Malaysia’s startup ecosystem is behind its potential

Kevin Brockland is the founder and manager partner of Indelible Ventures, a seed stage venture fund in Malaysia.

The Malaysia startup ecosystem is filled with potential, but positive sentiment aside, the country has failed to live up to this potential and is falling behind peer markets in Southeast Asia.

So why is there a big disconnect between the bull case relative to what historical results show?

Image credit: Timmy Loen

In this piece, I will point out the reality and problems as I see them in the Malaysian ecosystem today. This will be followed up with a more prescriptive piece on how to fix what is broken.

To be fair, there are numerous examples of successful Malaysian startups that have expanded internationally and built solid brand names and business value. But these remain too few in number and well below the output potential of the market.

Let’s dive into the factors that have held the market back:

Layering up from an early stage

A large, scaled tech company at some point was a startup. The pathway to achieve the former is to emphasize the latter, so the ecosystem must be constructed from the bottom up with the appropriate enablement to allow companies to grow.

The reality is that Malaysia isn’t producing a consistent flow of new quality startups each year. This is a critical layer of the ecosystem that must be addressed, but the problem is related to both consistency and quality.

The ecosystem is overcrowded with pre-accelerators, accelerators, incubators, and many other primarily government-run programs. But where is an independent, private sector in this mix?

Given the plethora of programs that are run by or solely funded by the government, does it even make economic sense to compete with the government? So, is this simply a vicious cycle of crowding out that started with the best intention of plugging a gap? These questions need serious thought to move the ecosystem forward.

If there’s no consistent flow of quality early-stage deals, there’s no incentive for VCs to set up shop in Malaysia or carry out deal-sourcing trips. VCs only invest in a small percentage of the deals that they see, and each VC has its own thesis and viewpoint on what makes an attractive opportunity. To attract the on-the-ground presence of VCs in the early stage, there needs to be an adequate deal funnel.

Funding gap

Too much attention is paid to funding at later stages as the critical factor in creating large, scaled tech companies. This is a misconception because the larger the denomination of capital investment, the more international the capital becomes.

Finding returns for large sums is hard and capital is scouring the globe for opportunities. Focusing on building a domestic pool of late-stage capital, especially for a small market, doesn’t create much impact.

Beyond borders

Incentives and disincentives

What is the KPI?

Part two incoming