Although Malaysia has been promoting startups for quite some time now, it was unable to catch up with the industry biggies of Singapore, Indonesia, and Vietnam in the startup scene. Hence, it has taken the practical decision to go one step forward and become a venture capital hub to create a steady startup ecosystem in the country. According to the key industry players, it will not only help the country provide enough resources to develop next-generation startups but also support their growth. This would eventually mean more capital, more jobs, thus leading to a 360-degree development of the country and an overall increase in the Southeast Asian economy.

The role of the Malaysian government in the startup ecosystem

Various reports suggest that the Malaysian startup sector is valued somewhere around $100 billion and is on the upward trajectory. Further, the optimistic attitude of the government and its interest in getting actively involved in VC initiatives is an added advantage.

The Malaysian government has decided to play its part by using 2 billion Ringgit in implementing FOFs (Fund of Funds model), which will eventually encourage foreign investors and venture capitalist firms to invest in the regional startups. It will lead to an increase in the involvement of private cash in everything. The government has also decided to provide tax incentives to anyone who will invest more than 20 million Ringgit in private venture capitalist firms. Previously, a lack of resources or regulations couldn’t take the idea forward, but by taking care of that end, the government has cleared the ground for more private VCs to invest in the country.

The government is also hopeful that the Fund of Funds model will take the venture capitalist idea to the next level by providing enough encouragement to private VC firms to find potential startups and fund them. The privatization of two government funds is also a part of the plan to take this whole thing a notch up.

How the government’s VC initiatives will help the country’s economy

When both private and international VC firms start investing in the startups, potential entrepreneurs will feel motivated to give their ideas a chance to develop. It will not only streamline the entire process but also attract private funds and improve the symbiotic industrial relationship between the private and public institutions.

The government’s plans to take a holistic approach towards developing a steady startup ecosystem in Malaysia will encourage the companies that are trying to take their ideas forward instead of competing with each other to prove their mettle in the long run. One thing that the government wants to clarify is these funds won’t be used as ‘free money’ and that there will be conditions applied to ensure loyalty, especially on the part of the international VCs. Although the talent won’t be limited to local startups, foreign companies should have to fulfil certain requirements to do set up their business in the country, hire talents, grow, and take the country’s economy forward. The government has also planned to assign funds for extensive research and development besides attracting private funds.

The challenges of depending solely on international funds

Currently, Malaysia is experiencing a dearth of funds compared to 2018, owing to a lack of local industry leaders. The country’s industrial economy was valued at $5 billion in 2019. While it is a pretty good number, neighboring countries like Singapore, Indonesia, and Vietnam are way ahead of it, witnessing a 40% growth rate every year. Further, Singapore remains the main funding source of the region’s first multi-billionaire company, Grab-Holdings.

If Malaysia wants to improve its funding scene, it should start implementing capital injections and rely less on international VC firms that may cause the startups to pack up and leave after achieving their initial objectives and garnering huge profits.

According to a Founder and CEO Eric Cheng, the government needs to expand its focus to funding already-growing startups besides the ones that are struggling to establish themselves in the market. This will bridge the funding gap and make the country more investor-friendly. Only the nationalism factor won’t be able to keep the startups on their country-soil if things don’t improve for them in the funding sector.

The perks of staying and operating in Malaysia

Some other Malaysian startup founders feel that there are several perks of staying in the country like lower operational costs. The government leaves no stone unturned to provide assistance in terms of tax incentives, support for recruitment of talent, and government-based investment. Promoting local entrepreneurs and investing in local talent, especially in the fields of technology and data science, will help the country gain the trust of futuristic entrepreneurs, who don’t want to leave.

The startup founders and executives also feel that the local venture capitalist firms should tap into the potential of innovative projects and be less rigid concerning investments. While the Singapore government is always ready to spend for technological advancement and innovation, Malaysia needs to work on its ability to think out of the box and break conventions. The availability of pre-seed funds also doesn’t work in favor of advancement, as companies tend to exploit the same to test their products and services without delivering adequate returns.

To support the tech entrepreneurs, the government also runs a variety of programs and bodies, including MaGICMDeCCradle, and the DFTZ.

Wrapping it up

The government’s plans to develop Malaysia into a venture capitalist hub for its startups will see the light of the day with an increased focus on the local market expansion. However, it doesn’t mean that the foreign VCs won’t have any role to play. There should be the provisions of proper knowledge transfer between the regional and foreign VCs for a more streamlined approach. Numerous good companies in Malaysia have tremendous growth potential. They can easily become regional leaders by starting well in the country and capturing the markets of Singapore, Indonesia, Thailand, and other countries in Southeast Asia.