From risky investments to low-cost innovation drivers

STARTUPS can be a risky investment for investors due to its high chances of failure – up to 90 per cent, according to statistics from Forbes.

Despite this, many investors are still interested in startups because with great risk often comes great reward.

Larger corporations have traditionally shunned startups as many take more pragmatic approaches by avoiding high risk investments.

Rather than viewing startups as a risky investment, Norman Matthieu Vanhaecke, the acting chief executive officer of Cradle Fund Sdn Bhd (Cradle) is hopeful that large corporations in Malaysia and the greater region will begin to look at the startups from a different perspective.

Drawing on his own extensive experience within the corporate world, he shared in an interview with The Borneo Post that a key issue that many companies face is the high cost of innovation as often times the exploration of a new solution or service requires a large amount of internal resources that can go up to hundreds of thousands of millions.

“Now compare that to a company that has just decided to outsource that to a startup who might just be a small team working from a co-working space.

“It will cost them very little in comparison and that is why I we believe that the cost of failure for startups is actually very small,” Norman opined.

He added that one of Cradle’s initiatives have been to bridge this gap between corporations and startups.

So far, their outreach efforts to corporations have been encouraging thus far as the group has worked with the likes of Tenaga Nasional Bhd (TNB), Maxis Bhd (Maxis), and Petroliam Nasional Bhd (Petronas) in facilitating collaborations between these giant corporations and local startups.

“More corporations are recognising the value startups have in helping solve their problems, and at the same time, it helps the startups to give them the opportunity to work with big companies.

“So, it’s a win-win situation for both,” Norman shared. 

Angel investors, private funding still crucial for startup ecosystem in Sarawak

INCREASING interest from private companies in Sarawak’s startup ecosystem is greatly beneficial to the nurturing and unearthing of new startups.

However, for Sarawak which is still very much just developing its startup ecosystem, Norman highlighted that the need for angel investors for early stage funding is equally important.

He highlighted that Cradle Fund had assisted the Malaysian Business Angel Network (MBAN) Sarawak chapter recently as they are resolute that it will be a crucial step to encouraging more private sector investment into early-stage startups.

Angel investors are high net worth individuals who invest their own money directly into emerging opportunities.

He explained that drumming up interest for investment was a challenge that many early-startups will face as investors tend to prefer late-stage startups that have already operated for two to three years and proven their ability to generate revenue and growth.

The presence of MBAN in Sarawak would allow more local startups to have increased accessibility to potential early-seed funding.

“This is actually a very key milestone for the development of the early stage startup ecosystem in Sarawak because with this, you have increased funding in the ecosystem and more startups can be developed or unearthed in the state,” he explained, emphasising the significance of these investors in funding startups.

He added that the conception of MBAN has been beneficial to Malaysia’s startup ecosystem as well as it allows both investor and investee to be formally validated.

Sustainability, self-belief crucial for startup success in today’s world

WHEN asked for his opinion on what makes a startup successful, Norman believed that startups need to have a strong mind-set that focuses not only on profitability but also sustainability as investors are now increasingly looking beyond just high valuations and are emphasising the long-term sustainability and profitability of startups.

Moreover, he highlighted the growing importance of environmental, social and governance (ESG) factors in investment decisions, underscoring the need for startups to align with these considerations that have become increasingly mainstream in economies around the world.

Besides that, Norman underscored that startups and their members need to have a strong belief in their own product or services in order to truly success.

“Not everyone can be startup and people should be aware that they are many failures in the startup ecosystem,” he cautioned.

“At the same time, we can’t tell an entire generation that they cannot succeed just because there is risk. Even if you work in a government job or a big private company, it doesn’t mean it does not have risk, companies can close down and roles can be retrenched.

“Instead, I think the most important thing that startups need to have is self-belief, you have to believe in yourself and your idea so that you will work hard for it and be able to endure the long road to success,” he reasoned.

With that said, Norman’s last piece of advice to aspiring startups is unequivocal; “Come to MyStartup.”

With a plethora of development programmes, funding opportunities and a mature networking database, Norman believes that Cradle is poised to empower aspiring entrepreneurs, providing them with the necessary tools and knowledge to navigate the complex startup landscape in Malaysia.

As the world continues to rapidly advance with new technological advances, he shared that the two key things he hoped to achieve at Cradle is to continually push for the importance of startups in the country’s drive towards innovation and to bridge the gap between startups and larger corporations.

Cradle Fund, established in 2003 under the Ministry of Finance, has evolved into a driving force in nurturing early stage startups across the country. Under the Ministry of Science, Technology and Innovation (MOSTI), Cradle Fund’s expanded mandate focuses on catalyzing growth and sustainability within the startup landscape.

Norman highlights Cradle Fund’s journey from its original mandate of funding startups to its current status as a facilitator of startup development.

The agency’s efforts extend beyond financial backing, encompassing various programmes, coaching, and initiatives that cultivate the growth of startups.

The group’s MyStartUp initiative takes center stage, with the My Startup Portal being a central repository of Malaysian startups, services, and fund providers. The portal, launched in November 2021, acts as a networking database for both startups and investors alike. As of July 2, 2024, it has over 3,688 registered startups, 473 registered investors, 65 registered organisations and 91 registered service providers.

The initiative is supplemented by programmes such as MyStartupHackton, MyStartupPre-Accelerator, MyStartupAccelerator, MyStartupDev, and MyStartup NXT series of microconferences.

These capacity-building initiatives empower startups with essential skills, networking opportunities, and valuable mentorship. Over 1,923 startups have benefited from its initiatives thus far.

Sarawak an emerging tech hub with unique issues

AS the Southeast Asian (SEA) region continues to develop and embrace the new digital era, Sarawak has emerged as an intriguing prospect for both tech startups and investors alike. A relatively new market that is strategically located, the state has been herald as a potential new tech hub for the region.

A recent panel discussion entitled, ‘Sarawak: An Undiscovered Launchpad to Southeast Asia’, has helped shed some light on the region’s untapped potential as a launchpad for technology based startups in SEA.

The panel which was hosted at Cradle Fund’s MYStartup NXT conference held in Kuching on July 11 featured several key figures in Sarawak’s burgeoning startup scene.

The panellists – Evolving Brilliance Technology Sdn Bhd (EB Tech) founder and director Moses Lenjau VinSien, UAS Mapping Sdn Bhd (UAS Mapping) director Aaron Tan, and Karuna (Sarawak) Enterprise Sdn Bhd (Karuna) CEO Melvin Ong – delved into various aspects of the startup ecosystem in Sarawak and explored ways to propel it onto the global stage.

Work-Life balance, low costs, and strategic location

Kicking off the panel, Ong who founded Karuna a full-service web design and digital agency since 2009 underscored the cultural diversity and serene lifestyle Sarawak held as a boon for grounding oneself amidst a hectic work schedule.

He also praised Sarawak’s ease of transport compared to the congestion often experienced in larger cities like Kuala Lumpur or Penang, as it helped to further contribute to the much needed work life balance that many employers are now seeking for their workforce.

Tan a director of mapping and geospatial engineering solution provider UAS Mapping, highlighted the cost effectiveness of doing business in Sarawak and its strategic position within Asean that makes it an attractive hub for startups as it allows for easier expansion and growth into surrounding regions.

“A clear advantage in Sarawak is that the cost of doing business here is quite low. It’s slowly increasing but in comparison to other areas in Malaysia, I think there is still a great value proposition now, especially as it is well connected regionally to the rest of Asean.”

He added that proximity to the upcoming Nusantara, the new capital of Indonesia is an especially prominent advantage.

He detailed that UAS Mapping had been in talks with several Indonesia partners regarding the expansion of their services in Indonesia and as such believes that there would be wealth of opportunities for tech companies operating in Sarawak to expand regionally.

Beyond that, Tan also noted that as the region is still developing; it is relatively unsaturated which presents prospective startups the opportunity to capitalise on a “real blue ocean situation”.

Rise of agrotech, and the need for an open economy

When asked about what potential sectors would be up and coming in the state, the panellist agreed that Agrotech would be a sector to keep an eye on.

Moses, a founder of EB Tech, an AI and Deep Tech solutions provider focused on the agriculture sector, detailed that he believed tech solutions that helped to improve efficiency, productivity and yield of palm oil estates would be greatly desired as palm oil continues to be the major GDP contributor for both Malaysia and Indonesia.

Additionally, the panellist shared that they believe food security would also play a pivotal role in agrotech’s anticipated rise as Sarawak and Sabah continued to suffer one of the highest inflations rates for food and beverages within the country.

According to industry analysts, the cause for these high inflation rates is due to Sabah and Sarawak’s high import dependency towards major food items such as rice, fruits and vegetables, and seafood. And this is further exacerbated by high trade deficits that cause less favourable shipping rates.

To encourage this rise of aggrotech and other potential sectors, the panellist argued that due to the borderless nature of the digital era, it is imperative that the state adopt a more open economy rather than a regulated one.

They stressed that an open economy and warm political relations would encourage collaboration with emerging centres of economic activity such as Nusantara and Thailand while also encouraging an inflow of trade and investment from established areas and countries like Kuala Lumpur and Singapore.

They argued that only though the fostering of economic integration, supply-chain and cross border investment with surrounding economic hotspots could Sarawak begin to discover as a potential tech hub within the region.

Attracting Investors

But besides deploying a more open economy, the panellists also concluded that there needs to be improved market access programs and increased exposure for existing local startups in order for them to increase visibility and grow on the global tech stage.

Panellists suggested that these initiatives, supported by government entities like Tabung Ekonmi Gagasan Anak Sarawak (Tegas) and Cradle, would boost startups’ competitiveness internationally.

They also suggested that providing investor assurance and or showcasing the potential for returns on investment was one of the many ways to instil investor confidence in not only the local tech scene but the Sarawakian economy on the whole. 

The Persisting Talent Gap Issue and Potential Solutions

When asked about the main challenges that Sarawak faced in attracting tech startups and investment, the panellists unanimously agreed that the main issue the state faced is its scarcity of skilled local talent, especially those in specialised fields like AI.

In particular, Ong and Moses shared that their own companies have had issues addressing this challenge and have ended up moving the bulk of their workforce to Kuala Lumpur offices to address the talent gap they faced in Sarawak.

Interestingly however, Sarawak is not lacking in IT graduates as Ong pointed out that the University of Malaysia, Sarawak (Unimas) produces the most IT graduates in the country.

The panellist explained that this paradox is largely due to immigration policies that disqualify the bulk of non Sarawakian graduates and the allure of greener pastures elsewhere enticing away Sarawakian graduates.

“Many of those graduates come from all over Malaysia but majority of them, even if they did their internship in Sarawak will end up leaving as our immigration department requires non Sarawakians to have at least three years of working experience and to be at least 27 years old in order to qualify for a work visa,” Ong explained.

Meanwhile for local Sarawakian graduates and talent, Moses shared that from his own experience; he believes Sarawakian engineers are some of the most talented engineers he has come across in his career.

“However, the majority of them are not available locally, and we have lost them to brain drain to countries or places like Singapore or KL where they have more opportunity for employment,” he said.

In order to address this talent gap within the state, both Moses and Ong believe that it would be best if a collaborative effort between the public and private sector was employed.

Ong explained that while the cost of upskilling the existing local workforce is costlier compared to hiring a skilled team member outside of Sarawak, he believes that local companies and startups will need to take on that additional cost if they want to address the issue of the talent gap locally.

He suggests that local companies should try to facilitate more knowledge transfer by recruiting more specialised and talented professionals to join their local workforces and help build a more competitive local tech workforce.

However, he acknowledges that the current immigration policies can be a barrier as even if a talent meets the requirement of a work visa, as the process of obtaining a visa is often lengthy and complicated.

“If the government is open to actually allocate a quota for each tech company, which we can use, perhaps based on your size, then we will be able to fast-track the application.

“Hopefully, the state government could be able to look into that because I think that would be a very quick fix to helping the state realising its goal of becoming a tech hub in the region,” he suggested.

Meanwhile, Moses stressed on the importance of initiatives that bring back skilled workers from overseas.

While there is no one clear answer on how to achieve this, Moses shared that it would need to be a collaborative effort undertaken by both local businesses and government bodies alike in order for these initiatives to be successful.

Source: https://www.theborneopost.com/2023/08/13/changing-perspectives-on-startups/