Global venture capital chasing Malaysian deals
By Gopi Ganesalingam May 14, 2018
- Sea Dragon Venture Platform concluded successfully with 30 global investors in KL
- Money now chasing Malaysian startups with ability to navigate fragmented SEA market
Uber has exited the region, selling out to Grab. Was it a lack of appetite, being late to the game, or simply not understanding how to negotiate outside their home market in the US?
Before I come to that, here are a couple of stories that came to my mind when thinking about the intricacies of the local business landscape: First, the Malaysian used-car platform startup, Carsome raised US$19 million (RM75.4 million) in March 2018. The funding was led by Burda Principal Investments, through their Singapore office. StoreHub, a Malaysian company that built a Cloud-based Point of Sale (POS) application that is used by 3,000 retail stores across 15 countries, raised US$5.1 million (RM20.2 million) from Vertex Ventures. Vertex, an investor in Grab, is owned by Singapore’s Temasek Capital.
Then you may remember that last year, Soft Space, the Malaysian Fintech company raised US$5 million (RM19.8 million) from Japan’s Transcosmos. Carsome, StoreHub and Soft Space, join almost 3,000 other companies that have been accorded MSC (Multimedia Supercorridor) Malaysia status by Malaysia Digital Economy Corporation (MDEC). Since its inception in 1996, MDEC has been actively pursuing Malaysia’s digital agenda. This was done by initially encouraging technology companies to set up in Cyberjaya, and then bringing in shared services companies, and now by working to build globally competitive Malaysian headquarters companies.
These are second generation companies and are different from the first generation of Malaysian companies, many of whom achieved billion-Ringgit valuations with very little capital. Starting with founder’s money, these first generation companies like Jobstreet.com, founded by Mark Chang, at best raised two to three million US dollars, which had to take them straight to an IPO.
Despite the success of these second generation companies from raising funding, by and large Malaysian companies were still not appearing on the radar of major VC firms.
Building utility-like businesses – the startup way
But that has changed: Money is now chasing local deals because of the ability of Malaysian companies to navigate the fragmented and tightly regulated markets of Southeast Asia. This is very important to note, as this is changing the landscape in Malaysia.
N2N Connect, a company that provides securities trading platforms used its Malaysia-base to grow into the region. We are fortunate to have a forward-thinking central bank. In addition to allowing for crowd funding platforms, and a sandbox for testing of new products, Bank Negara Malaysia (BNM) recently finalised the electronic Know-Your-Customer (e-KYC) guidelines.
This is a huge step, allowing for much faster and more seamless customer acquisition. These guidelines have made it possible for Internet payment provider iPay88 to launch a virtual account for the “unbanked” market.
I am pleased that MDEC has continued to play an active role in building the ecosystem that has allowed these companies to flourish. We maintain a constant and consistent dialogue with several stakeholders, including BNM and the Ministry of Higher Education - where we are leading the push to introduce coding in schools.
Yet, while we continue to work on the digitalisation agenda, we also recognise an urgent need to bring larger VCs into Malaysia.
Companies like Carsome, StoreHub and Soft Space are building businesses, which are like utilities. There are differences though if one was to compare them with Tenaga or Celcom, Maxis and Digi. What are the differences? Utility businesses have large capex needs but their business is protected by licenses. They didn’t start off with a small bunch of customers and build the infrastructure from customer revenues; that business model just doesn’t work that way.
Scale up at speed
Well, the startup guys don’t have the protection of a license, so they start with a small bunch of customers and what is typically called a “Minimum Viable Product.” They then get feedback, gain traction and often go through a few product iterations. Once that has been achieved they need money - lots of it - to build the infrastructure, delivery capability and capture market opportunity ahead of potential competition. As we say in MDEC, it’s a matter of “Grow Fast and Go Global”.
Just last month, Zilingo, a Singapore based start-up raised US$54 million for an expansion into the region from their base in Bengalaru, capital of the Indian state of Karnataka. That’s big money! The company provides a platform for customers to browse and buy fashion products from retailers in Southeast Asia. Since inception in October 2015, Zilingo has raised US$82 million, to launch in Thailand and expand into Malaysia, Indonesia, the Philippines and Vietnam. Like other platforms, the technology relies on artificial intelligence - AI - to learn buyer behaviour and then propose the “right” product.
The need to achieve scale and leverage on engineering capability probably led GHL Systems Bhd to acquire rival company Paysys (M) Sdn Bhd for US$20.1 million (RM80 million) in early April, with half paid in cash and the balance in shares. GHL is no stranger to corporate exercises. In 2013, GHL acquired e-Pay Asia Limited, a company founded by Simon Loh, now vice-Chairman of GHL. Local PE firm, Creador, sold its stake to Actis in 2017, and they are now are pushing for growth in the payments, or fintech space, which is seeing a lot of new entrants.
Malaysia on the VC Map
Digitisation coupled with the porosity of borders has meant that competition lands at your doorstep almost from the word go! Scale and speed of growth are important and the fuel for that is cash - and plenty of it! This is one of the reasons why MDEC is pleased to have attracted Vickers Venture Partners, to open their Kuala Lumpur office.
The presence of Vickers on our shores is yet another indication of investor interest in Malaysian-originated deals. Have we done enough to put Malaysia on the map? Only time will tell, but the good news is that investors are now getting off the plane at KLIA. At MDEC, we are busy making sure they continue to keep Malaysia firmly on their radar.
One major initiative we are working on this year is the “Sea Dragon Venture Platform” (SEAD) that just concluded successfully on 10-11 May even though these two days were public holidays in Malaysia.
Organised by Pikom, the National ICT Organisation, MDEC is pleased to support this major initiative that saw close to 30 global VCs and corporate investors visiting Kuala Lumpur. About 35 technology companies from Malaysia and the region were shortlisted to pitch. SEAD is targeting companies that have the potential to be leading players in the Asian and North Asian markets that are looking for growth capital of between US$5-US$25 million. This event was also an opportunity to showcase to the region why having a startup to scale is best done from Malaysia.
Watch out for more such events after the success of SEAD.
It’s time to “Grow Fast and Go Global,” which is in line with MDEC’s globalisation strategy; “Building Local Tech Champions.”
Gopi Ganesalingam is MDEC’s Vice President of Enterprise Development.