals who make online purchases from Malaysian e-Commerce companies. We
further propose an incentive of RM 50,000 for corporations that make such online
purchases.
d) To encourage the use of smart Cards
To further the initiative of the Government in the use of smart cards, we propose that
all computer resellers who supply one smart card reader with every personal
computer be given a tax incentive equivalent to the price of the reader, thus ensuring
that the reader is provided free to the consumer.

9. e) Electronic Payment Mechanisms
While the Government is encouraging and promoting e-Commerce activities to
Malaysian companies, the mechanisms for small and medium businesses to take
advantage of the use of e-commerce are largely inaccessible.
Most local banks make obtaining a merchant account for e-commerce unwieldy at
best, requiring companies to deposit RM100, 000 of cash as a Fixed Deposit before
receiving Merchant Accounts from the acquiring banks and also require these
companies to show a track record of successful trading operations.
This severely stunts the growth of e-Commerce activities.
Proposal
i) We propose that the CGC be allowed to guarantee the deposit
requirement of the Banks.
ii) To encourage e-Commerce, Bank Negara should instruct Banks to
reduce the deposit requirement to RM10,000 and remove all other
requirements including that of a track record.
Conclusion
We believe that the upcoming Budget 2003 creates a great opportunity to the
Government in enhancing the development of the Technology sector in Malaysia.
While policies have been in place to jumpstart technology in Malaysia, the necessary
incentives and benefit schemes can now be put in place to ensure sustained growth
of technology businesses in Malaysia.
The proposals above have been structured to meet all the fundamental requirements
of businesses and Technopreneurs.
We remain hopeful that the Minister will consider our proposals favourably.