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Putting Malaysia on the VC Radar
Opportunity to be Uncovered
This is the Indelible VC, a newsletter where we will discuss a variety of factors impacting the startup ecosystem in Southeast Asia. From our home base in Malaysia, we will look delve into the local ecosystem, the region, and global matters. We believe in the importance of technology for improving our tomorrow.
When Venture Capital investors discuss Southeast Asia, the immediate destination of capital that is Singapore, as it has historically been positioned as the magnet for capital and talent, a hub for the region. Scratching below the surface and next in line for the dominant share of VC capital flows is Indonesia followed by Vietnam.
It is the view on Indelible Ventures that Malaysia provides a substantial and underrepresented opportunity. Malaysia has all the enabling factors that demonstrate a potential to become a major center of innovation and a gateway to Southeast Asia and beyond.
Current State of VC Funding
Malaysia is disproportionately underrepresented in this VC Landscape on a broad range of measures.
Source: Cento Ventures
Extrapolating from the 2021 H1 report by Cento Ventures:
On shear value of total VC investments, Malaysia attracted just 4% of capital invested in 2021 H1, down from 7% in 2020 H2. This while Indonesia and Singapore accounted for 51% and 32% respectively.
Relative to GDP, Indonesia and Singapore achieve 0.4% and 0.7%, respectively. Malaysia on the other hand is at just 0.1%.
On a per capita (per thousand) basis to adjust for population size, Malaysia falls well short again at approximately US$ 5 thousand per thousand population. Indonesia exceeds at US$ 8 thousand, and Singapore disconnects from relevance at an astounding US$ 248 thousand.
Malaysia continues to be underrepresented in the VC landscape with respect to capital flows. The opportunity set exists in Malaysia, it is simply a matter of putting Malaysia onto the radar of investors.
Putting Malaysia on Investor Radars
Taking a closer look at Malaysia, it is easy to see that there is (1) a confluence of all of the enabling factors to generate top tier entrepreneurs and (2) a positioning as a gateway to Southeast Asia and beyond. This gives a Venture Capital investor ample supply of startups along with the target market opportunity beyond the country itself that will enable venture scale growth prospects.
Let’s list out the enabling factors and see where Malaysia stands
Infrastructure – For the technology sector, the digital infrastructure in the country is well established with a high rate of internet penetration and quality access to high-speed internet, especially in urban centers. There are certainly upgrades to the ICT infrastructure that will be required in order to both improve connectivity speeds and to expand high speed access beyond urban centers.
Aside from digital infrastructure, the physical infrastructure of Malaysia is advantageous relative to peers with one of the most well-connected aviation hubs due to Malaysia Airlines and Air Asia. When looking at a potential return to business travel, Malaysia is capable of reaching every primary and secondary city with a direct flight.
The infrastructure extends beyond the physical and digital enablers to the supporting infrastructure for entrepreneurship, which is well established (although admittedly there is certainly room for improvements). Educational institutions and Universities are incorporating more entrepreneurship and IR4.0 skills into their curriculum to motivate more entrepreneurship and equip them with the knowhow. There are numerous early-stage programs to support entrepreneurs go from Idea to Product and Product to Initial Traction. The enabling factors of the ecosystem’s infrastructure is in place and is a focal point of efforts by some talented public sector leadership.
Talent – IMD’s World Talent Ranking places Malaysia in 24th position globally and 6th within APAC, and 2nd to Singapore in SEA. Coursera, the online learning company, recently published a ranking placing Malaysia 4th in SEA.
It is more than just rankings on talent that provide a successful entrepreneurial ecosystem. Entrepreneurial talent is a combination of know-how and initiative (or as some may call grit or hustle). By some estimates, there are approximately 3,000 tech start-ups, though it may underestimate the true number beyond the Klang Valley hub. There is a strong culture of entrepreneurship in Malaysia a requisite for the mindset required to build and scale a startup.
Cost – The early days of any startup are days characterized by cash constraints. There is an advantage to being able to scale up a business in a cost-efficient location. While Malaysia has a higher per capita income than most of Southeast Asia, the comparative cost, to scale and launch a global business, pales in comparison to Singapore, Hong Kong, Australia or even Europe or the USA.
Language – When launching a global business, a key inhibiting factor frequently is language and culture. This is where Malaysia carries an advantage as its history is a melting pot of cultures, which have not only resulted in exceptional food but also a population that is sensitized to its neighbors, connected with the West and benefits from a multilingual base.
While we remain bullish on the case for the above factors, we are not without awareness that there are pressing needs for improvement across the board. Nevertheless, it is the existing base and the efforts that are being put in place that provide a current and forward-looking perspective of optimism with respect to the opportunity that Malaysia presents as an entrepreneurial hub.
Despite the lower capital flows into Malaysia, there have been a number of success stories rising and a slew of additional entrepreneurs closely following behind and ready to make their own mark on the global venture capital scene. It won’t be long before Malaysia realizes its second unicorn, behind Carsome, as a long list of challengers are arising to be the leaders of the digital economy.
A Malaysia Thesis
It is the recognition of the asymmetry in the market, this disconnects between having everything it takes vs attracting its proportionate share of VC interest, that led Indelible Ventures to center its focus on that opportunity. Indelible Ventures is targeting Malaysian startups with tech-enabled B2B products that can scale internationally. We aim to be a champion of the potential of Malaysia and play our part to elevate it onto investor’s radars.
Southeast Asia is home to roughly 10% of the internet users globally and is rapidly increasing its usage of technology and is becoming a trend setter. The demographic story, the economic development story, and leap frogging of technology are all trends that make Southeast Asia highly attractive. Sitting at the center of this is Malaysia, which, we believe, can play a role in being a leader. It starts with the start-ups and cultivating the talent that already exists in abundance.
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