With a weekend to mull over what the Malaysia Budget 2015 means to the local startups, industry players share their views on the measures Prime Minister Najib Razak announced, putting entrepreneurship and human capital as one of the country’s core strategies.
DEALSTREETASIA spoke to three executives: government-linked early stage funding provider Cradle Fund Sdn Bhd CEO Nazrin Hassan, Technopreneurs Association of Malaysia (TeAM) policy institute director Dr Sivapalan Vivekarajah, and mobile payment platform and service provider Soft Space Sdn Bhd founder and CEO Chang Chew Soon.
At a glance, what are your views on the measures the government intends to implement to spur local entrepreneurship and the startup scene?
Cradle: Malaysia has one of the strongest Government-supported entrepreneurship ecosystems in the world and that is reflected even further in Budget 2015. It is probably one of the most entrepreneur-friendly Budgets to have ever come about. There’s something for every kind of entrepreneur and quite a few goodies for the tech start-up community too.
We can see a few clear focus areas and thrusts. Among them, support on foreign market access, improving human capital, diversifying the talent capital of the ecosystem by infusing global talents, encouraging private investment via matching financing or venture capital, preparing mechanisms for institutional and angel involvement in investing in high-growth companies, improving public-private sector linkages and commercialisation and focusing on technologies that have a wide impact on the economy. It’s holistic and strategic.
TeAM: There is a lot being offered that will have a significant impact on entrepreneurs in general. For example, in terms of loan and investment there are programs like the Investment Account Platform for shariah compliant businesses (most tech companies would qualify), SME Investment Partner program which is a matching grant for investments (the private sector can start a fund with a matching grant from SME Bank the custodian of the fund) and the Bumiputera Entrepreneurs Startup Scheme (SUPERB).
There is also more funding for R&D and “C” (which is for commercialisation) including the Public Private Research Network and the Technology Commercialisation Platform Programme by Agensi Inovasi Malaysia. Even the Services Export Fund (SEF) totaling MYR300 million ($92 million) will help tech companies to export their services.
Soft Space: First of all, I have always believed that entrepreneurs are the future economy pillars of the nation. The establishment of Malaysian Global Innovation and Creativity Centre (MaGIC) is indeed a good start. As a matter of fact thanks to MaGIC’s e@Standford Program, Soft Space will be heading off to Stanford University in Palo Alto, United States next month!
There is an incentive to attract expatriate entrepreneurs, what do you think of this? Will this actually help the local startup scene or add unwelcomed competition?
Cradle: The biggest game-changing move, which is by MaGIC, is the expatriate visa and paid-up capital provided for expatriate start-ups to explore Malaysia as their preferred start-up hub. The Malaysian ecosystem needs to improve its exposure and visibility to the outside world and having start-up talents from across the world to consider basing themselves in Malaysia is a great first step. From the perspective of government support and market sophistication, Malaysia is a great test-bed for innovations like mobile applications and e-commerce. We need the talent diversity for the competition and the benchmarking will help local start-ups raise their game and know-how.
Secondly, this will help supplement the talent pool, particularly from both the business-savvy and technical talent aspects and help local start-ups find new ways to access the home markets of the foreign start-ups based here.
TeAM: Malaysia certainly has a lot to offer for startups that want to build something for the Asian market. We have a fairly sizeable and educated market that startups can use as a place to pilot any kind of product or service, the cost of doing business is low and we have a highly supportive government.
There is also a lot of talent that can be tapped for management teams and with MSC Status even these companies can hire other foreign workers where talent is lacking. The MYR75,000 ($23,000) startup capital for a work permit is not high and there may be other benefits they can tap when in Malaysia. If the government is successful at attracting foreign teams that means we are attracting talent and diversity to Malaysia and that can only be a good thing. Even if half of these teams fail we will still have done well.
Yes, it may add competition but if we want to build stronger Malaysian companies competition is actually very good. It will keep everyone on their toes and they will work harder to build a successful company. So I hope this is implemented and I look forward to seeing more foreign teams in Malaysia.
Soft Space: I applaud the government by working out an incentive to attract foreign entrepreneurs. It is a double edge sword, although it may seem to add on to the local competition, but this will also create job opportunities for Malaysians as well.
What do you think the government may have missed out in this Budget, for entrepreneurs?
Cradle: Offering matching investment or financing is a good start in attracting private capital, but it’s still very much reliant on the government providing the matching funds. We’ve missed the opportunity in Budget 2015 to offer tax incentives to larger enterprises who invest in technology start-ups and help rejuvenate the venture capital sourcing pool.
The Policy Institute of Technopreneurs Association of Malaysia (TeAM-PI) had made a good suggestion on introducing a Corporate Tax Incentive (CTI) where large companies are allowed a 1-to-1 tax deduction of up to MYR20 million ($6.13 million) per annum, if they invest in technology start-ups, either directly or via investment in a venture capital fund.
That would have absolutely jump-started the venture capital scene in Malaysia again, which is currently weakening and too dependent on government funding. We need sharper incentives and not just more matching instruments which push for direct government intervention.
TeAM: We have three proposals – Corporate Investment Tax Incentive, Double Tax Deduction for purchase of local products and services and better rules on bankruptcy. We will continue to push these proposals even though they were not addressed in the current budget because we think it will have a significant impact on entrepreneurship.
Soft Space: I would also like to see the government making further guidelines for this effort whereby more incentives can be given should the expatriate entrepreneur include a Malaysian co-founder in the startup.
What is the outlook like for the start-up industry in Malaysia, given the increasing amount of awareness and facilitation these new entrepreneurs get?
Cradle: We’re in a very exciting phase of development, I believe. Malaysia has produced six out of eight of the largest e-commerce companies in Southeast Asia, despite being a less exposed ecosystem than neighbouring Singapore. It has the volume of good start-ups and many of them has not only attracted venture capital funding in Malaysia, but also in Singapore. People recognise the quality of our start-ups. This is why the likes of iMoney, MyTeksi (Or GrabTaxi as it is known in Singapore), Soft Space, CatchThatBus, Carlist, Tribehired, and a few others, get funded by venture capitalists regionally and abroad, or get acquired by foreign companies.
Given what has been achieved in the past, the gap-filling, international visibility and diversity measures being undertaken for the ecosystem by the various players in the government and private sector, and despite all challenges, I think the tipping point for the Malaysian start-up ecosystem is coming soon. It has a very promising for the future.
TeAM: We have actually seen strong growth in startups over the last two years. This is due to more entrepreneurial programs and also a strong push by the government to encourage entrepreneurship as seen in the budget. This strong push by the government coupled with more success stories in the press (Jobstreet’s high value acquisition, MOL Global’s listing on Nasdaq, MyTeksi’s $35 million investment) add to the excitement of being a startup. The outlook is very good for startups.