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B. SCALING UP WITH GROWTH-STAGE FINANCING
As companies enter the next stage of growth, they may seek to scale up their businesses and operations, whether domestically or by expanding abroad into new markets. Ticket sizes of growth-stage funding rounds will be correspondingly larger as such companies begin to compete against larger incumbents or well-funded competitors from other markets. Of the top 20 Malaysian startups that have reached this stage in the last decade, most typically seek funding from foreign funds3, as most domestic VC and PE management firms currently lack significant scale, fund size and risk appetite. The lack of market depth and appetite for riskier investments among local corporates and institutional investors handicap the ability to finance growth-stage companies domestically, or worse, result in deals being done at depressed valuations. As such, Malaysia sees reduced ownership of such businesses as they grow into regional or global champions.
To strengthen growth-stage financing in Malaysia, participation from institutional investors such as pension funds, insurance companies, investment institutions and corporates is key. To bridge this gap, co-investments may serve as a good mechanism for risk-sharing between institutional investors, and could crowd in further market participation. Various government-led co-investment models seen domestically and globally have been set up to catalyse public and private co-investments through private markets. Such models not only serve to align development to the country’s growth thrusts, but also to develop the domestic VC and PE industries and their talent. In this respect, the SC will continue to work alongside relevant agencies and investment entities in Malaysia to develop VC and PE talent onshore and shape the growth of domestic VC and PE players. Larger institutional investors such as pension funds and insurance companies can also adopt similar co-investment models with partner VC and PE funds.
Large enterprises are essential ecosystem partners in spurring innovation. Corporate venturing is increasingly a common practice for businesses to stay abreast of technological developments and stay ahead of the competition. Such programmes do vary, ranging from vendor technology demonstrations to more structured incubation, partnerships and investment programmes. Successful corporate venture programmes benefit investee companies in many areas beyond funding. In most cases, these corporates become reference clients for investee companies, thereby providing strong credentials for investee companies to approach other potential clients or partners. Investee companies may also gain access to the corporates’ wide network of clients and suppliers as well as a wealth of accumulated data. In return, corporates may gain access to new capabilities, market insights or technologies, instead of developing these organically. This symbiotic relationship can be an effective catalyst towards a more vibrant innovation ecosystem.
Educational programmes could be explored to promote awareness and educate business leaders on the approaches and benefits of corporate venturing. Existing incentives intended to promote VC and startup investments in general may be reviewed to enable corporate partnerships and co-investments. New incentives and promotional programmes may also be introduced to attract credible ecosystem partners such as incubators, accelerators and venture builders to build a bridge between startups and potential corporate partners. Programmes promoting FDI may also include a focus on creating business opportunities for startups through partnerships, investment or innovation programmes. This is an area that requires collaboration between stakeholders in the broader ecosystem. The SC will continue to work with relevant stakeholders and contribute towards a collective effort in building a more vibrant ecosystem.
Crunchbase; Internal analysis, SC, 2020.
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