Start-ups hobbling along | The Star

MALAYSIAN technology, especially start-ups, is largely perceived to be struggling.

This is despite support for commercially viable ventures which can become sustainable after some time, except for the inevitable funding rounds for growth.

The Madani Economy framework envisions start-ups as a key factor in restructuring the economy. While most will not become successful, those who do will disrupt the old-economy industries and boost the value chain for the services and manufacturing sectors, which generate most of the jobs in the local economy.

More importantly is the spillover effect, the dynamism in the domestic economy, as start-ups bring a critical mass of talent, ideas and innovation that attract more of the same.

A major reason why tech start-ups struggle here may be the government’s overwhelming presence. Often, government-linked companies (GLCs) in the economy tend to crowd out the private sector.

Funding of start-ups is critical, again reflecting the heavy government presence. The Malaysia Start-up Ecosystem Roadmap (SUPER) 2021-2030 report says there is a lack of private sector-driven funding. Government-owned venture capital (VC) firms are supporting start-ups in direct competition with private VC firms, while also being shareholders.

Government does not always know best, even if it has the funding. While a total of RM1.3bil has been approved or channelled into the five government-owned VCs (9th to 11th Malaysia Plans), the report suggests that the government should instead act as an enabler, reduce the role of its VCs and encourage private sector investments through tax breaks and matching grants.

The report notes that increased private sector participation in financing start-ups will also increase the pool of funds. It will also ensure investment momentum at the later stages of a start-up’s life cycle.

Dr Sivapalan Vivekarajah, senior partner at Scaleup Malaysia Accelerator, says the move to consolidate the government agencies and VCs will provide clarity on responsibilities and improve access to funding.

Lack of talent is also holding back start-ups. More than talent, entrepreneurship to launch and sustain a start-up is important.

As Hian Goh, founding partner of Openspace Ventures, a Singapore-based VC, says, “The key is to create a breakout mentality and a sense of derring-do, which in time will yield success and inspire the younger generation of Malaysians.”

To get there, however, a sufficient pool of talent is needed. This means an education system that nurtures students who go on to tertiary education.

This is severely lacking. The latest Programme for International Student Assessment (PISA) report shows Malaysian 15-year-olds scored less than the average for Mathematics, Reading and Science compared to Organisation for Economic Cooperation and Development (OECD) peers. Their average PISA scores in 2022 were down compared to 2018 for all three areas.

Sivapalan says the local school curriculum is not keeping pace with technology developments.

“We need to fix this and fix it fast. The prime minister has stated that there will be greater emphasis on English and this is good, but we also need greater emphasis on Science and Maths so that we can fill the talent gap that is looming,” he adds.

To fill the talent gap and to create a large pool of talent, the SUPER initiative acknowledges the necessity of attracting and retaining foreign talent.

Accordingly, Budget 2024 has launched initiatives under the Malaysian Visa Liberalisation Plan that aim to ease approvals for employment passes in strategic sectors as well as enabling international graduates to meet industrial skilled personnel needs through long-term social visit passes.

Under Budget 2024, GLCs and government-linked investment companies will provide up to RM1.5bil to help domestic tech start-ups scale up and expand globally. This includes encouraging Bumiputra entrepreneurs to venture into fields such as the digital economy, space technology, and electrical and electronics industries.

There are other initiatives under Budget 2024, but these again require funding. It is unclear whether or how the government will be involved. Is it going to be an enabler as recommended in the SUPER report or will it be a shareholder as usual?

This article first appeared in Star Biz7 weekly edition.