Malaysian startups and the VC perception barrier

  • Despite its promise, Malaysia is not even looked at when VCs shop around for investments
  • We need more exits to boost our numbers of experienced founders versed in startup pains

Malaysian startups and the VC perception barrierIT struck me recently how much harder Malaysian and Malaysia-based startups need to work to get on the radar of regional or global venture capitalist (VC) firms looking at South-East Asia.
That realisation hit while attending the inaugural Asia Leaders Summit organised by Incubate Fund and hosted at Marina Bay Sands in Singapore on Feb 15.
Incubate Fund is a US$60million seed- to early-stage venture capital fund based in Japan, which focuses on mobile, gaming, and Internet media startups.
The event, which featured panel sessions discussing investment opportunities and challenges in Asia, also showcased promising South-East Asia-based startups, alongside up and coming startup stars from Japan and Korea.
As expected, within the Asia Pacific region, China topped the minds of many of the VC attendees, while within South-East Asia, it was the Philippines, Indonesia and Singapore that garnered multiple mentions and references.
There was little to no mention of other markets, such as Malaysia, Vietnam or Thailand, which had the unexpected effect of sparking some semblance of patriotism within me. A question posed about prospects to a panel comprised of VCs with investments in the region also did not get me much insight.
But it certainly got me thinking, and a lament posted on Facebook about how the country of my birth does not seem to be on anyone’s radar garnered some interesting insights.
“It’s a function of market size, just like Singapore. You need ideas to expand regionally or globally from day one,” said one friend who is actively investing in startups via a small Singapore-based VC.
Another pointed out that Malaysia is an excellent base of operations – as far as operating cost, a stable government friendly to foreigners, and government incentives go – and that is why his company has established itself in the country.
“But Malaysia is tiny in population compared with Indonesia and the likes of the Philippines, Thailand and Vietnam,” he added.
Indeed, we are relatively tiny. A quick check on absolute population figures for the main nations in the region lays it all out in stark detail:

  • Indonesia – 235.5 million
  • Philippines – 94 million
  • Vietnam – 89 million
  • Myanmar – 53.4 million
  • Malaysia – 29 million
  • Cambodia – 15.1 million
  • Laos – 6.4 million
  • Singapore – 5.1 million

Malaysian startups and the VC perception barrierThe only exception on this list is of course Singapore, which despite its tiny size, boasts an affluent population who can afford to try or abandon new products, and also offers great incentives for businesses to base themselves there to pursue regional ambitions.
But that wasn’t what irked me. Yes, we’re a great place to base operations in, but as a market, Malaysia’s standing has long been relegated to Tier 2 status, I have covered the technology space long enough to almost get over this fact (relax Microsoft, I’m not poking you about Xbox again).
My sadness stemmed from the fact that Malaysia is not even looked at when VCs shop around for investments. It’s almost like the term ‘South-East Asia’ just means Indonesia and Singapore to those outside looking in.
Sure, the pundits say that regional VC players prefer regional plays, but in the early stages, many startups will inevitably seek to get validation in their home markets to garner enough traction and to demonstrate to potential investors that their business can be replicated in other markets.
It’s a tough hill to climb when founders of Malaysia-based ventures are faced with the need to go the extra mile to find funding, especially when they have decided against government-related funding sources.
It’s one thing to hop on a plane to Silicon Valley to meet with an interested VC; quite another to take a trip down to Singapore just because that’s the only country those who hold millions choose to visit on a trip to the region.
“It's okay lah. Malaysia has never really been on anyone's radar for anything since time immemorial,” offered one friend, in a comment on my Facebook post.
“I guess it's how much bottom-line we can get running a business out of this country. Strange thing is, there are people actually making good money and they're people you'll probably never hear of,” he added.
Another friend just shrugged and said: “Startups should consider doing it the old fashion way – sans VCs, like Fernandes (AirAsia founder Tony Fernandes) and Kuok (sugar king Robert Kuok). While the rest play the game of Silicon Valley, we bootstrap like how we have always done.”
Yes, sound advice for a nation whose entrepreneurs are long-term builders. Malaysian founders live up to the notion of a long-term commitment to the ventures they’ve given life to. They tend to build houses to stay in for the rest of their lives, not to flip for a profit a few years down the road.
But for the sake of the local startup ecosystem, that is not quite what’s needed. We need more exits, more flipping of companies to boost our numbers of experienced founders versed in startup pains willing to not just guide, but perhaps even invest in the next generation of startups.
Government-funded programmes and initiatives are only so effective in catalysing this aspect of the ecosystem. As a community, the ones who can, should stand up and step in. For like it or not, the need to play the VC game will eventually come up.
One attendee I was speaking to at the summit also pointed out that for the Japanese and Korean VCs, their foray to South-East Asia has only just begun and increased footprint in the region will depend on how successful the first or second batch of investees are.
I truly hope that is the case and that those early bets will spark the hunger to dig deeper for what gems other parts of the region can offer.
But for local founders out there, a new mantra needs to be sounded; or rather, we as a nation must encourage our people to think beyond our borders as a basic requirement.
For startups with global ambitions from day one, it’s a slightly different ballgame and the onus is on them to prove the competitiveness of their offerings without any geographical considerations, and to convince VCs of the eventual payout to park some cash with them.
The most profound comment from that Facebook discussion comes from Khailee Ng, who is currently busy shopping for startups under the 500 Durians banner (a spinoff of Silicon Valley’s 500 Startups), which I will share here:
“I see meritocracy as a higher value versus patriotism. In many cases, discrimination in favour of a generality can be a potentially harmful bias – sexism, racism, and in some ways, even patriotism.
“Although I’ve benefited a lot from the country I grew up in, and many foreigners and locals do create big companies in and from Malaysia as a hub, generating massive return for investors, I am not blind to the fact that that I would've succeeded in an even larger way had I focused on more markets sooner than later, and most of the big tech companies out of Malaysia have a regional and global story as well.
“Investors will continue to invest in the best teams, the best market potential wherever it may be in this region. And this is where my attention goes as well. If one country or another is a useful piece or not in that context, so be it.

“In the meantime, whatever country you come from, let your identity liberate you, not limit you – so you too can be part of where the world is heading,” he wrote.
And that, dear reader, is the message for today’s column.

This column originally appeared in the Metro Biz section of The Star and is reprinted here with its kind permission.
Related Stories:
Week in Review: Stand up and be seen
Malaysia too small a market? Dotcom heavies weigh in
Disrupt: More success stories needed to plug funding gap
Malaysia's start-up scene needs to break out of stealth mode
Is Malaysia ‘losing out’ to Singapore?
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