Pouring cold water on the startup Kool-Aid

  • Buoyed by passion and enthusiasm, much misleading information is going out there
  • Both startup players and the media (DNA included) need to set realistic expectations

Pouring cold water on the startup Kool-AidJOURNALISTS, like most folk, are only human. We have our moments of weakness and our own share of failures.
 
One of mine, amongst many others, was my coverage of a particular DNA-TeAM Disrupt session in February, which discussed the funding situation in Malaysia under the theme ‘Follow The Money.’ Disrupt is a monthly panel discussion and gathering for technology entrepreneurs here, co-organised by Digital News Asia (DNA) and the Technopreneurs Association of Malaysia (TeAM).
 
It was not a total failure, admittedly. I did write on what I felt would have been of greatest interest to as wide a readership as possible, on a very tight deadline too. However, I did leave out one part that came towards the end of the Disrupt discussion.
 
It was a judgement call on my part, with an article that was already getting too long, so I left it out because it was tangential to the main discussion – but also because it went to the heart of what DNA was doing, and our responsibility as members of the media, and I really needed to think about what it meant.
 
During the Q&A period – or to be more accurate, when the discussion was opened up to the audience as well, because, you know, Disrupt rolls that way – audience member Ganesh Kumar Bangah, the Group CEO of MOL Global, stood up and gave us all some very important lessons on funding and venture capitalism, and the differences between Silicon Valley and Malaysia.
 
[Ganesh started speaking after the one-hour mark; you can view the entire video of the Disrupt session here.]
 
Pouring cold water on the startup Kool-AidOne the points he made was that many Malaysian startups get “overly-excited” because they read publications such as TechCrunch “where you only see the sexy bits” of companies getting half-a-million or a million-and-a-half US dollars in funding, without getting the nitty-gritty.
 
When the media paints too positive a picture, it does not set the right expectations, Ganesh (pic) argued. The names of such upbeat media titles were dropped. Technopreneur and angel investor Khailee Ng and Catcha Group chairman and chief executive officer Patrick Grove, both panellists, asked, “And what about Digital News Asia?”
 
Ouch! Well-played, chaps!
 
It was well-timed because we had had internal discussions at DNA about whether we were being too gentle on the still-nascent startup scene here. Sure, we want to be supportive because we do believe that it is a major part of the entire ecosystem we have dedicated ourselves to covering.
 
But as media, being supportive should never stretch so far as to being party to an inaccurate portrayal of the scene here either. Sure, the industry may still be taking baby steps and would need a gentle hand now and then, but we knew that sooner or later we had to be as critical with startups as we are with established companies.
 
I was, in fact, going to write about this after the Disrupt session, but other issues got in the way and, you know, I get easily distracted.
 
In a way, I am glad, because while I was all set to put the onus on the media to paint an accurate picture, a few startup-focused events and functions I attended over the next few weeks convinced me that the media, and by extension DNA, were not the only guilty ones.
 
This is especially true when said events include foreigners – whether they are venture capitalists, entrepreneurs themselves or the people running incubators and accelerators – here on a fact-finding mission. Our patriotism overwhelms us – or it could be a cynical effort to pull in more foreign investments – and we try and portray Malaysia’s startup scene as the best thing since sliced bread.
 
Don’t get me wrong, I do believe that Malaysia has many advantages, and not enough is being done to market this inside our own borders, let alone outside of them.
 
We have perhaps the best combination of infrastructure and cost-effectiveness, for example. Singapore may have a better business environment and infrastructure, but at a cost that many startups may find prohibitive. Many of our Asean neighbours may be cheaper, but with infrastructure that may have you tearing your hair out in frustration.
 
We don’t boast enough about our multicultural society – probably because it is not only being threatened by right-wing extremist groups but even the ruling coalition itself – and a multilingual population where English remains the lingua franca of the business world.
 
Malaysia, despite some problems, remains perhaps the best port from which to launch an Asean-wide or even Asian-wide business; and not a bad choice to begin your plans for global domination either … although on that score, I would still have to tip my hat to Singapore.
 
But I was still taken aback by some of the claims being touted at these events, and some of the things left unsaid. There is a lot of good-news-bad-news juggling going on.
 
For example of good news, Malaysia ranks high when it comes to the ease of doing business, according to the annual report published by the World Bank and the International Financial Corporation (IFC), which looks at regulations that enhance business activity and those that constrain it.
 
There are 11 criteria the World Bank and IFC look at: Starting a Business; Dealing with Construction Permits; Getting Electricity; Registering Property; Getting Credit; Protecting Investors; Paying Taxes; Trading Across Borders; Enforcing Contracts; Resolving Insolvency; and Employing Workers.
 
In the Doing Business 2013 (DB2013), the 10th in the series, Malaysia had moved up six notches among the 185 economies monitored to hit No 12, which is darned respectable. We’re even ahead of Sweden (13), Taiwan (16), Germany (20), Japan (24) and Switzerland (28). Singapore, no surprise, is No 1.
 
Among the highlights were that Malaysia remains No 1 for ‘Getting Credit’ and No 4 for ‘Protecting Investors.’ The World Bank has also acknowledged Malaysia as among the top 10 reformers within the APEC region that made the most progress in regulatory practices.
 
Some hope there, but not for startups: Malaysia has slipped even further when it comes to the ease of Starting a Business; from 50 in 2012 to 54 in 2013. This is despite the introduction of the Limited Liability Partnerships Act 2012, which allows for an alternate business vehicle to provide more choices for businessmen and entrepreneurs in structuring and carrying out their operations.
 
Pouring cold water on the startup Kool-AidAnd I am sure few people bring up the fact that Malaysia scored worst in the 2012 Bribe Payers Survey, which asked about 3,000 executives from 30 countries whether they had lost a contract in the past year because competitors paid a bribe. In Malaysia, 50% said ‘yes,’ said a blog post on the Asian Wall Street Journal.

[This was one of seven questions asked in the survey; the others focused more on the respondents' perception of businesses' role in corruption, or what they thought would make effective measures, etc. For a list of the types of questions, click here.]
 
Meanwhile, when it comes to funding, at one event, an entrepreneur-cum-investor spoke about the number of grants that the Malaysian Government has made available, without mentioning the fact that the current administration is reducing these and is asking the private sector to step up to the plate, which was one of the reasons behind the interesting but yet-to-be-proven Angel Tax Incentive.
 
Indeed, at this same rah-rah event, the speaker spoke about The Star Accelerator Fund but deliberately gave the impression that the deals had been done and funds provided – although at the time, there were only offers on the table!
 
And at more than one such event, the Multimedia Super Corridor (MSC Malaysia) has been rolled out as an example of Malaysia’s friendliness towards technology companies. Yes, the benefits are fantastic, especially the 10-year tax break.
 
But for startups? Really? Can you afford to relocate to a designated MSC Malaysia zone and pay the above-average rentals, which one local entrepreneur described as a “real estate scam”?
 
More importantly, if you’re a three-to-five-man operation, can you really afford to spare the time and resources to go through the robust and detailed application process?
 
Before I left The Star in 2010, I know that the company had to go through a 60-day process for one of its subsidiaries to apply for MSC Malaysia status – and this does not include the time spent beforehand in gathering information and meeting people. In fact, the subsidiary had to hire a consultant to look into the matter because it could not afford to be distracted from its business.
 
Why do you think most MSC Malaysia companies are largely either established businesses, or the startup subsidiaries of multinationals?
 
To be fair, by most accounts, the current team at national ICT custodian the Multimedia Development Corporation (MDeC), which is in charge of MSC Malaysia, has been doing a great job in streamlining its processes – but if you’re a startup, you might want to wait for that funding before you relocate.
 
In its current form, MSC Malaysia is just not startup-friendly. German investor Tim Marbach, who believes that Malaysia is the best port from which to tackle the entire South-East Asian startup ecosystem, moved here in January and as of August, was still waiting for his startup to be approved for MSC Malaysia-status.

Don't get me wrong. MDeC itself has been doing a great job in engaging with startups and has done a lot to encourage technology entrepreneurship, whether it is via supporting accelerators, sponsoring startup events or running programmes such as ICON.

But to pitch MSC Malaysia status as a selling point for startups is a tad dishonest. It may get there, but that would require some effort from all parties concerned – incidentally, that is one of the areas that TeAM’s Policy Institute is looking into.
 
The point of this long-winded rant? Yeah, sure -- I do see the value of a bit of rah-rah and some positive energy now and then. Malaysia is a promising startup hub, and the entrepreneurial space here is heating up and getting more vibrant, and is definitely worth a look. We do need to market ourselves better to the outside world.
 
But in doing so, we should not paint a false picture that will come back to bite us. Don’t let our enthusiasm or passion set the wrong expectations. We can best help startups and entrepreneurs by helping them prepare for the challenges that await them, not by sweeping these issues under the carpet and putting a bouquet of roses on top.
 
Related Stories:
 
Disrupt: ‘It’s hard to raise money in Malaysia’
 
The real message behind the Angel Tax Incentive
 
Is Malaysia ‘losing out’ to Singapore?
 
TeAM hopes to create 'echoes' in the corridors of power
 
Star Accelerator Fund: Offers on table for four this week
 
Limited Liability Partnership: An alternative business structure
 
 
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