Start-ups making positive impact
Calyn Yap 
There is more money coming from China-based venture capitalists compared to US-based ones, says Lauria

THE regional start-up ecosystem is changing as it matures, with the first wave such as Grab and Uber forging a path for second-generation successors.

Some experienced entrepreneurs from the first generation are also moving ahead to create new start-ups.

Additionally, funding is now more readily available as more venture capitalists and investment funds turn their attention to start-ups.

Ngoo says the future start-up scene will be about solving fragmentation in the region

This was the view of Fave founder Joel Neoh, HappyFresh Group CEO Guillem Segarra and Carousell co-founder and chief technology officer Lucas Ngoo. Their firms are all start-ups.

Venture capital firm Golden Gate Ventures founding partner Vinnie Lauria also concurs. They were speaking at the CNBC Exchange panel series held recently.

On the outlook of the start-up scene in Malaysia and the region, Neoh says it is heading towards consolidation in the coming decade.

“While the start-up scene was very fragmented in the last five to 10 years, I see a lot more mergers and synergistic partnerships, over the next five to 10 years.

“There will be a collaboration with partners instead of firms going it alone.

“There’s a win-win value and China partnership models, in particular, are more relevant,” he says.

Ngoo says in the coming years, the start-up scene will be about solving fragmentation in the region, such as logistics and last mile fulfilment issues after a slew of heavy investments in digital literacy to educate consumers to go online.

Looking for smart money

There is more money coming from China-based venture capitalists compared to US-based ones, but the latter is also eyeing the region due to its potential, says Lauria.

He says: “The quality of start-ups is growing very rapidly and there’s growth that I see continuing over the next few years.

“The mobile-first trend separates the region from the rest of the world. I don’t see anything going terribly south for the next three years.”

Seeking funding was “really tough” five years ago and although investments in the region have accelerated since then, Ngoo says fundraising has become more competitive as well.

“There’s more funding available, but start-ups have to stand out too. While having a great product is important, they also have to show good growth and monetisation opportunities,” he says.

Start-ups must not lose focus on their value proposition, says Segarra.

Segarra says start-ups need to adapt strategies based on their surroundings, but they must focus on the value proposition.

Neoh, on the other hand, feels it is important for start-ups to identify which investors they approach depending on the stage they are in.

Neoh feels it is important for start-ups to identify which investors they approach depending on the stage they are in

“Different investors are needed at different stages. Every funding source is helpful, but sometimes angels can disrupt start-ups,” he says.

He categorises start-up investors into three types. The first are those that offer purely financial aid.

Next are those that provide support and funds, and finally, those that provide strategic value and funds.

The three start-ups believe the entry of e-commerce giant Amazon and Alibaba to the region benefits the industry as a whole.

This is because of the deep pockets and marketing dollars that such large corporations can invest to bring consumers online and push for better fulfilment services in the market.

Instead of competing head-on with such corporates, start-ups can instead focus on specific niches or localise their products or services which give them a competitive edge.

Tracking start-up trends

THERE are about 350 to 650 technology start-ups in the region, says the Startup Genome Report 2017.

And Treasury secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah says the companies have proven to positively impact and grow the economies from where they originated.

He points to examples such as Infosys, which created a new wave of wealth among middle-class employees in India, Alibaba which transformed the SME trade scene in China, and Go-Jek which provided jobs for millions in Indonesia.

“These giants had humble beginnings.With their innovative ideas that addressed the communities’ current and emerging needs, and the right support from agencies and financial institutions, they are now contributing to economic dynamism, spurring innovation and injecting competition,” he says.

Closer to home, the country’s start-up ecosystem is relatively well developed compared with others in the region.

Malaysian Global Innovation and Creativity Centre (MaGIC) CEO Ashran Ghazi says Malaysia is heading in the right direction with its start-up ecosystem.

This is because new ideas are being built by emerging entrepreneurs, owing to the prevalence of “heavy involvement” by the private and public sectors.

Ashran says: “Start-ups have the mobility and flexibility to shift and adapt in ways a large conglomerate can only dream of.

“Recognising this, corporate bodies can seek start-ups to help them kick-off fresh ideas that benefit both parties.

“Start-ups are also driving innovation in tackling various issues across different industries by disrupting the traditional ways of doing things. Notable examples are Grab, Fave, ServisHero, Kaodim and Recommn.

“We seem to have quite a number of start-ups in the e-commerce space and it is not surprising.

“Online retail is becoming the bedrock of consumers while some e-commerce companies in the online retail space are among the most valuable internationally,” he says.

The International Trade and Industry Ministry indicates that e-commerce contribution to the gross domestic product stood at around 5.8% last year.

In the same year, a PwC consumer survey report showed that 48% of consumers reportedly make monthly online purchases.

This is why, he says, start-ups view online retail as a business reality. This is backed by MaGIC’s experience with the previous three cohorts of the MaGIC Accelerator Programme.

Fifty-eight percent of start-up participants in cohort three tapped into e-commerce with their product or service offerings, while it was 66% for cohort two and 50% for cohort one.

The financial technology (fintech) trend is a small segment that is now seeing high growth, even though it operates in a highly regulated space.

Fintech’s transaction value in the country is expected to grow at an annual rate of 21.4%. This is because digital technology is taking the financial world by storm.

Similarly, the Smart City concept is fast gaining global traction. Malaysia’s organisations are starting to realise its potential, with a number of hackathons dedicated to the Internet of Things last year.

Despite its vast potential, he says the number of start-ups in this vertical remains “rather small”.

Social entrepreneurship is another area of interest. It is still in the “embryonic” stage in Malaysia.

But the impact investment – meaning the investment in social ventures that demonstrate the ability to deliver scalable impact with attractive financial returns – is on the rise.

This article first appeared in Focus Malaysia Issue 253.