The Deep Tech goldmine: Challenges and opportunities in Malaysia's growing ecosystem

• Semiconductor ecosystem strength offers solid base to grow new capabilities
• Encouraging engineers to take leap as founders is crucial to drive innovation

As technology evolves, Malaysia is positioning itself at the forefront of deep tech, a sector promising long-term growth and innovation. However, the road to commercialising deep technology remains a significant challenge for startups and investors alike. Speaking at the annual MBAN Forum last week, Ir. Dr Bernard Lim, vice chairman of MBAN Penang, highlighted the potential of deep tech, while also managing expectations for investors.

(MBAN is short for Malaysian Business Angels Network)

Understanding deep tech

Deep tech, or deep technology, is distinct from typical tech startups models where innovation revolves around business models and consumer-facing applications. Deep tech on the other hand, focuses on scientific breakthroughs and engineering-driven solutions. Startups in this space work on disruptive technologies such as artificial intelligence (AI), blockchain, biotechnology, and advanced computing, which require long research and development (R&D) cycles before delivering commercial returns.

“The gestation period is longer,” Lim emphasised. "It’s not just about generating an idea and executing it. In deep tech, you need significant R&D, testing, prototyping, and continuous refinement before even thinking about market entry."

Long gestation period, high investment risks

The long gestation period and complexity of deep tech present unique challenges. Startups in this field typically require several years to bring their products to market. Unlike software companies, which can iterate quickly, deep tech solutions involve hardware development, extensive research, and strict regulatory compliance, particularly in sectors such as healthcare and biotechnology.

Investors, particularly those expecting quick returns, need to adjust their outlook when dealing with deep-tech companies. As Lim noted, “Don’t expect a three-year return. You must wait five to eight years, and in medical sectors, it might take even longer.”

This extended timeline, coupled with high capital requirements, creates significant barriers to entry. Investors need to be patient and have a solid understanding of the intricate technological processes involved.

Malaysia’s position in the semiconductor industry

One promising area for Malaysia is its strong foundation in the semiconductor industry. Since entering the global semiconductor market in 1972, the country has grown to become the sixth-largest exporter of semiconductors. Lim said that by 2030, the global semiconductor market could reach US$1 trillion globally (RM4.21 trillion).

Despite a temporary downturn in the market following Covid-19, demand for electronic components is expected to recover, driven by innovations in high-performance computing, artificial intelligence, and consumer electronics. Malaysia’s existing semiconductor ecosystem offers a strategic advantage for deep tech startups, particularly those focused on hardware.

Penang: The Silicon Valley of the East?

Penang is emerging as Malaysia’s hub for deep tech innovation. Often referred to as the "Silicon Valley of the East," the state has been at the heart of Malaysia’s semiconductor industry for decades. With a rich pool of engineering talent and an established manufacturing infrastructure, Penang is well-positioned to lead the country’s deep tech charge said Lim.

However, challenges remain. As Lim noted, many engineers in Penang have traditionally worked in factories, focusing on production rather than entrepreneurship. "Many engineers in Penang have spent years in factories, focusing on production, but what we need now is for them to take the leap into entrepreneurship, to lead their own startups and drive innovation in the ecosystem."  Encouraging these engineers to take this leap is crucial for the ecosystem’s growth, he asserts.

Collaboration and ecosystem growth

Another recent positive development is that Malaysia’s deep tech ecosystem is not limited to Penang anymore. Other regions such as Selangor and Sarawak are also making strides, with projects like the Selangor IC Design Park and Sarawak’s growing interest in integrated circuit design. These initiatives aim to expand the country’s capabilities in deep tech and semiconductor design, fostering collaboration across states.

The road to success in deep tech may be long, but with Malaysia’s growing expertise in semiconductors and a push for innovation across multiple states, the country is well-positioned to capitalise on the next wave of technological advancements. "We hope that we can eventually imitate what Silicon Valley does and grow as fast. That's our wish. And longer term, we aim to expand the deep tech ecosystem throughout Malaysia," said Lim​.