| Summary: | Venture capital (VC) plays a significant role to support new-technology-based companies especially in their early stage and has increased tremendously in the Western countries. However, Malaysian VC is still at emerging stage and fails to attract private investors into the industry, although various actions have been taken by the government to promote it. This research aimed to investigate the key challenges of VC industry in Malaysia that hindering its development, with emphasis on the important elements in VC process: establish fund, selection process, structuring of relationships and monitoring of the funded firms, value added activities provided to the funded firms, and exit, and suggested appropriate recommendations for its development. Qualitative research method has been applied since it would provide deeper understanding of the experiences of VC player in Malaysia while research data were collected from interviews and documentation surveys. Respondents were selected from five out of 56 listed VCMC in Malaysia and several government agencies, two PE companies who were previously active in VC and one investee company were also interviewed for validation. The data were analysed using memo and coding technique. Findings from this research clearly suggested various challenges existence in the process of selection of funded firms, monitoring of the funded firms, value added activities provided to the funded firms, exiting from the VC investment and the most crucial, the difficulties in raising funds for VC investment that hindering its development in Malaysia while government's attempts to promote VC have not been a success. However, structuring of relationship with the funded firm is not a kind of challenge within VCs in Malaysia due to small geographical area. This research suggested few measures need to be taken such as the availability of tax incentives and divestment avenues to create a more conducive environment for VC development in Malaysia. Finally, findings from this study would contribute to the academic literature of VC.
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