With only RM22 million (USD5.4 million) of venture capital invested to date, the startup ecosystem in Johor, Malaysia, has come a long way.
The local startups now boast a combined valuation of RM467million (USD115 million), with more than 400 jobs being created over the past 4 years, contributing an average of RM160 million per year to the local state GDP.
There are also a staggering number of 46 coworking spaces, now, in Iskandar, Malaysia, combining for a total area of 300,000 square footage.
These figures were all taken from the Johor Startup Ecosystem Report which was officially published on 15 Jan 2019, in conjunction with IskandarSpace’s first year anniversary.
Exactly a year after on 15 Jan 2020, the ecosystem reached another significant milestone by hosting the BASE Conference 2020, organized by START Malaysia.
In his opening remarks, Feng Lim, CEO of START Malaysia, emphasized the significance of the inaugural event, as he aims to “create a platform as a testament to tell our people, our government, the (ASEAN) region and the whole world that there is serious innovation here in Johor, Malaysia.”
It was heartwarming to see ~900 fellow attendees across 15 cities flocking into Iskandar Malaysia Studios to witness the largest regional business & technology conference in the state to date for themselves.
Now hereon in this article, my job is to further amplify your FOMO by giving you a glimpse into the quotes that transpired throughout the event.
Megatrends in emerging markets
The hot take from Riddhiman Das, CEO & Founder, TripleBlind, is that “the thought of Blockchain as a solution to solve societal issues in emerging markets is on the decline”. Russ Neu, Venture Partner, Impact, Quest Ventures believes that “A lot of new technology and innovation in the coming decade will be addressing the UN’s SDGs”.
When should startup founders think/talk about an exit strategy
Paul Ark, Managing Director, Corporate Venture Capital, Digital Ventures, shared that, “It’s a delicate balancing act because as a founder, you don’t want to be seen as starting a company just to get out of it. But from a VC perspective, they have a horizon for their fund to exit.”
Ark added, “As you move aways from local funds in early-stage fundraising – who want you to move fast and break things – towards international funds/acquirers/stock exchanges, it is the administrative staff under the hood like your articles of association, employment contracts, and accounting practices that must be ironclad”.
On trade sales as an exit strategy
Koichi Saito, Founder & General Partner, KK Fund, believes that “To attract global investors and acquirers, you need to do so by showing a regional play and have a significant footprint in markets outside the startup’s domestic market.
When we negotiate with potential buyers, we don’t start with the explicit intention to sell the company. It always starts with – we want to raise”
Sai Kit Ng, Chief Executive, Captii Ventures, added “As a founder, you cannot let someone who’s not active in the running of the company decide or dictate the trade sale. A typical VC’s metric is to look for the biggest returns, and they will wash their hands off the company once the deal is done.
(As a founder) you are in it for the long haul and there must be alignment in product, culture, legacy, with the potential acquirer so that you can continue to live with the deal moving forward.”
On tech startup IPOs
Ng feels that “IPOs are often over-romanticized and over-sensationalized. Founders must bear in mind that they will then be in for the long haul and be dealing with more stakeholders, including the regulators and the public’s interest.”
Ark added, “It’s not just about you wanting to go public. But why do you want to go public? That depends on where you want to be, where your market is, and how big that market is.
An entrepreneur who wants to list on a secondary board in Thailand is on a US$100m trajectory but another who wants to list on NASDAQ is probably on a multi-billion dollar trajectory, and those are two very different ambitions”
Ark also generously hinted that the IPO door has closed on all sharing economy business models that are not profitable, after the spectacular failure of WeWork.
On the startup landscape in Malaysia
Jeffrey Paine, Managing Partner, Golden Gate Ventures pointed out that, “When it comes to government support, Malaysia is #1. (Korea is #2, while Singapore is #3). To continue doing what they do and do it well is extremely difficult, and they will continue to get better with more engagement with the private sector.”
Azman Hood, Vice President of Cradle, added “Since 2014, Cradle has iterated on its grants, set up an equity fund, and introduced complementary programmes such as the Ideas Bank and policies such as the Angel Tax Incentives. These efforts leverage on stakeholder partnerships to support the founding journey and continuing to build the ecosystem.”
On advice for Malaysian founders
Paine shared “If you are an introvert, find an extrovert to introduce 5 people to you. But only 5 conversations/meetings per week, because anything more and you will burn out”
In the same panel, Paine went on to share his candid perspective on the odds of Malaysian startups, with this anecdote “The Top 50 startups in Southeast are copycats, of which 80 per cent are consumer-facing, and 80 per cent of those have the word Indonesian in it. This will give you a sense of where the money is.”
Paine elaborated on his firm belief, that “99 per cent of startups should not take VC money and it’s perfectly fine to be a 20-person SME that runs a decent profit to feed all employees.
The no. 1 problem now – the 99% think that they are the 1%. The second problem is that – the investors think the same way. Overthinking leads to money being inefficiently allocated, and now the angels are scared to invest after being burnt before.”
Paine’s final advice to Malaysian founders was that “Grants are important to give you a first short of getting towards a proof of concept. But the grant office is run by patent lawyers so getting it doesn’t mean you are VC ready.
If you are raising seed, also remember to talk to A and B VCs to get feedback first, before getting stuck in a particular direction only to realise you can’t raise the next round after 1.5 years in.”
Challenges for Malaysia’s startups
From Hood’s perspective, “The biggest challenge in Malaysia is the small market. It is a nice size as a testbed, but your business must have a regional play.
Singapore is the financial hub of the region that attracts global capital from (the likes of) Japan, China and the US. Rather than have a sentiment about it, be logical and systematic about having an office in Singapore to attract growth capital there as well”.
Paine echoed, “The idea cannot be a Malysian idea, it has to be a regional idea. So understand who’s doing the same Singapore, Thailand, Indonesia, and find out how they’ve figured it out. This is how startups that are based here should up their game over time.
Sometimes you are just a 1-country play, then find out how you can make money 10 different ways. So even if the govt shuts down 3, you still have 7.”
Don’t miss out on Johor anymore
For the handful of Singaporeans who eventually decided against attending BASE Conference 2020 due to traffic – it’s actually not that bad to drive up or bus in on a regular weekday morning.
I live in the west of Singapore, and it took me less than 40min door-to-door via the Second Link.
In 2017, I was with Lim at a Startup Weekend event in IskandarSpace where he first shared his vision for Johor’s community and Malaysia’s tech startup ecosystem. Since then, he’s run a couple more hackathons, published a Johor Startup Ecosystem Report, got married, embraced fatherhood, and completed an M&A to form Start Malaysia.
Much inspiration and huge respect for the man and his team – for having the passion, conviction and dedication to walk the talk.
To sum it up, Lim promised, “We are committed to continue running the event and to continue to grow this ecosystem here. Malaysia is not just about Kuala Lumpur. You can create a great company in Johor, and anywhere else in the world.”
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Image Credit: Author
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