Malaysia startup scene falters under government’s heavy hand

For a long time, I have been a loud and active supporter of the Malaysian startup ecosystem. This has often been a contrarian stance met with pessimism from those outside and especially inside the country.

It wasn’t until the country’s sovereign wealth fund, Khazanah Nasional, announced its new fund-of-funds program in the second half of this year that every VC claimed they had been bullish all along. While current deal activity doesn’t correlate with the resounding praise now being sung of local startups, increased noise around an ecosystem is to be expected when more capital comes into play.

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Still, while I remain bullish on the founders and the potential of the market, I can’t ignore the faults and the subtle decline that I have witnessed in the ecosystem.

Despite increasing VC attention and a lot of positive media coverage, Malaysia’s startup ecosystem has lost ground to regional peers over the last decade, largely due to excessive government intervention.

Initial promise

My work has involved Southeast Asia for about 13 years, and I’ve lived in the region for eight of those. In the early years, Malaysia was probably second in the regional hierarchy of startup ecosystems – behind only Singapore.

Today, however, it might hover around sixth to fourth place depending on your views of which factors are the most relevant. For me, it’s on the lower end of that spectrum.

Malaysia’s startup ecosystem has been run as an oligopoly of entities, all with a common parent: the government.

If a corporation lost market share in a similar manner, the board would likely replace the leaders and make new plans. It certainly wouldn’t make any sense for it to repeat the same strategies that led to its decline.

I launched Indelible Ventures initially because of what I saw as a missed opportunity. Malaysia has two key ingredients for success: a large pool of natural-born entrepreneurs and enabling factors that make it a prime international launching pad.

While the country excels at producing entrepreneurial talent, it has consistently fallen short in providing the right environment for these founders to succeed.

The government problem

Malaysia’s startup ecosystem has been run as an oligopoly of entities, all with a common parent: the government. This has consistently resulted in underperformance – the ecosystem just has too many ministries, agencies, programs, grants, incentives, and so on.

The government’s enthusiasm for intervention has created a culture of dependency.

There’s a merry-go-round of startups hopping from one grant program or government-run accelerator to the next without really advancing. There are accelerators cherry-picking more advanced startups to artificially pad their numbers.

Current challenges

Path forward