When VCs discuss Southeast Asia, the immediate capital destination is Singapore, as it has historically been positioned as the magnet for money 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 the potential to become a major centre of innovation and a gateway to Southeast Asia and beyond.
The current state of VC funding in Malaysia
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 the sheer value of total VC investments, Malaysia attracted just 4 per cent of capital invested in 2021 H1, down from 7 per cent in 2020 H2. This while Indonesia and Singapore accounted for 51 and 32 per cent respectively.
- Relative to GDP, Indonesia and Singapore achieve 0.4 per cent and 0.7 per cent, respectively. Malaysia, on the other hand, is at just 0.1 per cent.
- On a per capita (per thousand) basis to adjust for population size, Malaysia falls well short again at approximately US$5000 per thousand population. Indonesia exceeds US$8000, and Singapore disconnects from relevance at an astounding US$ 248 thousand.
Malaysia continues to be underrepresented in the VC landscape to capital flows. The opportunity set exists in Malaysia, and it is simply a matter of putting Malaysia onto the radar of investors.
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Putting Malaysia on the investor radar
Taking a closer look at Malaysia, it is easy to see (1) a confluence of all of the enabling factors to generate top tier entrepreneurs and (2) positioning as a gateway to Southeast Asia and beyond.
This gives VCs an ample supply of startups in the target market opportunity to enable venture scale growth prospects beyond the country itself.
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 centres.
There are certain upgrades to the ICT infrastructure that will be required to improve connectivity speeds and expand high-speed access beyond urban centres.
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 can reach 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 know-how.
Numerous early-stage programs support entrepreneurs who go from Idea to Product and Product to Initial Traction. The enabling factors of the ecosystem’s infrastructure are in place and are a focal point of some talented public sector leadership efforts.
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 thriving entrepreneurial ecosystem. Entrepreneurial talent combines know-how and initiative (or as some may call grit or hustle).
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By some estimates, there are approximately 3,000 tech startups, the startups underestimate the actual 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.
Costs
The early days of any startup are characterised 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 to Singapore, Hong Kong, Australia or even Europe or the USA.
Language
When launching a global business, a critical 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 resulted in exceptional food and a population that is sensitized to its neighbours, connected with the West and benefits from a multilingual base.
While there is a bullish case with the above factors, we are not aware that there are pressing needs for improvement across the board.
Nevertheless, the existing base and the efforts put in place provide a current and forward-looking perspective of optimism concerning the opportunity that Malaysia presents as an entrepreneurial hub.
Despite the lower capital flows into Malaysia, several success stories have been rising and a slew of additional entrepreneurs closely following behind and ready to make their 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 challenges is arising to be the leaders of the digital economy.
A Malaysian thesis
It is the recognition of the asymmetry in the market. This disconnects between having everything it takes and attracting its proportionate share of VC interest, which led Indelible Ventures to focus on that opportunity.
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Indelible Ventures is targeting Malaysian startups with 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 investors’ radars.
Southeast Asia is home to roughly 10 per cent of the internet users globally and is rapidly increasing its usage of technology and is becoming a trendsetter.
The demographic, economic development, and leapfrogging of technology are all trends that make Southeast Asia highly attractive.
Sitting at the centre of this is Malaysia, which, we believe, can play a role in being a leader. It starts with the startups and the talent that already exists in abundance.
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