He said Malaysians are at a disadvantage when comparing themselves to their Singaporean peers, even though they are as talented, well-educated and skilled as those in Singapore and other developed countries. She often feels like there isn’t enough change.
But experts say that with hunger for venture capital (VC) funding and similar investments, many Malaysian startups do not have the luxury of expanding or building their businesses on a long-term growth model. Instead, they say they are under pressure to make profits quickly.
This set of factors has created a hotbed of innovative startups in Malaysia that are rapidly profitable but do not attract VC funding. But observers say a tipping point may be nearing as investors’ strategies change.
Shah Zek, CEO of big data solutions provider Big Dataworks, attests to the vast opportunities available to small and medium-sized businesses like his in Malaysia.
Big Data Works has not only digitized government compliance at the national corporate regulator, Companies Commission Malaysia, but also created an online service that allows the public to purchase data from the regulator without having to visit a ‘counter service’ in person. Established portal.
While many governments around the world are automating services, Malaysia still has many bureaucracies in dire need of digital transformation, Zeck said.
However, without a central hub connecting investors with Malaysian startups, raising capital for growth is difficult.
“You have to go out and look for them, unless some public relations magic finds them,” Zech said.
Malaysia Global Business Forum chairman Nordin Abdullah said domestic companies such as Big Data Works were boosting profits as the Malaysian government seeks to improve efficiency in the public sector.
“Bootstrapping” business approach
According to Malaysia’s Khazanah Institute, the number of people enrolling in higher education in Malaysia has exploded over the past three decades, with the proportion of the workforce with a university degree or above rising from around 6% previously to more than 30%. ing. (KRI).
However, half of all new graduates earn a starting salary of less than RM2,000 (US$424) per month, despite working in highly skilled jobs, a KRI report released last month found. It was revealed. In neighboring Singapore, a local graduate employment survey released earlier this year showed that the median monthly salary for new graduates was S$4,200 (US$3,140).
According to KRI, wage growth has slowed in Malaysia over the past decade despite the introduction of a minimum wage due to the low bargaining power of local employees and the reliance of many employers on migrant workers. That’s what it means.
On the other hand, the cost of living is extremely high. For example, according to a spending guide released last year by the Employees Provident Fund and the University of Malaya, the cost of living for a single person who uses public transport in Malaysia’s Klang Valley is nearly RM2,000 a month, which is the same as the full amount for a new graduate. is. payment check. For someone with a car or other expenses, that paycheck isn’t enough.
This is part of the reason why many Malaysians start their own businesses. More than 97 percent of people in the country are self-employed or work in small and medium-sized enterprises, compared to about 70 percent in other low- and middle-income countries, according to KRI data.
However, despite having a wealth of innovative startups, research shows that Malaysia is not attracting the same amount of VC funding as heavyweights like Singapore and Indonesia.
Singapore attracted about 80% of the region’s venture capital funding last year, while Indonesia attracted more than 10% and Malaysia was a distant third, according to a private capital update released last month by market intelligence firm Pitchbook. Ta.
“In Malaysia, pure VC activity is still not large-scale, with many deals being done through wealthy individuals and wealthy families,” the report said.
Indonesia has a big market…Singapore is rich and connected…Malaysia is neither
Joel Shen, head of the Asia technology practice at corporate law firm Wizards Worldwide, says there is little venture capital excitement about Malaysia compared to its more populous and wealthy neighbors.
“Indonesia has a big market…Singapore is rich and well-connected…Malaysia is neither,” he said. “It’s not big enough to be sexy, and it’s not wealthy or connected enough to serve as a sandbox for startups building for the region.”
Aaron Sarma, an entrepreneur, venture capitalist and general partner at startup accelerator ScaleUp Malaysia, said this slump in funding has been a driving force for Malaysian startups to increase profitability. He says it’s not always possible to build a business by scaling up and aiming for sustainable growth at all costs.
“So Malaysian entrepreneurs have a challenge, right? If they can’t raise capital to grow, they can actually build very profitable companies, usually enterprise IT companies or service companies. and so on,” he said.
“But if you do anything to ensure profitability, you may end up not being as attractive as a growing startup.”
Meet Asian startups aiming to reshape online dating culture
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This could mean entrepreneurs tend to focus on low-cost business models, avoid risks and choose “the most scalable revenue streams,” Sarma said. .
He said it has created a vicious cycle where Malaysia has many “successful” and profitable startups but very few “venture-backed high-growth startups”.
VC funds are not lured away from Malaysia because investors are attracted to large deals, and the vicious cycle continues, said Kevin Blockland, general partner at VC seed fund Indelible Ventures.
“We have a small number of high-quality deals, but not at a scale that would justify a dedicated country fund, and not at a level that would justify many VCs setting up a country office.” he said.
Blokland described Malaysia as a “desert of capitals”, with many companies forced to take a “do-it-yourself” approach to operations with minimal external capital.
“If you don’t have enough funding early on, companies are forced to turn a profit faster. It means that they are not allowed to do so,” he said.
The changing VC landscape
Wizards Worldwide’s Shen pointed to a new report by government agency Enterprise Singapore released on Wednesday, saying that although Malaysia’s VC funding remains low, the number of deals is increasing and is in line with Vietnam. He said that
He said this means VCs are doing a lot of small deals in Malaysia, which could indicate growing investor interest in the country.
In recent years, venture capitalists have been drawn to riskier, more scalable startups rather than more profitable but smaller operations like food stalls or shrimp farms. But the days of “growth at all costs” may be over, Shen said.
“Last year, I saw VC term sheets being issued to cosmetics companies, handbag retailers, personal care brands, poultry farms, sushi restaurants — brick-and-mortar companies that previously wouldn’t have raised VC funding. I saw it,” he said.
“VCs with deep pockets because they haven’t invested are focusing on businesses that traditionally wouldn’t have attracted VC attention.”
Sarma from ScaleUp Malaysia agreed, saying even venture capitalists who don’t have a lot of cash on hand are focusing on more profitable start-ups rather than riskier ventures. .
The Malaysian government is wasting no time in helping venture capitalists pivot.
Last month, the Employees Provident Fund, the statutory body that manages private sector workers’ savings and retirement schemes, partnered to raise up to RM250 million towards “revitalizing medium-growth stage enterprises in Malaysia”. (US$53 million). Partnered with VC firm Gobi Partners.
Southeast Asia’s startup beasts will benefit, experts say
Southeast Asia’s startup beasts will benefit, experts say
On Tuesday, the Ministry of Science and Technology and Malaysian Venture Capital Management announced the Malaysian Venture Capital Roadmap, which sets out regulatory reforms to free up more government capital and make it easier for VCs to utilize their funds. announced plans to build a centralized platform to country startup.
If these efforts can open the VC floodgates, companies like Epic Unicorn’s Lee with big startup dreams could have a vast future ahead of them.
“I really want to be successful and build businesses, sell businesses, buy businesses. “I had a vision of what it would become,” he said.
