By Raja Hamzah
Malaysia has long possessed a leading track record in high technology ventures that dates back to the roll-out of the Multimedia Super Corridor (MSC) near the turn of the millennium – establishing a conducive platform for the nation’s decades-long digital economy growth. Fast forward to 2022, and as we are now in the thick of Industry 4.0, Malaysia has furthered its reputation via its technology startup ecosystem, particularly through its thriving track record in producing regional unicorns (and even disruptive decacorns during their early days).
The billion-dollar valuated companies highlight the innate potential of Malaysian-born companies, which places budding Malaysian startups in a unique position. However, taking them forward requires the right funding, mentorship and ecosystem access to scale their operations beyond the domestic market to achieve a greater regional presence to grow throughout Southeast Asia (and even beyond).
With the global socio-economic landscape upheaved by the COVID-19 pandemic – and with an accelerated dependence on technology – Malaysia’s focus on backing its startups is timely. Malaysia is reasserting itself as a regional investment destination for technology ventures, providing bountiful opportunities for investors, yet still not too saturated.
This places Malaysia’s technology investment landscape at a critical juncture for further, long-term growth. Yet, tapping into the growth opportunities requires investors to have the foresight to look beyond just established unicorns, and instead look out for “soonicorns”, meaning startups with the potential to grow into becoming the next unicorn.
An inherently talented and resilient startup ecosystem
For decades, Malaysia’s tech ecosystem development has been nurtured by top-down, state-led efforts. This has continued as the government – with the support of private sector ecosystem partners – still provides dedicated backing via supportive measures that include matching venture funding, building a homegrown tech-ready workforce and attracting foreign talent to provide venture launch pads and cultivate a nurturing environment.
However, the runway for further ecosystem growth is not without its challenges. Malaysia is still expanding its venture investment vehicles, which has currently resulted in an overreliance on government grants. As the private sector here is more risk-averse, investors have tended to twice before committing, resulting in sub-optimal funding for startups to scale their businesses’ size. Longer-term growth must therefore factor in bottom-up approaches within the ecosystem, rather than having the direction set solely by the government.
Still, despite these broader challenges, startups in Malaysia have adapted to be more resilient and resourceful, building business models that can sustain themselves even when the cash is limited. This means that they are primed to have more dedicated investors to catalyse more growth potential with larger investment tickets and a bigger, deeper financing pool.
Growth potential for producing market winners
Malaysia’s technology ecosystem has produced unicorns like Carsome and helped give decacorn Grab its start before its regional dominance. These success stories are an indication that Malaysia has the innate potential to produce market-disrupting startups. However, they merely represent the tip of the technology innovation iceberg, especially for up-and-coming businesses aimed at filling unmet market segments.
Today, Malaysia has a host of startups to look out for – especially for their continuous growth and strong potential for regional reach and presence. They include Naluri Hidup, PolicyStreet and Gurulab, all of which are plugging in underserved gaps found in existing businesses, especially within the domestic market with their solutions. They possess innate high value due to their foresight in using their technological solutions to disrupt traditional sectors and provide services to undiscovered markets. Yet, this value cannot be realised without the right investor interest and channels for funding.
Investors must therefore look beyond the traditional definition of what a unicorn can be, while still considering the important, intrinsic values of startups, such as scalable business strategies and regional growth potential. Melding these factors of startups could hence add more distinct advantages to their investment portfolio. At the end of the day, investors are usually looking for the market impact factor in startups, and to mould, refine and transform them into soaring businesses that are competitive globally.
Building a thriving, startup-led digital economy
Malaysia is spending much of its resources on realising and building its digital economy and this will foster a direct impact on its startup ecosystem’s maturity.
Shrewd investors would do well to know that – in addition to their inherent business value – that their investments also help everyday Malaysians as these startups could lead to driving more innovation, job creation and economic growth. The advancement of Malaysia’s socio-economic position would then breed more opportunities for more ventures to take root, and by extension, more lucrative investment opportunities.
Malaysia is primed to be an ideal environment towards realising and honing more startups, as more digital initiatives are being launched to further catalyse the ecosystem. This provides investors with a golden opportunity to be a part of this emerging ecosystem and create more startups that can carve a presence for themselves regionally and globally.
Raja Hamzah is Co-Founder and Co-Managing Partner of RHL Ventures.