Knowing Malaysia | Attracting Capital and Investment in a Malaysian Way
By: Megaone Ventures
Tags: Southeast Asia, Enterpreneurship, Malaysia Startup, Venture Capital, Solar Energy

Establishing a successful startup has never been an easy feat. It takes time and effort to understand consumers, build quality products and consolidate the market. Sustaining a startup’s momentum and transforming it into a billion-dollar unicorn that transcends geographical border, culture and its core business is even more challenging, if not insurmountable given the competitive landscape.

First started as a ride-hailing service provider in 2012 and later evolving into a regional super-app offering services ranging from food delivery to financial services, Grab has defied all odds and established its dominance in Southeast Asia. Grab currently operates in 11 countries and 235 cities, and its green logo has been one of the most recognizable in this region.

First land in Kuala Lumpur International Airport in Malaysia and you come across green billboards welcoming you to Grab your way around during your travel. Go into the streets and you see Grab-food deliverers with ubiquitous Grab jackets and Grab helmets zigzagging their way to deliver food to customers. Grab wallet, one of the three main e-wallet providers approved by Malaysia’s government under the e-Tunai scheme, a cashless payment program is also widely used in performing daily transactions. A life in Malaysia is indeed a life that revolves around Grab as epitomized in Grab’s ambitious slogan, “ Your EVERYDAY and EVERYTHING APP”.

Many have known Grab as the first unicorn from Southeast Asia and based in Singapore, but little do they realize that Grab was initially a Malaysian idea, cultivated and brought to life by two aspiring Malaysians, Anthony Tan and Tan Hooi Ling. Grab left Malaysia and moved its base entirely to Singapore in 2014 due to the regulatory constraints in Malaysia concerning capital raising and greater subsidies and funding opportunities provided by Singapore. It is perhaps the greatest missed opportunity for Malaysia and a bittersweet moment in Malaysia’s startup history.

While Malaysia has missed the first start-up wave in Southeast Asia as all unicorns either originate from Singapore or Indonesia, it certainly has the ingredients necessary to become the next cradle of amazing startups in Southeast Asia.

A regional digital hub in the making

Having gone through the soul-searching in the aftermath of losing Grab to Singapore, Malaysia’s government enacted policies that support technology startups and optimize digitalization by establishing a robust infrastructure and technology ecosystem.

Under the Eleventh Plan, Malaysia outlines its aspiration to drive and promote technology and its integration in key industries including commerce, logistics and artificial intelligence to prepare for the fourth industrial revolution. National eCommerce Council (NeCC) was founded in anticipation of the skyrocketing e-commerce business and to better coordinate policy making among different private and public stakeholders.

The creation of the Digital Free Trade Zone (DFTZ), a brainchild of Malaysia Digital Economy Corporation, China’s Alibaba and Electronic World Trade Platform serves to drive seamless cross-border trade and streamline relevant regulations. DFTZ removes critical barriers to e-commerce growth by enhancing Malaysia’s cross border logistics capability and international payment system. Companies including Pos Malaysia, GDEX and Malaysia Airport Holding Berhad play an instrumental role in building up the warehouse facility and regional logistics hub to smoothen the flow of goods. Besides, local banks such as Maybank and CIMB have participated in Alipay’s initiatives to expand its cashless payment service to merchants in Malaysia, thus easing cross-border trade between Malaysia and China. Coupled with its strategic location within KL Aeropolis, Malaysia’s DFTZ became a logistics center capable of handling $65 billion worth of goods annually, a startup and talent hub that powers e-commerce and supports tech-savvy entrepreneurs.

The efforts go beyond a new-generation free trade zone and instead focus on establishing a wide-ranging digital ecosystem. To propel Malaysia’s digital economy, the government, through the National Fiberization and Connectivity Plan channeled more than $50 billion investment into upgrading its broadband infrastructure to ensure fast and expansive connectivity, a pre-requisite to digitalization, automation and robot application in manufacturing, data transmission and analytics. In 2020, Maxis, the largest telco-operator in Malaysia signed a memorandum of understanding with Huawei to jointly promote the deployment of 5G operation and its business application.

Malaysia has been one of China’s most reliable partners in the world as demonstrated in its advocation for the One-Belt-One-Road initiative. To date, both countries have signed a five-year economic cooperation plan, RMB Qualified Foreign Institutional Investor program and free-trade agreement. Subsequently, Malaysia-China’s close relationship enables the flow of capital and technology exchange with relative ease. The participation of Alibaba in the e-commerce sector and Huawei in telecommunication field has been well-received. Coupled with Malaysia’s ambition to tap the potential of technology and transform its economy into a tech-driven one, it is expected that Malaysia will be the next regional digital hub in Southeast Asia.

A nation of solar energy

E-commerce aside, Malaysia is also one of the top oil and natural gas producers with Petronas, a state-owned integrated oil firm being ranked 186th in the 2020 Fortune Global 500 list. Its headquarter — Petronas Twin Towers, Malaysia’s most iconic landmark symbolizes national pride and an abundance of oil resources. While the past economic prosperity is propelled by fossil fuel, Malaysia has been gearing full-speed towards a decarbonized future by positioning itself as an important renewable energy (RE) player.

Malaysia experiences hot weather and a high level of solar radiation throughout the year, hence creating the perfect context for harnessing and commercializing solar energy. Since 2008, policies have been in place to strengthen the nascent local solar energy sector. In 2014, Malaysia became the third largest photovoltaic panel producer in the world and aims to be the second largest behind China by 2020. With solar energy officially becoming the cheapest source of electricity after years of investments and technology breakthroughs as the cost of electricity tumbled from $300 to $35 per megawatt-hour within a decade, Malaysia’s solar energy is poised for exponential growth and more innovative startups are expected to join the RE bandwagon.

The government instituted several policies to encourage the uptake of RE on both the consumer and producer fronts with the aspiration to expand the RE output by five times to 2080 MW by 2020. The installation of solar PV panels by households on their rooftops to capture sunlight and generate electricity has been strongly encouraged. Net Energy Metering (NEW) scheme was established in 2018 to allow excess solar PV generated energy to be exported back to the grid, and each electricity unit produced will be offset against 1 electricity unit consumed, a great incentive for consumers to switch to the more environmental friendly and sustainable solar energy.

Besides, new forms of solar financing have been introduced to spur producer participation in the sector. Solar purchase power agreements (PPA) allow third-party entities to fund the development of the solar plants, mainly by supplying technical know-how and design expertise, and in return they sell electricity to investors or consumers at a pre-determined rate. The act of democratizing solar energy production has provided a level playing field for both traditional utility firms and innovative technology startups to offer cost-competitive products and deploy technologically advanced solar components in their production.

Subsequent to the friendly policies and subsidies offered, many international firms and local companies have partnered through PPAs to engage in producing and supplying solar energy to households in Malaysia. Companies and startups have consistently innovated their energy production and transmission methods to achieve cost-efficiency and mass commercialization. Some utility firms opted to construct a large solar field to capture sunlight, generate electricity and export it to the end consumers through the grid; rising startups, on the other end specialize in perfecting the solar panels that will be installed on consumers’ rooftops to maximize the efficiency in converting solar radiation into electricity.

A buzzing scene where innovation happens certainly attracts capital, investments and international players to partner with aspiring local firms. In July 2020, Petronas invested in SOLS Energy, a local Kuala-Lumpur based solar rooftop startup. In the same year, Canadian Solar Inc collaborated with Antah Solar Sdn. Bhd. to construct one of the largest commercial and industrial rooftop solar projects spanning an area of over 26,000 m2 in Penang, an island state in Malaysia. Malaysia’s solar energy industry hit a milestone when Singapore signed an agreement with Malaysia to import 100 megawatts of green electricity over a trial period of two years.

Look at the government’s direction, then discover potential startups

Grab’s story might be an unfortunate one to begin in the chapter of introducing Malaysia to the world as people ponder the reason behind the consistent loss of talent and companies from Malaysia to its more competitive neighbor. However, the government has been determined to catch up in offering the most conducive environment for startups to thrive and new technology to be tested and adopted through a series of effective policies. It is expected to transform into a regional digital and technology-driven logistics hub in near term, a collaborative effort between Malaysia’s and China’s innovative technology companies. Besides, with frameworks that guide the development of solar energy sector, Malaysia will continue to pull in massive capital and investment for its efforts to commercialize renewable energy. For both investors and entrepreneurs, in this small Southeast Asian nation, look at the government’s direction, then invest! They have a track record of spotting the right future trends, and they might continue to be so.