Startups in Malaysia have good ideas and products but they will need to work on the business end to gain new deals and attract conservative Asian investors. They should also be more diligent in tracking their expenditure, one angel investor says.
Johnathan Lee, vice president of commercialization and ventures at Cradle Fund, an agency under the Malaysian Ministry of Finance, said it is natural for entrepreneurs to focus more on developing their technology and be protective over this area. But it is necessary for them to recognize that if their strengths are in IT, then they should hire people who are capable of building the business side of things, he added.
After all, having the product and technology is just one component of building a startup into a sustainable business, and a good one needs a strong team with people who can hunt for deals and be diligent in tracking the company's expenses and spending, Lee told ZDNet Asia in an interview Wednesday.
Entrepreneurs will need to put in effort to recruit the right business development talent, though. In Malaysia, specifically, he said there are a lot of talented professionals in this field but not all are suitable to work in a startup environment.
The ideal employee should be more than just a salesman, but understand the company's product thoroughly in order to sell the company, he added.
A lot of people ask: 'Can we be the next Silicon Valley?' I don't think we can and I don't think we want to because that is not our strength.
This is why one of Cradle Fund's efforts is to help Malaysia-based startups to build up their business development skills. The angel investment firm, which is a non-profit agency under the country's Ministry of Finance, advises companies on how to strategize and negotiate deals in addition to providing early-stage funding, he explained.
Silicon Valley template not replicable
Lee did acknowledge the need for startups to work on business development is common and not limited to just those in Malaysia. But it is more of a challenge for those based in Asia compared to destinations such as the United States due to the difference in tech maturity and business models, he said.
For instance, investors in Asia often want to understand the revenue model and traction of the startup's business before funding the company. In contrast, investors in mature markets such as Silicon Valley in the U.S. are willing to invest in companies with good products even if they have yet to figure out a clear monetization plan, he noted.
The investors in mature markets understand that they are not the subject experts in the field they are investing in, so they are happy to let the company that will buy the startup in the future to worry about monetization strategy, he explained.
"That's a different mindset. But we don't have that luxury in Asia as the market's limited and technology adoption is slow," Lee said.
"A lot of people ask: 'Can we be the next Silicon Valley?' I don't think we can and I don't think we want to because that is not our strength."
Malaysia-Singapore partnership beneficial
The executive pointed out the Malaysian government is taking a proactive role in helping drive the country's tech startup scene. One of its initiatives is to introduce a tax incentive which will allow angel investors to use investments in startups to offset their personal income tax, Lee said, adding Cradle Fund had a hand in making this a reality.
While the country has similar initiatives in the past, he said the previous tax relief was only applicable to the company income tax. This meant high net worth individuals with salaries could not offset their personal tax income, he elaborated.
The Malaysian government is unlikely to pump in as much money into the startup scene as its neighbor Singapore, though. "Although we do offer grants in Malaysia, it's not at the sum the Singapore government is giving away," he said.
Singapore is the financial hub of Southeast Asia, and this means there is a lot of capital in the market, Lee noted. The constraint is in the limited amount of talent in the city-state.
"The government realizes this, that's why they are able to offer large amount of funds to attract [foreign] talent into Singapore," he said.
The level of funding Singapore provides meant it is "difficult" for Malaysia to develop local talent and keep them in the country, the executive admitted. Some advantages the country has over its Singapore counterpart are low rent and cheaper cost of talent, he said.
However, rather than compete with each other, Lee said Malaysia and Singapore should collaborate more.
In a follow up e-mail, he noted that the countries can work together through syndicated co-investments in which investors from both country pitch in a fund to invest in different startups.