By Gopi Ganesalingam. The author is the Vice President of Enterprise Development at Malaysia Digital Economy Corporation (MDEC).
Uber has exited the region, selling out to Grab. Was it a lack of appetite, being late to the game, or simply not understanding how to negotiate outside their home market in the US?
Before I come to that, here are a couple of intriguing stories that came to my mind when thinking about the intricacies of the local business landscape: First, the Malaysian used-car platform company, Carsome raised US$19 million in March 2018. The funding was led by Burda Principal Investments, through their Singapore office. StoreHub, a Malaysian company that built a Cloud-based Point of Sale(POS) application that is used by 3,000 retail stores across 15 countries, raised US$5.1 million from Vertex Ventures. Vertex, an investor in Grab, is owned by Singapore’s Temasek Capital.
Then you may remember that last year, Soft Space, the Malaysian Fintech company raised US$5 million from Japan’s Transcosmos. Carsome, StoreHub and Soft Space, join almost 3,000 other companies that have been accorded MSC (Multimedia Supercorridor) status by Malaysia Digital Economy Corporation (MDEC). Since its inception in 1996, MDEC has been actively pursuing Malaysia’s digital agenda. This was done by initially encouraging technology companies to set up in Cyberjaya, and then bringing in shared services companies, and now by working to build globally competitive Malaysian headquarters companies.
In my last article, I provided examples of the first generation of Malaysian companies, many of whom achieved billion-Ringgit valuations with very little capital. Starting with founder’s money, these companies at best raised two to three million US dollars, which had to take them straight to an IPO. With few exceptions, except Grab and iflix, which raised US$ $170 million, Malaysian companies have not appeared on the radar of major VC firms.
Money Chasing Malaysian Deals
Well, as they say, times have changed: Money is now chasing local deals because of the ability of Malaysian companies to navigate the fragmented and tightly regulated markets of Southeast Asia. This is very important to note, as this is changing the landscape in Malaysia.
N2N Connect, a company that provides securities trading platforms used its Malaysia-base to grow into the region. We are fortunate to have a forward-thinking central bank. In addition to allowing for crowd funding platforms, and a sandbox for testing of new products, Bank Negara Malaysia (BNM) recently finalised electronic Know-Your-Customer (e-KYC) guidelines.
This is a huge step, allowing for much faster and more seamless customer acquisition. These guidelines made it possible for Internet payment provider iPay88 to launch a virtual account for the “unbanked” market.
I am pleased that MDEC has continued to play an active role in building the ecosystem that has allowed these companies to flourish. We maintain a constant and consistent dialogue with several stakeholders, including BNM and the Ministry of Higher Education – where we led the push to introduce coding classes in schools. While we continue to work on the digitalisation agenda, we recognise an urgent need to bring larger VCs into Malaysia.
Companies like Carsome, StoreHub and Soft Space are building businesses, which are like utilities. There are differences though if one was to compare them with Tenaga or Celcom, Maxis and Digi. What are the differences? Utility businesses have large capex needs but their business is protected by licenses. They didn’t start off with a small bunch of customers and build the infrastructure from customer revenues; that business model just doesn’t work that way. Build a small power plant in Petaling Jaya, supply a few hundred customers and from the revenue build a megawatt plant. Big money is raised up front.
Scale-up at Speed
Well, the startup guys don’t have the protection of a license, so they start with a small bunch of customers and what is typically called a “Minimum Viable Product.” They then get feedback, gain traction and often go through a few product iterations. Once that has been achieved they need money – lots of it – to build the infrastructure, delivery capability and capture market opportunity ahead of potential competition. As we say in MDEC, it’s a matter of “Grow Fast and Go Global”.
Just last week, Zilingo, a Singapore based start-up raised US54 million for an expansion into the region from their base in Bengalaru, capital of the Indian state of Karnataka. That’s big money! The company provides a platform for customers to browse and buy fashion products from retailers in Southeast Asia. Since inception in October 2015, Zilingo has raised US82 million, to launch in Thailand and expand into Malaysia, Indonesia, the Philippines and Vietnam. Like other platforms, the technology relies on artificial intelligence – AI – to learn buyer behaviour and then propose the “right” product.
The need to achieve scale and leverage on engineering capability probably led GHL Systems Berhad to acquire rival company Paysys (M) Sdn Bhd for RM80 million, with half paid in cash and the balance in shares. GHL is no stranger to corporate exercises. In 2013, GHL acquired e-Pay Asia Limited, a company founded by Simon Loh, now vice-Chairman of GHL. Local PE firm, Creador, sold its stake to Actis in 2017, and they are now are pushing for growth in the payments, or fintech space, which is seeing a lot of new entrants.
Malaysia on the VC Map
Digitisation coupled with the porosity of borders has meant that competition lands at your doorstep almost from the word go! Scale and speed of growth are important and the fuel for that is cash – and plenty of it! This is one of the reasons why MDEC is pleased to have attracted Vickers Venture Partners, to open their Kuala Lumpur office.
The presence of Vickers on our shores is yet another indication of investor interest in Malaysian-originated deals. Have we done enough to put Malaysia on the map? Only time will tell, but the good news is that investors are now getting off the plane at KLIA. At MDEC, we are busy making sure they continue to keep Malaysia firmly on their radar.
One major initiative we are working on this year is the “Sea Dragon Venture Platform” event scheduled for 10-11 May 2018. Organised by PIKOM, MDEC is pleased to support this major initiative that will see 30 global VCs and corporate investors visiting Kuala Lumpur. About 35 technology companies from Malaysia and the region have been shortlisted to pitch at this event. SEAD are targeting companies that have the potential to be leading players in the Asian and North Asian markets that are looking for growth capital of US$5-25 million. This event is also an opportunity to showcase to the region why having a start-up to scale is best done from Malaysia.
It’s time to “Grow Fast and Go Global,” which is in line with MDEC’s globalisation strategy; “Building Local Tech Champions!”