Global Startup Ecosystem Report 2018 provides insight into Malaysia

  • Local connectedness amongst Malaysian ecosystem players below global average
  • TeAM says startups should lead community events, not rely solely on government

Global Startup Ecosystem Report 2018 provides insight into Malaysia

FUELLED with the goal of increasing the success rate of startups, Startup Genome, made up of a team of entrepreneurs and researchers in California, in partnership with Global Entrepreneurship Network (GEN) based in Washington have produced the Global Startup Ecosystem Report (GSER 2018) to provide insights into the health of startup ecosystems around the globe.

The ambitious report provides insights into investment and policies from over 10,000 founders in 45 cities - including Kuala Lumpur. The report delves deep to identify leading startup sub-sectors and provide insight on founder mindset and local connectedness of startup ecosystems.

The GSER 2018 serves as an extension of last year’s report with new metrics and findings introduced to supplement GSER 2017. The latest report places emphasis on the importance of founder mindset and local connectedness within a startup ecosystem. In GSER 2017, focus was shone upon global connectedness and the four-stage ecosystem lifecycle model.

Statistics in GSER 2017 show that only 10% of customers for startups in Kuala Lumpur come from outside of the country, which is 13% less than the global average, indicating a strong local market but also challenges in reaching a global market.


Malaysian startup ecosystem’s biggest challenge

GSER 2018’s findings show that the Kuala Lumpur startup ecosystem lacks connectedness in relationships between founders, experts and investors with a score of 3.4 below the global average of 4.9. Addressing this, the president of Technopreneurs Association of Malaysia (TeAM), Fadzli Shah urges industry players to lead in community building initiatives. “The weakness of Malaysia’s ecosystem lies in government organised events and networking.”

While GSER 2017 reports Malaysia’s global connectedness to be slightly above the global average, Malaysia still has a lot of ground to cover in this area to make it as a Top 20 Global Startup Ecosystem city. Chris Burry, the co-founder of A3 Global Collider, a Silicon Valley Accelerator, shared the same sentiment at Sunway iLabs recently, “Malaysia’s biggest challenge is access to the right people globally which ultimately affects global market reach.”  

In terms of founder knowledge, Malaysia records an above global average score of practical and theoretical founder know-how. However, Fadzli believes that this score is over-inflated and only a handful of local founders are of the right calibre.

In terms of sub-sector involvement within the Kuala Lumpur ecosystem, GSER 2018 provides a detailed look at the following subsectors: (1) Big Data & Analytics, (2) Healthtech and (3) Smart Cities. Interestingly, big data and analytics is also one of the Top 4 growing sub-sectors globally.

Kuala Lumpur’s E-commerce sector has grown 47% since 2015 and is now worth US$2.41 billion (RM9.56 billion).

Responding to questions from DNA, Ashran Ghazi, CEO of Malaysian Global Innovation and Creativity Centre (MaGIC), which is also a Startup Genome member, feels that the report highlights Malaysia’s achievements, “We now need to look forward and focus on how we can enable further growth in our ecosystem.”


Local connectedness among ecosystem players in Malaysia

The report names Kuala Lumpur as an Activation Phase ecosystem, which means it is at the nascent stage of building a more close-knit community comprising of entrepreneurs, investors and experts. GSER 2018 details that local connectedness, especially in terms of relationships with other founders, correlates with stronger startup performance.

Based on the Sense of Community Index, an indicator of how founders and investors help each other, Malaysia records a score of 3.4 which is lower than the global average of 4.9. For comparison, Singapore, one of the Top 10 Ecosystems for Local Connectedness, reports a score of 6.1 in the Sense of Community Index. Singapore is also the only Southeast Asian country to gain a spot in GSER’s 2017 Top 20 Global Startup Ecosystems at 12th place.

At the Activation phase (the first phase of the four phase ecosystem lifecycle), it is vital to build a larger and more connected community by activating local entrepreneurs, talent and investors. Towards this end, MaGIC aims to introduce innovation superclusters in 2018, which are strong hubs of innovation-led collaboration, to bring entrepreneurs and key ecosystem players under one umbrella across Malaysia.

“With innovation superclusters’ collaborative and open environment, we want to deepen and increase the connections between corporates, startups, academics, and the government to help lay a strong foundation an ecosystem and industry that will drive growth in the future,” MaGIC said in a press statement.

However, TeAM’s Fadzli opines that the startup ecosystem in Malaysia should be less reliant on government-organised events and networking sessions.

He believes that while agency branded events and programs serve a purpose, it does not foster strong community interaction. “We need to let the startup community lead and self-organise. I hope the new ‘community’ building events happening at co-working spaces bear some fruit in encouraging local connectedness,” Fadzli says.

For Malaysia to progress into the globalisation phase of the ecosystem lifecycle, it is also important to foster stronger global relationships in addition to local community building. The GSER 2018 puts forth global connectedness as a catalyst to greater levels of global market reach and overall ecosystem performance.

In this vein, MaGIC shares “We aim to ensure good global connectedness through our programmes, such as the Global Accelerator Program, e@Stanford and our recently launched startup exchange programme.”

Although Malaysia ranked 6.8 in terms of global connectedness higher than the global average of 6.1, it will require consistent and quality networking to gravitate closer to neighbouring Singapore’s significantly higher score of 11.4.

Commenting on this, Low Ngai Yuen, the executive director of Global Entrepreneurship Movement (GEM) tells DNA, “Given how GEM was established in 2016 to build on the need for global connectedness, we have already swung into action to redirect conversation and global collaboration as a resource for founders' actions and update towards an international mindset through many of our programs. I reckon we will be able to see better results in the coming year.”


The mirage of founder knowledge

GSER 2018 finds that founders of startups within the Kuala Lumpur ecosystem are noted to have high practical and theoretical know-how with an index of 6.9 and 6.5 respectively. Albeit the impressive performance of the Singaporean ecosystem as reported in GSER 2017 and 2018, the country only recorded founder know-how of 4.9 for practical knowledge and 5.3 for theoretical knowledge.

Sharing his thoughts on this disparity between Malaysia’s founder knowledge score in comparison to Singapore, Fadzli says, “The score is a reflection of overconfidence and underexposure among Malaysian founders. Many of these founders are attendees of agency programmes which feed them the ‘everyone can build a startup’ mantra. But the truth is, it is difficult and not for most people.”

Fadzli argues that although there are quality founders in Kuala Lumpur that have graduated from some these programmes, they were already of the right mould even before going into the programmes.

As for talent within Malaysia, GSER 2017 notes that Kuala Lumpur has the highest percentage of founders with an undergraduate degree at 65%. The report attributes lack of global connectedness and startup experience as the main reasons for Malaysia being unranked in the Top 20.

Nonetheless, the low cost and easy to hire engineering talent within the country could foreshadow a rise in placement. Experienced software engineers within the country was at 72% in GSER 2017 while the software engineer salary was stated at US$10,600, which is a lot less than the global average of US$49,000. According to Startup Genome, the salary data was extracted from crowd sourcing salary sites, Glassdoor and Payscale. The global average for salaries is also distorted due to the inclusion of EU and US salaries.


Malaysia’s involvement in the top 4 growing sub-sectors

The GSER 2018 identifies the top 4 subsectors globally as:

  • Advanced manufacturing and robotics
  • Agtech and New food
  • Artificial intelligence, Big data and Analytics
  • Blockchain

Out of these four sectors, Malaysia is noted to have prominent involvement in Big Data and Analytics. To increase and promote involvement in these areas, MaGIC is looking to segment its activities to become more cluster-focused.

“We are including some exponential technologies such as artificial intelligence and blockchain in our capacity building initiatives. As of now, we plan to first increase awareness and interest as well as gather talent and experts in these subjects with our partners. Hopefully, this will lead to specific programs in the next two years for innovation and entrepreneurship,” says MaGIC.

Fadzli meanwhile shares that there are many opportunities for technological disruption in agtech and advance manufacturing, which have had very slow adoptions in terms of technology in the past. As for blockchain, he says that the industry in Malaysia follows the global trend which recently have been around cryptocurrency opportunities.

He further adds that AI is over-reported, “Most of the AI work we see is linked to automation, but very few are self-learning or neural networks.”

Commenting on the Malaysian ecosystem, Fadzli says: “Government grants will continue to exist across all four of these sub-sectors. It depends on the industry’s appetite. The best thing stakeholders can do to advance Malaysia’s involvement is to get high quality talent to join the scene.”


Related stories:

MaGIC Global Accelerator Programme open for applications

TeAM’s bold plan to launch US$50 mil venture fund

MaGIC, SIHUB ink startup-focused partnership

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