Twists and turns in Penang’s tech ambitions

Mention Penang, and many will tell you that the island is a smorgasbord of the finest Malaysian cuisine. It’s also home to a vibrant heritage tourism scene and is touted as the Silicon Valley of the East.

Pic credit: Penang Property Talk

Amid the hype back in 2015,
Tech in Asia

visited
 the Malaysian state, located on the northwest coast of the peninsula.

We found out that the audacious claim checked out: It’s home to 10 industrial parks, with a robust manufacturing sector that specializes mainly in semiconductors.

We also stumbled upon Khoo Kah Lee, a tech evangelist, who’s also known as Curry. Curry was buoyant about Penang’s chances of being the next best thing in the tech scene.

Fast forward to 2022, and we caught up with Curry again. This time, however, he sang a slightly different tune.

Of burnouts and conflict

He tells us that between 2012 and 2016, he tried his best to put Penang’s tech startup ecosystem on the map, but the efforts took a toll on his personal life. Further, Penang’s state agencies became more involved in the picture, which led to conflict as their agendas “were not aligned” with what he had envisioned, Curry says.

The self-styled tech community builder argues that, as Penang is a small state with a population of only 1.8 million people, “it made no sense to have two groups, i.e., state vs non-state [actors] working on the same thing.”

So Curry took a break. Now he’s back and is eyeing Malaysia’s capital, Kuala Lumpur, as the site of his next venture, which he says is in Web3.

A few Malaysia-based investors we spoke to also tell us that despite Penang’s strong electrical and electronics sector and large multinational companies, the state has been struggling to replicate that success downstream, that is, on the digital and software side of things.

The burden of getting those segments up and running right now is on the shoulders of Tony Yeoh, CEO of Penang Digital, which is one of two state agencies working on luring talent and money back to the state. The other entity is InvestPenang.

Yeoh tells
Tech in Asia
 that the three agencies go about their job quite differently. While Digital Penang has been tasked with bringing in more software-related investments, InvestPenang is focused on attracting manufacturing investments.

Digital Penang and InvestPenang also work together with separate counterparts at the federal level. In Malaysia, there are two tiers of government: federal and state. Typically, federal agencies, with headquarters in Putrajaya or Cyberjaya, liaise with their state counterparts to drive investors to regions outside Kuala Lumpur.

In this case, Digital Penang works with the Malaysia Digital Economy Corporation (MDEC) while InvestPenang collaborates with the Malaysian Investment Development Authority.

Digital Penang is looking to attract investors with – among other things – a grant. Its state counterpart will match that up to 1 million ringgit (US$238,000).

The Creative Digital District Sandbox in Wisma Yeap, George Town. / Photo credit: Digital Penang

Digital Penang has also designated a creative digital district called CD Square in the state capital of George Town, where startups can run sandboxes.

Born privileged

Curry was definitely on to something. Penang’s main advantage is that it’s a magnet for foreign direct investment. The boom began in the 1970s when Malaysia embarked on rapid industrialization by luring global manufacturers to set up shop in the country.

Penang was a choice destination due to its English-speaking workforce and its connectivity with its strong port and logistics sector – strengths that the state inherited from its British colonizers.

The move to industrialize Malaysia saw Penang drawing in the “Eight Samurai”: Robest Bosch, Intel, Clarion, Advanced Micro Devices (AMD), Hewlett-Packard (now Keysight Technologies and Agilent Technologies), Litronix (now Osram Opto Semiconductors), Hitachi (now Renesas Electronics) and National Semiconductor.

(after being acquired by Texas Instruments, National Semiconductor no longer operates in the state.)

Today, Penang accounts for about 5% of global semiconductor exports,
according
 to the Department of Statistics Malaysia and United Nations Comtrade database. Last year, the state
approved
 76.2 billion ringgit (US$16.12 billion) in manufacturing investments, which make up 39% of the country’s total investments in the sector.

This has had a spillover effect: Local semiconductor companies were established and some are now as large as multinational firms. Examples include Bursa-listed firms ViTrox and Inari Amertron.

It also sparked a tech-savvy entrepreneurial class. An oft-cited example of this is Jobstreet, which was founded in Penang by Mark Chang in 1997. The firm became a regional jobs platform and went on to list on Bursa Malaysia in 2004. Australian internet job recruitment company Seek acquired Jobstreet in 2014.

Despite producing Jobstreet and a few other household names such as Piktochart, the state has found little success – at least few that have made headlines.

Demographic shifts and other challenges

Tech community builder Curry notes that he and his peers have been able to lay the foundation for local startups but the ecosystem still lacks certain important parts. He highlights three of them: talent development, venture capitalist funding and mentors.

Penang-based players that
Tech in Asia
 spoke to flagged several bottlenecks in the state. Firstly, the large multinationals and local tech giants pay well. Even interns can make as much as 3,000 ringgit (US$635) a month at these firms.

Secondly, young founders have their eyes on Kuala Lumpur or Singapore. An example is EasyBook, whose founder is from Penang. The company even has some 90 staff in the state but its headquarters is in Singapore. Drone solutions firm Aonic (formerly known as Poladrone) was also founded in Penang but moved to Cyberjaya, Kuala Lumpur.

Thirdly, there is a gap between investors, regulators, and startups as most of the big names are in the Malaysian capital. While founders agree that a lot can be done online such as meetings and pitches, “it still remains easier to connect and network when such events are done face-to-face,” one investor tells us.

Plugging into a wider ecosystem

Sivavenayakam Velayutham, the managing director of Penang-based incubator 25 Startups, is trying to bridge that gap. He believes that Penang has to first plug into the national startup ecosystem.

Siva tells
Tech in Asia
 that he is hoping to connect different states across Malaysia. “So what we’ll see is a Penang startup, for example, can have their investments from Johor or land pilot projects in Sarawak, for example.”

He has tested the concept. Siva helped convince Sarawak-based IT company Karuna Sarawak to set up an incubator in Penang.

Other Penang-based tech veterans such as Exabytes founder Chan Kee Siak are also reinvesting in the local startup ecosystem.

Exabytes was founded in 2001, and Chan says that the scene has come a long way since. The web-hosting company is still headquartered in Penang but has a sales office in Kuala Lumpur.

Chan has already invested in two firms: integrated logistics company EasyParcel and edtech startup Forward School.

He tells
Tech in Asia
 that Penang remains attractive due to lower operational and living costs than Kuala Lumpur.

Digital Penang’s Yeoh notes that despite having a weaker ecosystem than the Malaysian capital, Penang is “seeing talent moving back.”

Photo credit: Forward School

Some millennials – like Forward School founder Howie Chang – are already trying to strike it out. He believes there are still opportunities to exploit, given the widespread presence of multinationals in the state.

Forward School offers everything from boot camps to a two-year diploma in applied software engineering called NitroDegree. The latter is a program accredited by Malaysia’s human resources ministry and comes with a job guarantee for graduates.

Chang also says that despite being away from Kuala Lumpur, he had had no issues engaging federal agencies, such as MDEC, thanks to the nature of his business. Forward School has also obtained a loan from Malaysia Debt Ventures, a federal agency as well.

Yeoh also says that Digital Penang is aligned with MDEC and its federal counterparts, despite the Penang and the federal governments being led by two different political coalitions. He is even on the board of MDEC’s grant recommendation committee. Other tech agencies such as Cradle and Mranti have collaborated with Digital Penang to run various programs and sandboxes.

Systemic advantages and risks

There are other structural tailwinds: After Kuala Lumpur, Penang will be equipped with 5G connectivity throughout the island next year. Malaysia recently
launched
 a digital nomad pass that allows remote workers to set up shop in select destinations nationwide, including Penang.

However, Skeptics flag that too many of the policies are led by politicians. Digital Penang’s chairman, for example, is the state’s chief minister, Chow Kon Yeow. Investors we spoke to are divided over the level of state involvement in the startup scene. Some are calling for less government involvement, with a focus on policymaking, though others are fine with it.

Penang’s state government will surely be offered the chance to prove itself. Malaysia’s general election is coming up this year, and Penang will also hold state elections next year. The state has also put next year’s budget on hold to accommodate both elections.

Penang’s digital agenda will be on the line as the outcomes will determine whether the state will continue to pursue its startup agenda with greater funding and better leadership or leave it behind and move on to something else.


Funding Societies Malaysia names co-founder as group COO, appoints new country boss

Funding Societies,
 a Singapore-based fintech firm, announced the appointment of
Chai Kien Poon
 as country head of Malaysia. He will succeed Funding Societies Malaysia co-founder
Wong Kah Meng
, who’ll now be the company’s group COO.

Funding Societies’ Chai Kien Poon (left) and Wong Kah Meng / Photo credit: Funding Societies

Previously, Chai served as head of strategic projects and operations for Funding Societies, Malaysia. As country head, he will be responsible for the company’s day-to-day operations in the country as well as scouting for local partnerships and initiatives.

Meanwhile, Wong will now oversee Funding Societies’ businesses across Malaysia, Singapore, and Thailand.

“We have built ourselves a strong foundation since our inception in Malaysia in 2017, and I am excited to forge the future with the team as we continue to expand our products and services and extend our reach in the SME fintech landscape,” said Chai.

See Also:
Funding Societies swipes right on payments in SEA

The appointment comes after Funding Societies raised
US$50 million
 in debt funding from HSBC Singapore. The company also
raised US$144 million
 earlier this year in a round led by SoftBank Vision Fund 2.


Indonesia’s Kopi Kenangan opens first international store in Malaysia

Kopi Kenangan
, an Indonesia-based coffee tech startup, has opened its first international store in Suria KLCC, a shopping mall in Malaysia. The company uses the brand Kenangan Coffee for the store, which will be carried by all of its branches outside Indonesia.

Kopi Kenangan co-founders Edward Tirtanata (left) and James Prananto / Photo credit: Kopi Kenangan

By the end of this year, Kopi Kenangan plans to open four more stores in Malaysia, specifically in MyTown Cheras, Pavilion Kuala Lumpur, NU Sentral Kuala Lumpur, and Sunway Pyramid Petaling Jaya. The company has also built an employee training center called Kenangan Academy in Uptown Petaling Jaya.

In May, CEO
Edward Tirtanata
 told
Tech in Asia
 that the firm would
open its first store
 outside Indonesia this year. He added that the company aims to enter two or three countries in Southeast Asia soon.

Founded in 2017 by Tirtanata,
James Prananto
, and
Cynthia Chaerunnisa
, Kopi Kenangan offers an app where users can order coffee. They can opt to pick up their drinks at the company’s stores or have their beverages delivered.

The coffee chain currently has more than 850 stores in 64 cities across Indonesia. It has also expanded its offerings by introducing bread brand Cerita Roti, chicken-based snack brand Chigo, and soft-cookie brand Kenangan Manis.

In December 2021, Kopi Kenangan achieved unicorn status after it raised
US$96 million
 in the first close of its series C round.

See also:
Kopi Kenangan’s return to profits after a year in the red


Malaysia’s $100m startup funding in doubt as elections loom

The Malaysian government had set aside about 467 million ringgit (US$100.4 million) for tech and startup financing next year, but that amount could be revised as the country heads to the polls.

Finance Minister Tengku Zafrul Tengku Aziz tabling the 2023 federal budget / Photo credit: Malaysia’s Printing and Publications Department

The country’s finance minister, Tengku Zafrul Tengku Aziz, unveiled the allocation at last Friday’s tabling of the 2023 federal budget.

Here’s a breakdown of the allocation:

364 million ringgit (US$77.9 million) for “research and development” under the education and science, technology, and innovation ministries

50 million ringgit (US$10.7 million) for Cradle Fund, the coordinating agency of Malaysia’s startup ecosystem

10 million ringgit (US$2.1 million) for a venture capital fund to finance high-tech companies in the electrical and electronics industry as well as the renewable energy sector via an equity injection

20 million ringgit (US$4.3 million) for Mranti Technology Park, the country’s research and innovation accelerator, to focus on developing health technology and smart manufacturing

16 million ringgit (US$3.4 million) to state agency NanoMalaysia for the development and commercialization of nanotechnology

7 million ringgit (US$1.5 million) for Malaysia Techlympics 2023, a series of coding competitions for young Malaysians that tackle themes ranging from AI to sustainable innovation

Prime Minister Ismail Sabri Yaakob, however, announced the dissolution of parliament on Monday after getting consent from the king on Sunday.

Conventionally, a caretaker government can still push ahead with plans agreed upon before the dissolution. But only a new government can table the 2023 budget. This means the sum set aside for tech could either be retained or revised as the budget wasn’t passed in parliament.

Ismail Sabri’s government had set aside a total of 372.3 billion ringgit (US$79.9 billion) for next year. Financial and political analysts speaking to
Tech in Asia
 noted that as the general elections neared, the budget was like a “carrot” dangled in front of beneficiaries ranging from large businesses and startups to poor households.

Following Malaysia’s constitution, a general election has to be called within 60 days after announcing the dissolution of parliament.

Ismail Sabri
said
 that if his coalition party Barisan Nasional (BN) won the polls, the proposed initiatives would continue to be implemented.

But one political analyst told
Tech in Asia
 that even if BN wins the election, this may be easier said than done.

Typically, the coalition with the largest number of parliamentary seats will decide who will lead the country in the next five years. That person is usually the president of the winning bloc or the one who commands the biggest support from his peers.

If BN doesn’t win with a supermajority or Ismail Sabri is not appointed prime minister, federal allocations for next year’s budget are subject to change or revision.

Currency converted from Malaysian ringgit to US dollar: US$1 = 4.67 ringgit


Addressing ESG concerns in Malaysia’s glovemaking industry

While much of the world is starting to treat Covid-19 as endemic, the demand for medical equipment, including rubber gloves, is expected to continue growing.

Yet, Malaysia’s leading glovemakers are faced with declining revenues and share prices. On top of this, they have to deal with stakeholders who are increasingly focused on compliance with
ESG
 considerations.

Perhaps, they can look to Mölnlycke for inspiration. The Swedish medical products and solutions company only has four factories in Malaysia, compared to over 70 collectively for the country’s leading players. Yet, Mölnlycke is taking a proactive role in using tech to ensure compliance with ESG guidelines.

Supply-demand imbalance

The Malaysian Rubber Gloves Manufacturers Association (MARGMA)
estimates
 global demand for gloves in 2022 at about 399 billion pieces, 11% higher than the previous year. It expects the number to grow by around 12% to 15% more in 2023.

Malaysia alone accounts for about 65% of the world’s rubber glove production, which translates to 259 billion pieces.

However, others are less sanguine about the industry’s prospects. RHB Invest analyst Chun Sung Oong stated in a
research note
 that the bank expects growth of global demand for rubber gloves to remain sluggish at 4% to 6% in 2023 and 2024. Further, he noted the “persistent imbalance in the demand-supply dynamic,” with high levels of inventory needing at least a year to normalize.

These imbalances have affected the country’s top four glove manufacturers – Top Glove Corporation, Kossan Rubber Industries, Hartalega Holdings, and Supermax Corporation – which saw their revenues collectively decline by US$782 million, or 57%, over the past year.

Similarly, total profit for these four companies has shriveled from US$496 million to US$38 million over the last year, a decrease of 92%.

These poor results have been reflected in the firms’ share prices. Year-to-date, they are down between 42% to 73%.

Sustainability efforts may help rein in expenses

Still, MARGMA remains optimistic, with president Supramaniam Shanmugam stating that the supply-demand imbalance will reach equilibrium within
six to nine months
, compared to Oong’s more conservative estimate of at least one year.

While these conditions usually push companies to narrow their focus, it remains imperative that glovemakers continue to work toward sustainability, especially since the higher cost of energy is a major factor in their operating expenses.

The process of glove manufacturing involves using vulcanizers, which heat the gloves as part of the curing process. Heating of any form makes up
two-thirds
 of the energy demand of industrial companies around the world.

“On the environmental side, getting access to renewable energies and the investments made by governments to help companies get access to renewable electricity or biogas is a bit of a challenge,” says Jean-Christophe Guillou, Mölnlycke’s vice president of global operations and sourcing for gloves, who is based in Malaysia.

Jean-Christophe Guillou, Mölnlycke’s vice president of global operations and sourcing for gloves / Photo credit: Mölnlycke

He tells
Tech in Asia
 that, aside from Singapore, the development of renewables and access to green energy in Southeast Asia is “below what you can get in Europe, as well as a few South American countries.”

Tech plays major role in compliance

When it comes to addressing the challenges and working to comply with ESG guidelines, Guillou says that tech plays a major role when it comes to data collection.

“The tech makes it easier for our people to get their work done and is also a key part that helps us meet ESG goals,” shares Guillou. He adds that the company taps experts and third-party systems for its operations.

“Mölnlycke invests quite extensively in building management systems, which allows us to get the data we need through the arrays of sensors in use. We see where energy is most used and if there are any loose ends, so we can perform preventive maintenance,” he explains.

For example, the company uses sensors to measure its vulcanizers for temperature and energy usage.

“If there is a sudden energy spike, we need to check the machines, as the sudden increase in energy used means there may be something wrong,” says Guillou. He adds that glove production uses a lot of energy and water due to the need to chill and heat the materials at different stages.

He also says that Mölnlycke’s new factory in Kedah – its fourth in Malaysia – has a fully digitized waste-water treatment plant attached to it as well as a building management system that monitors energy usage. The data feeds to a single dashboard for ease of oversight and control.

Monitoring dashboard in use / Photo credit: Mölnlycke

Guillou shares that the industry also sees challenges in bringing on suppliers that are themselves ESG-compliant. This involves not only the suppliers providing raw materials to the plants but also those in charge of sourcing workers to man those plants.

However, in his capacity as a board member of the Association of Malaysian Medical Industries, Guillou notes that most glove manufacturers have strict guidelines on ethical issues. The association also discusses governance affairs, which the companies themselves are already highly aware of, especially with the attention the US Customs and Border Protection has paid to the
issue
 of alleged forced labor.

Can local players keep up?

However, with profit margins looking depressed in the face of losses from eroding average selling prices, it is uncertain if Malaysia’s local glovemakers will be able to fully commit the investment required to reach their ESG goals.

Yet, this is also a time when consumers are placing greater priority on the sustainability aspect of the goods they use – to the point of being willing to
spend more
 for sustainable products. More companies and nations have also pledged to answer the call of the United Nations’ Sustainable Development Goals, which include ESG compliance.

The stronger consumer focus on sustainability means that ESG benchmarks are now “key in [the] valuation of glovemakers,”
according
 to Chua Siu Li, an analyst at Public Investment Bank.

“More can be done or improved on, especially since the industry has a goal to reduce carbon emissions to 50% by 2030 and be carbon neutral by 2050. But to reach that goal, people need to accelerate investments,” says Guillou.

“Even if some of the investments made to reduce carbon emissions do not have the greatest financial return on investment, that’s the only way to decarbonate, and you go for it. Sometimes you don’t save money, but it reduces your carbon emissions,” he adds.

Malaysian glove manufacturers have already been taking steps to invest in ESG compliance. Among the top four companies in the industry, alternative energy sources and systems are being integrated into both new and existing facilities, such as the use of solar panels to supplement energy needs or, in Supermax’s case, the use of
biomass boilers
 instead of fossil fuel burners.

Top Glove has also been
recognized
 by this year’s Dow Jones Sustainability Index for its sustainability efforts. The firm is targeting a 25% reduction in carbon emission intensity overall while aiming for zero carbon emissions at its offices and warehouses by 2025.

Hartalega and Kossan are also
founding members
 of the Responsible Glove Alliance, a body for the protection of worker rights established in March. This is a positive and visible step in terms of regulation within the industry, especially in light of the forced labor allegations that led to Top Glove and Supermax being issued Withhold Release Orders by the US Customs and Border Protection. However, while Top Glove has been given the all clear, the order against Supermax, which was issued in October 2021, remains in effect.

Supermax was also recently
placed under observation
 for allegations of human rights violations by Norges Bank Investment Management, which manages Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund. The Malaysian firm denied the allegations, saying that it has already implemented measures to improve living and working conditions.

As much as the industry and its players have made great strides, more needs to be done to bring the Malaysian glove production industry up to the exacting ESG standards of the United Nations’ sustainable development goals. The sector also needs those same stakeholders to step up their game, especially in how these firms are investing their time and resources – not to mention funds – in meeting their ESG targets.


What drove Carsome into the layoff lane?

Welcome to The Checkout! Delivered every Thursday, this free newsletter breaks down the biggest stories and trends in ecommerce. View past issues
here
 or
sign up here
 to receive future newsletters.

Hi there,

The struggle of tech companies in 2022 is real, and used-car marketplaces have not been spared.

In 2020, many vehicle ecommerce startups in Southeast Asia and India drove their way into the unicorn club after raising large amounts of money. The Covid-19 pandemic contributed to their rise due to consumers’ fears of public transport.

But fast forward to 2022, with high inflation and an economic downturn, these companies are suddenly in the slow lane.

Because of thin margins and cash burn, growth has taken a backseat for now. Most of the used-car marketplaces are taking prudent measures to weather the storm.

In India, SoftBank-backed
Cars24 let go of 600 employees
 earlier in May, while Droom
postponed
 its IPO plans.

Recently, Malaysia’s Carsome announced that it was
laying off 10% of staff
 as well as forgoing leadership pay for the rest of 2022. The company earlier this year raised US$290 million, which supposedly put it in a better cash position than its counterparts.

So what went happened with the Malaysian unicorn?

In the Big Story this week, my colleagues Putra and Emmanuel dig deeper into the financials of the company to answer that question.

Speaking of cost-cutting measures, Shopee has done a lot of those lately. Last week, its retrenchment extended to Malaysia, Taiwan, and the Philippines, where it also faced an unexpected social media backlash.

Our Hot Take attempts to explain when or whether we can expect an end in sight for Shopee’s string of bad news.

– Samreen

THE BIG STORY

Why did Carsome lay off 10% of staff? We dig into its finances for clues

Image credit: Timmy Loen

The Malaysian unicorn says that it remains “on target” to break even in group-level EBITDA over the next few quarters.

THE HOT TAKE

Is there an end in sight to Shopee’s current woes?

Photo credit: Shutterstock

Here’s what happened:

Last week, Shopee users in the Philippines stormed social media platforms like Twitter and Facebook, calling others to
uninstall and delete the app
 after the company chose controversial Filipino celebrity
Toni Gonzaga
 as its latest brand ambassador.

People questioned the timing, as Gonzaga was hired at roughly the same time that Shopee was laying off staff in the country.

Shopee’s latest rounds of cost-cutting measures also hit employees in Taiwan and Malaysia.

Here’s our take:

Lately, many tech companies have laid off workers. However, Shopee’s layoffs, which came market after market as opposed to one at a time, has undoubtedly lowered morale in the company.

During its Q2 results, Sea announced that it would be “prioritizing profitability and cash flow management.” All these steps are being taken to achieve this goal, as the company suffered losses of nearly US$1 billion during the quarter.

Still, some analysts are not expecting the company to break even in 2023.

With inflation-induced cost surges – such as soaring logistics fees due to rising fuel prices – and the reduction of consumer spending in many of its key markets, growth might be hard to come by, pointed out
Jianggan Li
, founder and CEO of Momentum Works.

See also:
As gas prices soar, SEA logistics players brace for impact

However, he told
Tech in Asia
 that the firm’s cash balance at the group level would be enough to sustain the company for more than three years based on its levels of cash burn for Q2 2022.

According to
Ke Yan
, head of research at DZT Research, “Shopee has a window of about one year to prove to investors its ability to make profit for ecommerce.”

In the early days, as Shopee was expanding, Sea could use profits from its gaming arm, Garena, to subsidize losses in ecommerce. However, Garena’s profits have been in decline, with adjusted
EBITDA
 falling in each of the past four quarters.

To compound matters, Sea is obliged to set aside
S$1.5 billion
 as paid-in capital for MariBank, its Singapore digital bank. It will also have to invest in MariBank and its other digital banks in the region. Sea’s ability to support Shopee is thus much more constrained than in the past.

Another issue is whether the current macro environment will improve at all.

“More drastic measures might be needed if the crisis lasts much longer than anticipated. But so far, the management seems to be prudent, although the communications could have been better,” added Li.

As Shopee’s pandemic-led growth wanes, and as rivals Lazada and
TikTok Shop
 make their moves, Shopee’s current position as the ecommerce market leader in Southeast Asia is clearly shaking. It needs to break out of the mold.

– Samreen & Simon

NEWS YOU SHOULD KNOW

Check out
Tech in Asia’s
 coverage of the ecommerce scene
here
.

1⃣
Naver
, South Korea’s leading internet company, is
acquiring
 secondhand goods marketplace Poshmark for US$1.2 billion. Naver is also an investor in classifieds marketplace unicorn Carousell.

2⃣
Meesho
, a Meta-backed Indian ecommerce platform, has received
US$192 million
 from its US-based parent firm, Meesho Inc.

3⃣
ShopBack
 has entered into a subscription agreement to raise
US$80 million
 in the second tranche of its series F round from 65 Equity Partners.

4⃣
Cosmart
, an Indonesia-based ecommerce firm, has raised
US$5 million
 in seed funding from Lightspeed, East Ventures, and Vertex Ventures Southeast Asia & India.

5⃣ Indonesian ecommerce firm
Blibli
 has
resubmitted
 an application to go public.

That’s it for this edition – we hope you liked it! Do also check out previous issues of the newsletter
here
.


Why did Carsome lay off 10% of staff? We dig into its finances for clues

Emmanuel Samarathisa also contributed to this report.

When Carsome
announced
 last week that it was laying off 10% of staff as well as forgoing leadership pay for the rest of 2022, it might have come as a surprise to some.

Malaysia’s first tech unicorn has raised a total of US$567 million in disclosed funding, including a massive
US$290 million haul
 announced in January 2022, according to
Tech in Asia
’s database. It counts several blue-chip names among its backers such as Gobi Partners, Asia Partners, and Catcha Group.

Lately, Carsome still appeared to go from strength to strength. It poached senior executives from AirAsia parent Capital A, made a number of acquisitions (including
a US$200 million deal
 to acquire iCar Asia and take it private), and gained an elusive
digital banking license
 in Malaysia as part of a consortium.

Just in August, Carsome
announced
 that it had reached 18,000 cars sold monthly across its four core markets to celebrate its seventh anniversary.

Photo credit: Carsome

It even filed for a dual listing in Singapore and the US earlier this year, though that has been
scrapped
 for the moment.

But a look at Carsome’s financial statements for its 2021 financial year hints that the company’s approach to growth may have caught up with it.

In a statement provided to
Tech in Asia
, Carsome Group says that “we have made decisive changes in organizational design, commercial policy, as well as branding strategy to accelerate our group-wide profitability plan in the next few quarters.”

The company adds that it is “supported by our strong financial resources and the full backing of our shareholders as well as banking partners,” and remains “on target to break even in group-level
EBITDA
” in the next few quarters.

Big revenue but thin margins

In his email to staff, Carsome co-founder and CEO Eric Cheng attributed the layoffs to the global economic slowdown, which many other tech firms have been grappling with this year.

See also:
Tracking layoffs across Asia’s startup ecosystem (Updated)

Cheng also notes that the company’s top priority is “accelerating our group profitability plan and [achieving] positive EBITDA within the next few quarters.”

Last month,
Tech in Asia
 reviewed
Carsome’s financial statements
 for the financial year ending December 31, 2021, in which we highlighted that its revenue doubled to US$656 million compared to the previous year, while its net cash used in operating activities stood at negative US$114 million.

The pandemic had not dampened the growth of either
Carsome
 or
Carro
, both of which notched new records during that time. For some used-car dealers in Kuala Lumpur, these platforms even provided a lifeline,
as we reported previously
.

But the used-car business has thin margins. This is partly because dealers and marketplaces work as middlemen – they buy a used car at X price and sell them at Y price. The difference between the two prices makes up the margin.

This point is particularly evident in gross profits. Carsome primarily earns its revenues from selling used cars, but if we subtract the acquisition costs of vehicles sold (i.e., cost of goods sold), the firm has a gross profit of US$36.6 million, which is just 5.6% of its revenue figures.

That puts its operating expenses in a new light. For instance, the gross profit would not be enough to cover its employee benefits expenses (US$34.8 million) and would barely cover advertising and marketing (US$28.8 million).

To be fair, Carsome
noted previously
 that a sizable chunk of its losses for FY 2021 was caused by accounting adjustments that are non-cash expenses and unrelated to the company’s operational performance.

Excluding fair value adjustments, non-cash items, and non-operational corporate costs, a spokesperson told
Tech in Asia
 at the time that Carsome’s 2021 operating EBITDA was in line with the previous year’s EBITDA margin.

Hefty acquisitions

The next question for Carsome’s financials revolves around its cash burn and runway.

According to its cash flow statement, its net cash used in operating activities totaled US$114 million. That translates to US$9.5 million per month.

Assuming all of its revenue and expenses hold steady in 2022, that means Carsome’s war chest could provide a three-year runway.

But it has likely spent some cash this year in its acquisition spree.

Assuming the remainder of Limousine and Car Transport’s acquisition has been paid out, Carsome would be left with US$190 million in cash and cash equivalents after these acquisitions. That brings its estimated runway down to 20 months – a little under two years.

While it’s unclear whether these businesses are already profitable, it’s possible that the acquisitions would also present additional operating expenses for Carsome, thus leading to a higher cash burn. The company has also expanded its
Malaysia headquarters
, where it will double its local investment (though it’s unclear whether Carsome has followed through on this).

What’s next

In August,
Malaysia Gazette
 reported that
over 50 Carsome customers
 who had sold their cars to the platform had to wait around three days for their money to be disbursed. Typically, it took one to three hours.

The IPO could have provided more runway – Carsome is said to have aimed to raise
US$400 million
 at a US$2 billion valuation from the dual listing. But at this point, the prospects are hazy at best.

Still, it’s undeniable that Carsome, along with rival Carro, are leaders in a potentially lucrative space. Based on our
previous calculations
, even if these marketplaces reach just 15% of Southeast Asia’s growing used-car market, they could generate a revenue of a little over US$7 billion – multiples of what these players are making today.

Carsome co-founder and group CEO Eric Cheng / Photo credit: Carsome

The key focus moving forward for Carsome, perhaps, is to double down on areas beyond the car transactions themselves – especially those that can contribute to topline revenue with minimal costs – while keeping expenses low.

Financing is one example, which Carsome already does. Venture builder Momentum Works
noted
 that similar players in China went through a tough time early in the pandemic, and the lesson there is to not “burn for growth.”

Would its digital banking consortium provide a way out? Indeed, in its statement, Carsome Group says that it will continue to work with its digital banking partners on a pilot program and are “on track with the launch date.”


Malaysian graftbuster probes MDEC over $4.9m in false claims

The Malaysia Digital Economy Corporation (MDEC) is being investigated by the country’s anti-corruption commission (MACC) over false claims worth more than 23 million ringgit (US$4.9 million).

Two former MDEC officials (in orange) were brought to court to face charges in approving millions in false claims. / Photo credit: MACC

National newswire
Bernama
 first
reported
 the matter on September 23 but did not reveal the name of the government agency.

Sources close to the situation, however, told
Tech in Asia
 that the entity concerned was MDEC and the investigations involve the agency’s sharing economy department, among other concerns.

An MDEC spokesperson confirmed the matter with
Tech in Asia
 but added it could not comment due to the ongoing probes.

The anti-graft agency’s investigation is centered upon two undisclosed companies that were paid claims by MDEC amounting to more than 19 million ringgit and more than 7 million ringgit to run training programs from 2016 to 2020.

Claims were made and approved even though no training was conducted.

Eight individuals from the agency and companies involved have been remanded by the MACC so far, according to
Bernama
.


Grab to launch digibank in Malaysia, Indonesia in 2023

Grab aims to roll out its digibank in Malaysia and Indonesia next year, the
company
 said. The announcement follows
the launch of GXS Bank
, a digibank it formed in partnership with Singtel, in Singapore last month.

Photo credit: Grab

Bank Fama International will serve as the foundation for the digibank it plans to establish in Indonesia. Grab will build the digibank in partnership with Singtel and Emtek Group.

Grab and Singtel previously
invested US$70 million
 in Bank Fama, each getting a 16.26% stake in the bank. In addition, Indonesian conglomerate Emtek Group controls 62.8% of Bank Fama’s shares.

Meanwhile in Malaysia, GXS Bank – a joint venture between Grab and Singtel –
won a digital bank license
 from Bank Negara Malaysia in April. The joint venture will own 55.5% of the proposed digital bank, subject to regulatory approval.

See also:
Grab’s financial arm takes center stage at its investor day

Grab was also
rumored
 to be in talks to buy a majority stake in Malaysian banking group AMMB Holdings (AmBank). However, the super app said it could not comment on “rumors or speculations.”

On its recent investor day, Grab announced it is
aiming to break even
 on a group-adjusted
EBITDA
 basis by the second half of 2024. The firm’s digibank operations are also expected to
break even
 by 2026.


Shopee’s retrenchment wave hits Malaysian ops

Ecommerce titan Shopee has slashed jobs in Malaysia following a retrenchment round in
three other countries
.

Photo credit: Shopee

People familiar with the matter told
Tech in Asia
 that an announcement by senior management was made during a Monday town hall.

A source who was affected by the job cuts couldn’t confirm the number of employees who were laid off, but they told us that some of their affected peers came from the business development, marketing, and customer service departments.

Another source told us that Monday’s layoff announcement was part of last week’s round of retrenchments.

The delay for Malaysia was due to the scale and size of the exercise, the source said, but they added that cuts “remain in the low single-digit percentage across all teams affected.”

In a statement, Shopee said that like last week’s exercise, the Malaysia cuts are part of ongoing efforts to “optimize operating efficiency with the goal of achieving self-sufficiency across our business.”

September has been a rough month for Shopee. On September 19, Indonesian business portal
Kumparan

reported
 that the company will be laying off staff in Singapore, China, and Indonesia, dismissing 180 employees in total.

An undisclosed number of employees in Taiwan and the Philippines were also
recently let go
.

Earlier this month, the ecommerce platform
closed operations
 in Argentina, Chile, Colombia, and Mexico.

Shopee’s parent firm, Sea Group, has also announced belt-tightening measures.

Citing an internal memo to staff sent by CEO Forrest Li,
Bloomberg

reported
 on September 15 that the group revised company expense guidelines with the top management forgoing salaries until self-sufficiency was achieved.

Li added that for business travel, Sea staff would stick to economy class. Travel and hotel stay expenses would also be limited to US$30 and US$150 per day, respectively.

This story is developing. Check back for updates


Binance backs Malaysian crypto exchange’s $1.6m raise

MX Global
, which runs a licensed digital asset exchange in Malaysia, has raised US$1.6 million in funding, according to VentureCap Insights data.

Photo credit: Binance

The round was led by Crypto exchange Binance and Hachiman Technology, the latter
reportedly
 being MX Global’s parent company.

It was earlier reported that Binance invested an undisclosed amount in MX Global in March, which also saw the participation of publicly listed firm Cuscapi. Beyond the equity investment, Binance was also providing tech and talent transfer to MX Global

In June, CEO
Changpeng Zhao
 revealed that Binance
will work with Malaysian cryptocurrency exchanges
 to expand its services in the country.

This followed a cease and desist order issued by the Securities Commission of Malaysia against Binance and Zhao in July 2021, as the company was operating without a license.

See also:
The tech mogul backing Binance’s Malaysia breakthrough


Carsome to lay off 10% of staff, leadership to forgo salaries for rest of 2022

Malaysian unicorn
Carsome
 has started an “employee base optimization” exercise that will see the used-car firm let go of up to 10% of its staff.

Photo credit: Carsome

According to a company note seen by
Tech in Asia
, the exercise is “either completed or currently ongoing” in Thailand and Indonesia, and is set to begin in Malaysia as well as across Carsome’s regional roles.

Tech in Asia
 has reached out to Carsome for comment.

The company has promised that all impacted employees will receive their full severance package, along with support on their job searches. The executive leadership team will also be forgoing their salaries for the rest of 2022 to contribute to the severance packages that the firm will be giving out.

The exercise is meant to harden Carsome against the current global economic slowdown. The firm is also optimizing its acquisition strategy and accelerating integration with
iCar Asia
 and
WapCar
, which it bought in
February
 and
May
, respectively. Carsome had also acquired Singaporean car marketplace
Cartimes
 in
March
.

CEO
Eric Cheng
 and CFO
Juliet Zhu
 will also be offering “a significant portion” of their combined personal
ESOP
 shares. This will be awarded to “employees who not only demonstrate strong ownership in their contributions, but also go the extra mile meeting our business goals.”

The development follows the unicorn posting its
results
 for the 2021 financial year, which saw Carsome doubling its revenue to US$656 million compared to 2020. However, its losses also widened over 7x to US$138.6 million. These increased losses were attributed to fair value adjustments that are non-cash expenses and are unrelated to Carsome’s operating performance.

Meanwhile, the group also managed to build up a war chest of about US$340.4 million, which reflects its
US$170 million series D2 round
 in September 2021.

Earlier this year, Carsome
raised
 another US$290 million, which pushed its valuation up to US$1.7 billion.

See also:
Can Cars24 take on Carro, Carsome in SEA?


TikTok Shop partners with Ninja Van for SEA logistics

TikTok Shop
 has appointed Singapore-based
Ninja Van
 as its official logistics partner in Indonesia, Malaysia, and the Philippines.

TikTok Shop illustration / Image credit: TikTok Shop

With the deal, the tech-enabled logistics firm will be picking up products from sellers, sorting them in hubs, then delivering them straight to customers.

TikTok Shop is integrated into the short-form video platform and is available in six Southeast Asian countries, including Thailand, Vietnam, and Singapore. Sales on the platform are
slowly overtaking
 those of ecommerce giants such as Shopee,
Tech in Asia
 recently reported.

Though it has found success in the region, TikTok Shop has
delayed plans
 to set up shop in the US and the UK.

With over
a billion monthly active users
 on its platform, TikTok is
poised to reach
 US$12 billion in revenue this year, growing over 2x from last year’s figure of US$4.6 billion.

TikTok parent company ByteDance has also
decided to buy back US$3 billion in shares
 from its investors, which will bring the firm’s valuation to US$300 billion. It is currently China’s most valuable private company.

See also:
TikTok Shop has set SEA on fire within months


Alibaba Cloud invests $1b to boost global partner network

Alibaba Cloud
, Alibaba Group’s cloud computing unit, will invest US$1 billion to boost its global ecosystem of partners ecosystem and their market expansion.

Selina Yuan speaking at Alibaba Cloud Summit 2022 / Photo credit: Alibaba

As part of its international strategic roadmap, Alibaba Cloud will commit the funds over the coming three fiscal years. The investments include financial and non-financial incentives like funding, rebates, and go-to-market initiatives.

The cloud computing firm launched a regional accelerator program to boost partners’ income and strengthen their technical expertise.

Selina Yuan
, president of Alibaba Cloud Intelligence International, said partners were a key focus for Alibaba Cloud and the revamped strategy toward partners prioritizes partners’ growth to build an inclusive ecosystem that also benefits customers.

Alibaba Cloud currently has about 11,000 partners worldwide, including Salesforce, VMware, Fortinet, IBM, and Neo4j.

The Alibaba unit’s solutions serve a range of industries, including fintech, commerce, and manufacturing.

Noting that demand for its services was shooting up as more firms move to the cloud, Alibaba Cloud is rolling out new global infrastructure products and distributed cloud services.

It also opened three new customer service centers in Malaysia, Portugal, and Mexico, as well as three service delivery centers in Malaysia, Hong Kong, and the United Arab Emirates.

See also:
Alibaba’s financial health in 5 charts


Malaysian fintech firm raises $6.5m in private equity funding

Malaysian fintech Revenue Monster Group’s products include online store front solution À La Carte, payment terminals, and an ecommerce payment gateway.

Funding details

Funding amount:
 US$6,500,000

Lead investors:
 The SEA Capital

Stage:
 Strategic investment

Source

More details

Revenue Monster Group
 has raised US$6.5 million in total funding.

Stage

Amount (US$)

Investors

Strategic investment

$6,500,000

The SEA Capital

Revenue Monster Group was founded by
Lim Kar Aik
.

See also:
Series SEA: Who’s investing in the region’s fintech startups?


Exodus of advisors at 5ire, India’s meteoric ‘105th unicorn’

Emmanuel Samarathisa and Terence Lee co-reported this story – the second installment of a two-part series. Read the first one
here
.

In July, the three founders of 5ire were living the dream.

The company, formed in late 2021, was building 5irechain, a “proof-of-benefit” blockchain that had been highlighted at the World Economic Forum’s (WEF) 2022
annual meeting
 in Davos, Switzerland, last May. When 5ire said in July that it had reached
unicorn status
, it was widely covered by the crypto and Indian tech media.

But by August, a mass exodus of its advisors began. They claimed that they weren’t receiving information about the company, raising questions about 5ire’s financials, assets, and even its investors.

5ire co-founders (from left): Prateek Dwivedi, Pratik Gauri, and Vilma Mattila / Photo credit: 5ire

Now the company seems to be trying to correct its course. It has put together a new board of directors, addressed questions about its valuation, and even clarified “some gray areas” with its investors.

Also, 5ire is now calling itself a “blockchain” company instead of a “crypto” one. It hopes the change will help it be seen more as a serious technology firm and not just another player in the Wild West-like crypto scene.

The founders –
Pratik Gauri
, 31;
Prateek Dwivedi
, 32; and
Vilma Mattila
 – say they began to realize that a change was needed in April.

In August, Arjun Prasad, an advisor who had joined the company in March, was put in charge of the advisory board. He tells
Tech in Asia
 that he replaced the existing roster of advisors, which was largely made up of representatives from the crypto industry, with more people from mainstream companies.

Tech in Asia
 spoke to several members of the previous board, who said that lack of communication was the main cause of concern among investors. Prasad admits there was a problem with the initial slate, which was put in place “based on personal relationships between the co-founders.”

“It was done on a very ad hoc basis, which isn’t the correct way. I think everyone was too busy trying to build 5ire,” he notes.

Photo of 5ire’s founders from CEO Pratik Gauri’s Instagram account

The new makeup of the advisory board is meant to cement its current positioning as a “blockchain” firm.

5ire says it has retained three members of the old board:
Jeff Hoffman
, a entrepreneur and motivational speaker;
Richard Swart
, a former director of research at University of California, Berkeley; and
David Marshall
, co-founder and partner at Marshland Capital. However,
Tech in Asia
 could not reach them for confirmation.

Gone are
Wulf Kaal
, founder of crypto firm CRDAO, and
Jaime Gold
, an entrepreneur and professional poker player. Prasad said that except for Marshall, the current 5ire board no longer includes people from a crypto background.

The startup has not yet released the names of the board’s newcomers, but they include a private equity fund manager (joining in a private capacity); a partner from
PricewaterhouseCoopers in London
; a member of UK-based law firm
Clifford Chance
; and a member of the United Arab Emirates’ royal family.

“I decided that if you start bringing traditional players on board, compliance first becomes much easier,” Prasad says.

He thinks that working with crypto advisors also posed unusual problems. “Some of the crypto people were asking to send [sensitive] documents via Telegram. That doesn’t happen in the real world,” Prasad insists.

The startup has confirmed that it has been asked to pitch to Mubadala, an investment firm from Abu Dhabi, although it says it is only in preliminary talks. The chairman of
Mubadala
 is
Sheikh Mohammed bin Zayed Al Nahyan
, the president of UAE.

Tech in Asia
 reached out to Mubadala but was unable to get confirmation.

What does 5ire do?

5ire first made headlines in January, when it claimed that it had raised
US$21 million
 in seed financing to develop its new blockchain. The funds came from the sale of its tokens.

The first major conflict between 5ire and its ex-advisors came when the company announced in February it had secured a US$100 million capital commitment from
Global Emerging Markets (GEMS) Global Yield
, a private alternative investment group based in Luxembourg.

At the time, the announcement raised questions about why anyone would invest that much in a new, unproven company without a product. There were also doubts about the deal, particularly whether it would be an equity investment and where 5ire’s valuation had come from.

Gauri defended the move, telling
Tech in Asia
 that it was only a commitment.

“We can only draw down that money if we do an IPO,” the 5ire CEO says. “We don’t have any intentions to take the company public in the near future, which also means we will not be drawing down on any of that money.”

Proof of benefit?

As for a product, 5ire had been working on developing a “proof-of-benefit” blockchain. Called 5irechain, it was created around the ideals of the so-called “
Fifth Industrial Revolution
,” which is also where the company gets its name.

Those ideals come from the
United Nations’ 17 Sustainable Development Goals
, which are aimed at eradicating poverty in combination with “strategies that improve health and education, reduce inequality, and spur economic growth.”

The goal of this blockchain project was to build a system capable of measuring the actions of companies and agencies working towards the UN’s stated goals. If this sounds idealistic, 5ire admits it is.

“Our aim initially … was basically to have a paradigm shift from a for-profit to a for-benefit sort of an economy. That’s a lofty goal,” chief marketing officer
Pradeek Dwivedi
 tells
Tech in Asia
.

The startup can achieve this by encouraging entities or individuals that are serious about sustainability to become 5irechain’s validators.

In turn, validators that have higher sustainability scores (as determined by the blockchain) would have better odds of being selected to validate a block of transactions and earn the rewards for doing so.

According to the company’s estimates, it could see revenues of over US$1 billion in just three years. Dwivedi contends there’s nothing odd about making money from such an idealistic goal.

“If you are compliant with the UN’s SDG goals, you should benefit,” he says. “That doesn’t mean the United Nations is paying you. It means the 5irechain will reward you for doing good in the world.”

Advisors say that demand for 5irechain is huge, especially among government agencies, non-governmental organizations and companies. The project claims it could remove questions about whether an agency’s actions, such as working to alleviate world hunger, are verifiable or just empty promises.

Who are the founders?

The three founders say the idea for 5ire was “born in August 2021 out of a chai shop in Delhi.”

Gauri calls himself a serial entrepreneur, and 5ire is his ninth company. He went to high school in Delhi and says he received his engineering degree from
Guru Gobind Singh Indraprastha University
 and a master’s degree in business administration from the
Indian Institute of Foreign Trade
.

Gauri has made it into several lists for top business people. He also claims to have studied and received certificates from the Harris School of Public Policy at the University of Chicago and the Saïd Business School at the University of Oxford.

On his website, Gauri described himself as “widely known as the creator of the Fifth Industrial Revolution (5IR).” He told
Tech in Asia
 that he began promoting 5IR more than a decade ago, claiming it aims to help solve “the problems of humanity [that] still continue to plague us.”

Screenshot from 5ire CEO Pratik Gauri’s website

“You will find actually one of my TEDx talks on the Fifth Industrial Revolution in 2016 or 2017,” Gauri says. “I started promoting this concept when I was 16.” However, the earliest video featuring Gauri that
Tech in Asia
 could find online is
dated 2019
.

5IR appears to be inspired by the
Fourth Industrial Revolution
, a well-known concept that was apparently coined by WEF founder
Klaus Schwab
. Gauri explains that 5IR marks the transition from a for-profit economy to a “for-benefit” economy.

Meanwhile, Dwivedi’s background is “running marketing companies,” and he retired in 2016 and 2017 after making “a lot of money,” according to Gauri. Dwivedi’s LinkedIn profile indicates that he worked primarily in media. He was with Kaching Media, a company he founded, until January of this year.

In the financial year 2019 to 2020, public documents show Kaching Media posted revenues of 5,937,941.00 rupees or just over US$74,000. However, revenue plunged to US$0 the next year.

Mattila is a venture capitalist and angel investor who has been in the crypto industry for over eight years. A previous advisor for 5ire said her investments were not small – they ranged from anywhere between US$500,000 and US$1 million. She has connections in the UN and the WEF, which featured 5ire as a platform partner at its 2022 meeting.

One of the first concerns the founding trio faced from its advisors was the burn rate, which measures how fast a startup is going through its cash reserves. With only US$21 million from a token raise and despite the claims from Gauri that 5ire had not drawn any cash from investment group GEMS, advisors remained concerned.

Gauri’s social media activity didn’t help. On Instagram, he
posted pictures
 of himself in Dubai, flaunting various gas-guzzling luxury cars including a Ferrari and a Lamborghini.

“When you’re in Dubai, you drive new sports cars everyday LOL,” he wrote in the caption for one of the photos. “Am bored of jags/audi/bmws/mercs, guys please suggest an upgrade,” he lamented in another.

5ire CEO Pratik Gauri’s Instagram post

Dwivedi and Prasad admit that while the images made for bad PR, they had nothing to do with the company’s burn rate.

“OK, we have a Jaguar and a BMW,” Dwivedi says. “We do because we have worked before we started this company. So the BMW and the Jaguar and everything were bought way before 5ire was even an idea.”

Prasad says the company still has over 60% of the money it has raised so far, sourced from a seed round that raised US$21 million and a series A round that has brought in US$20 million to date.

“We are cash flow positive,” Prasad asserts.

UK-headquartered Sram & Mram has committed to another US$80 million when 5ire meets certain milestones, but 5ire says it is
currently looking for another investor
.

The Pope and Woz

What the company had communicated publicly also compounded the advisors’ worries.

For example, 5ire claimed to have met with Pope Francis at the Vatican. Advisors said that wasn’t true. They did get an invitation to the Vatican, thanks to the connections of Hoffman – one of the advisors retained from the old board. However, the 5ire team instead met with Cardinal Peter Kodwo Appiah Turkson, who is chancellor of the
Pontifical Academies for Sciences and for Social Sciences
.

5ire claims to have met the pope as well as the founders of Netflix and Apple.

Then there is the issue of the company’s location. 5ire lists itself as a Dubai-based company, and all three founders live in the Emirati city. But when the startup reached unicorn status with a US$1.5 billion valuation, headlines proclaimed it India’s 105th unicorn.

Prasad claims the focus on Indian media was intentional, but it was not intended to mislead.

“If we can capture the Indian market first, going global is much easier,” he says. 5ire also wanted to capitalize on the homegrown pride that came with being an Indian company in India, especially since it was looking to partner with governments and large corporate houses in the country.

According to Prasad, the India office is primarily meant to serve the local market. The Dubai office is a marketing office for the Middle East and North Africa region, while the UK entity will hold some of 5ire’s technology patents and legal contracts.

The founders claim they prefer to be seen as “decentralized.” As Gauri puts it: “We don’t even want to have an office because we have about more than 100 people already working with us. Are we incorporated? Yes. Which countries currently? It’s India. It’s Dubai. It’s London.”

Doctorates from Malaysia?

Then there’s the matter of the trio’s recent honorary doctorates, which were awarded to Gauri, Dwivedi, and Mattila by the Malaysia South Indian Chamber of Commerce (MSICC).

On August 23,
Tech in Asia
 sought additional information about the honorary degrees but was unable to reach anyone at MSICC. At the time, it appeared that the organization had no known website and no publicly listed office address or phone number. On September 2, we finally found the MSICC website. According to our checks, msicc.org was created on August 24 and went live on August 29.

The MSICC website, which has since been taken offline, contains only a few pages, but one of those is an application for an honorary doctorate. A picture of Gauri being given one of those doctorates is on that page, which includes a button that says “Get Yours.”
Tech in Asia
 has applied for the degree, but we have not received a response or a confirmation email so far.

We also found another website that also claims to represent the MSICC: www.msiccint.com. Both sites list Dato Shri Venugopal – an associate of Sram & Mram CEO Sailesh Lachu Hiranandani – as chairman of the organization. But the second one, which was registered in August 2021, is largely under construction and contains large amounts of dummy text.

A screenshot of the MSICC website

The 5ire founders have also published several short articles on the
Fifth Industrial Revolution
, 5irechain’s
security
 and its
networks
 in obscure academic journals.

A token offering comes next

On its Telegram channel, 5ire has been regularly posting that it is currently testing its staking and unstaking features and plans to launch a testnet on November 30. A token generating  event is schedule for December 15.

5ire has already announced it will attend WEF’s 2023 annual meeting in Davos as part of the
Global Innovators program
.


Scrutinizing ‘India’s 105th unicorn’ and its $1.5b valuation

Emmanuel Samarathisa and Terence Lee co-reported this story.

Conventional wisdom says to never look a gift horse in the mouth. Unfortunately, conventional wisdom says nothing about dealing with unicorns.

The unicorn in this case is 5ire, a blockchain startup that touts its new, potentially paradigm-changing tech. Its work was
highlighted
 at the World Economic Forum’s annual meeting in Davos, Switzerland, earlier in May.

When 5ire proclaimed that it had reached
a US$1.5 billion valuation
, the news was widely covered by the crypto and Indian tech media.

But now, after only three months, 5ire appears to be pulling away from
Sram & Mram
, the very company whose commitment to invest US$100 million made the startup a unicorn.

According to a source inside the startup, 5ire is looking for another firm to be its series A investor. If that happens, the new investor would take over the round, although 5ire would be required under the terms of its agreement to pay a premium to Sram & Mram.

The specifics of the premium have not been disclosed. 5ire has not identified who the new backer would be, but a deal could be announced soon.

Sram & Mram CEO Sailesh Lachu Hiranandani (third from left) with 5ire co-founders / Photo credit: 5ire

Questions about Sram & Mram and 5ire have been circulating among the startup’s advisors since the announcement.

Tech in Asia
 tried to speak to Sram & Mram Group several times for this story, but we did not get a response from its chairman,
Sailesh Lachu Hiranandani
. We were also unable to find evidence to back up the company’s claims that it generated a “sales turnaround” of US$800 million for the financial year 2017 to 2018.

Sram & Mram says it was founded in 1995 by Hiranandani. He is also listed in the Panama Papers for being an
officer
 in
Peak Talent International
, a
Singaporean company
 that defaulted in 2001. The specifics of the default were not revealed.

As for 5ire, its former advisors told
Tech in Asia
 that it is unusual for a startup without a product to receive such a high valuation – or a US$100 million investment. 5ire isn’t scheduled to launch its testnet until November 30.

It’s true that many pre-product crypto projects have raised even larger sums of money, though many have criticized this as a sign of a bubble that’s about to burst.

According to Arjun Prasad, an advisor to 5ire CEO
Pratik Gauri
, the US$1.5 billion valuation was made by firms hired by Sram & Mram.

The law firm hired was Ann & Anuar, which has offices in Subang, Penang, and Kuala Lumpur, according to the Malaysian Bar Council’s
legal directory
.
Tech in Asia
 called three phone numbers listed for the Malaysia-based law firm but none were working.

The name of the accounting firm hired by Sram & Mram was not released to
Tech in Asia
.

Photo credit: Ann & Anuar

Prasad says that 5ire is standing by the valuation, which he explains was derived based on its main revenue stream, revenue projections for its technology, and tokenomics as it stands today.

What does Sram & Mram do?

On its
website
, the firm claims to be a UK-headquartered conglomerate with 10 companies and over 300 employees across five continents. Sram & Mram says it has forged eight international alliances and operates in 35 locations, with branch offices in Cambodia, South Africa, Indonesia, Malaysia, Bahrain, Georgia, India, and Bangladesh.

The company adds that it has “footprints spread across multifarious services,” including neural networks, oil and gas, animation, ecommerce, AI, hedge fund management, forex management, hospitality services and solutions, media and publishing, embedded systems and infrastructure. It also claims to own a chain of exclusive luxury hotels and resorts in Cambodia and Malaysia.

These connections were what attracted 5ire to Sram & Mram.

“We wanted to go to a conglomerate or a player which can basically lend relationships and connect us directly to prime ministers, presidents … connect us to central banks, connect us to state banks, connect us to state governments,” 5ire CEO Gauri shares. “Because when we do so, then the revenue we’re expecting is huge.”

But
Tech in Asia’s
 search of public filings found that very little of Sram & Mram’s expansive business dealings can be verified.

The group’s UK subsidiary, Sram & Mram Technologies and Resources, shows the company held 928.3 million pounds in non-tangible assets but saw no revenue in 2019 and 2020, the last year when data was available. Another UK-based firm, Sram & Mram Technologies, held roughly 36,000 pounds in 2021.

According to the Malaysia branch’s filings, Sram & Mram posted 661,000 ringgit in revenue in 2018 and 3.2 million ringgit in revenue in 2020, but the company didn’t earn any revenue in 2019, 2017, and 2016. Overall, the Malaysian branch lost 265,000 ringgit over the five-year period.

Walletz4u booth / Photo credit: Sram & Mram

The only actual product that can be found is Sram & Mram’s line of personal protective equipment. The company has a photo of its office showcasing its
Walletz4U
 brand of gloves.

Sram & Mram claims that Walletz4U is a leading producer of rubber gloves, although the brand doesn’t appear on lists of such manufacturers in Malaysia. Despite claims of establishing a factory in 2021 and shipping gloves overseas, no business listing or address can be found for the facility other than the company’s main Malaysia office.

Aside from Sram & Mram Resources, Hiranandani owns two other companies and is a shareholder in a restaurant business. Company filings show that his cash cow is Hoven Nine Industries, which sells rubber gloves.

None of Hiranandani’s Malaysian entities have posted revenue or profits exceeding US$1 million for financial years 2020 or 2021.

Sram & Mram Group has two Singaporean subsidiaries: Sram And Mram Minerals and Sram & Mram Technologies. Neither entities filed financial statements, but Hiranandani is identified in them as Cambodian and a shareholder in Sram & Mram Minerals.

Even information that comes from 5ire about Sram & Mram is inconsistent. In news articles about the US$100 million investment, Gauri claimed that Sram & Mram owned
800 hospitals
. But the 5ire CEO later told
Tech in Asia
 that he meant a network of 800 hospitals, although he did not identify which network this was.

Meanwhile, a search on LinkedIn only surfaced 47 current Sram & Mram employees and 29 former workers, which is unusual for a firm that claims to have a headcount of 300 and almost 30 years of history.

In all of the company’s business filings,
Tech in Asia
 could not find any evidence indicating anywhere close to US$800 million in revenue, assuming that’s what “sales turnaround” refers to. We sought additional information from Sram & Mram but did not receive a reply.

5ire says it did its due diligence by meeting with partners that Sram & Mram had invested in to “see if they had received funds in the past.” They reached out to one firm based out of Sweden and a stem-cell company in Boston. 5ire also talked to a gaming platform and a UK company that rents parking spaces via an app. However, it did not disclose the names of these companies.

“On that basis, we went ahead with Sram & Mram rather than listening to what everyone else said,” Prasad explains.

He also admits that 5ire talked to Sram & Mram’s partners because of concerns about Hiranandani.

“We also read the Panama Papers,” Prasad says. “We were worried. We wanted to ensure that they can actually service the money that they’re promising.”

Sailesh Hiranandani (left) at a signing ceremony in Zambia / Image credit: Mwebantu

After that, 5ire went forward and structured its deal with Sram & Mram carefully. The first tranche – worth US$20 million – was paid immediately. The next is scheduled for when 5ire launches its testnet, which is expected to be in late November or early December. If no new investor agreement is reached with a third party, Sram and Mram would fund this tranche as stated in its original agreement.

The startup will receive the third tranche after 50 people join the chain during the testnet. The final payment is expected to come in when the main net is launched. The deal states that all payments will be disbursed over a 10-month period.

However, if Sram & Mram fails to pony up, then it will receive equity equal to what it has already paid, and the remainder of 5ire’s series A funding can then be taken over by another investor.

“That’s why we are in talks with other VC investors … just in case they would like to come in and take over that round,” Prasad says.

Ultimately, 5ire accepted the deal with Sram & Mram on practical grounds.

As Prasad points out: “We understood that it helps us gain traction – it gives us the cash flow when we need it. The cash injection – we need it. And we still have a buffer today to take on a series A investor which is a loan entity, a proper VC.”

He added that prior to the deal, Sram & Mram had brought several clients to 5ire as a show of good faith.

“This wasn’t just taken randomly. I mean, we didn’t just say, ‘OK, we’ll go with someone that’s very gray.’ They gave us a very lucrative deal,” Prasad says.

This is the first installment of a two-part series.
The next article
 explores 5ire’s three founders and how conflict with advisors forced the trio to make improvements to the business.


HappyFresh resumes services in Indonesia, ceases ops in Malaysia and Thailand

Update (September 22, 7:35 p.m. SGT): This article has been updated with details on the closure of HappyFresh operations in Malaysia and Thailand.

After pausing its operations and
hiring restructuring firm
 Alvarez & Marsal Holdings due to financial troubles, e-grocery firm
HappyFresh
 has resumed services in Indonesia. However, the company decided to cease operations in Malaysia and Thailand.

A HappyFresh rider delivering goods / Photo credit: HappyFresh

The e-grocer said it has also received a “recent injection of fresh funds” to support operations in Indonesia – its only profitable market among the three it operates in. The firm’s tech division in the country will be led by co-founder and CTO
Fajar Budiprasetyo
.

The decision to exit Malaysia and Thailand was taken to “ensure HappyFresh’s market-leading position in Indonesia is maintained as a key growth opportunity for the overall company,” the Jakarta-headquartered firm said in a statement.

Additionally, the firm has reinstated CEO
Guillem Segarra
, CFO
Frederic Verin
, and COO
Christoph
Krauss
 to lead the company
.
 A new board of directors is also being formed by Segarra and US-based risk consultancy Kroll, following the resignation of
Kai
–
Kevin Gotthard Kux
,

Lee Jung An
, and David Keller

last week.

Venture debt funds Genesis, Mars, and Innoven will collaborate with HappyFresh to help the e-grocer reach profitability by the end of this year.

HappyFresh was founded in 2014 by Kai Kux,
Konstantin Lange
,
Markus Bihler
,
Benjamin Koellmann
, Fajar Budiprasetyo, and
Tim Marbach
.

The firm has faced various issues this year. In August, the firm put the salaries of several employees on hold and cut all contractor roles, citing
“financial issues.”
 Poor global macroeconomic conditions also drove HappyFresh’s management to freeze hiring and cut costs. These problems come after the firm made a
gross loss
 of US$4.3 million in 2021.

See also:
HappyFresh in limbo with delayed salaries and ‘inactive’ top execs


Malaysia-based customer communications firm dials $7m in series A

Respond.io
, a Malaysia-based conversational commerce platform, has raised US$7 million in a series A round led by Headline, with AltaIR Capital participating.

The Respond.io team / Photo credit: Respond.io

Respond.io streamlines messages from chat apps, web communication platforms, and emails into a centralized dashboard, which enables more efficient customer communication. This is especially pertinent in Asia, where users
tend to hold a preference
 for tailored messages through these platforms compared to Western markets.

The firm said that its services are used by over 10,000 businesses across 86 countries, handling more messages than its three main competitors combined. Its clients include ShareChat, Decathlon, Klook, Yoho, Abenson, and Roche.

Respond.io added that its revenue grew 25x since its last funding round in 2020.

The startup will use the new funding to expand to West Asia, Latin America, and Europe. It also aims to extend its suite of integration capabilities.

The firm was founded in 2017 by
Gerardo Salandra
, who previously worked at Google and IBM.

See also:
400m Indians use WhatsApp, but will they shop on it?

Other investors in this round include:

Smart Partnership Capital

Sterling Oak Group

Calendula Ventures


Gobi closes $10m fund, welcomes Allianz Malaysia as limited partner

VC firm
Gobi Partners
 has brought its Malaysia-focused US$10 million Gobi SuperSeed II Fund to a close with the onboarding of investment holding company
Allianz Malaysia
 as a limited partner.

Gobi Partners co-founder Thomas Tsao / Photo credit: Gobi Partners

The deal marks Allianz Malaysia’s first investment in a VC firm. However, its general insurance arm was an early partner of insurtech firm
PolicyStreet
 and online property rental platform
Speedhome
, both of which are part of Gobi SuperSeed II Fund’s portfolio.

The fund, which targets early-stage tech startups in Malaysia, also has
Malaysia Venture Capital Management
 and
Sunway Group
 as limited partners. It will focus on startups that work in the segments of AI, big data, cloud, ecommerce, fintech, internet of things, and the Halal economy.

“We believe that both the fund and the portfolio companies will benefit substantially from Allianz’s ecosystem locally here in Malaysia as well as globally,” said Gobi co-founder
Thomas Tsao
.

Launched in 2020, Gobi SuperSeed II Fund can invest in up to 25 portfolio companies. Aside from PolicyStreet and Speedhome, it has invested in two other startups: tech news platform
TechNode
 and Sunway Group’s innovation arm Sunway Innovation Labs.

Earlier this year, Gobi
partnered
 with Malaysia-based social finance platform Ethis Group to launch a US$20 million Shariah-compliant fund.

See also:
Can Malaysia find its niche as a Shariah fintech hub?


Will Islamic fintech be Malaysia’s ticket out of ‘no man’s land’?

Welcome to The Top Up! Delivered every Wednesday via email and through the Tech in Asia website, this free newsletter breaks down the biggest stories and trends in fintech. Get it in your email inbox by
registering here
.

Hello there,

Many years ago, while on an exchange program in the US, I took a course on Islamic finance.

While I admired the innovative structures used to avoid transactions with
riba
 or interest, some of these seemed like a case of prioritizing form over substance to me.

Nevertheless, Islamic finance has been a burgeoning subset of the fintech sector in the last few years. With the recent emphasis on
ESG
 concerns, Islamic finance, which is seen as
socially responsible
, can be expected to continue attracting investor interest.

It is also a niche where Malaysian startups have been able to shine, as my colleague Qishin notes in this week’s premium story.

Malaysia is often in a “no man’s land” when it comes to tech startup funding, caught between neighbors with much larger populations and tiny Singapore, which benefits from its affluent population and status as Southeast Asia’s financial hub.

Yet, Malaysia was ranked first in the Global Islamic Fintech Index for 2021 and 2022. This ranks countries by looking at 19 indicators over five categories.

Its high ranking could help the country become a hub for Islamic fintech players in the region or even globally.

Things are also looking up for Malaysia’s wider fintech landscape – wealthtech platform Versa, which wants to empower Malaysians to achieve financial wellness, made waves last week when it announced an eight-figure fundraise. I explore this further in this week’s Hot Take.

–
Simon

THE BIG STORY

Can Malaysia find its niche as a Shariah fintech hub?

Image credit: Timmy Loen

As regional competition catches up, can Malaysia keep its lead in the Islamic fintech space, and can that lead be leveraged to make it a finance hub?

THE HOT TAKE

Can Malaysia’s Versa get rich by helping others grow their wealth?

(Front row, from left) Versa co-founders Nelson Wong, Teoh Wei Xiang, and Richmond Yau / Photo credit: Versa

Here’s what happened:

Versa, a Malaysian digital wealth management platform, closed an
eight-figure funding round
 last week.

Investors that participated in the round include Malaysian early-stage VC firm RHL Ventures, South Korean financial conglomerate KB Investment, and existing investor Affin Hwang Asset Management.

In addition to cash management service Versa Cash, the startup recently introduced Versa Invest, enabling users to actively invest with the world’s top fund managers.

Here’s our take:

Versa wants to empower Malaysians to achieve financial wellness.

The digital wealth management app is targeting a group that is struggling to make ends meet. Only 16% of Malaysian working adults feel comfortable or elated about their financial well-being, according to
research
 by AKPK, the country’s credit counseling and debt management agency.

The wealthtech sector is a growing business: Funding poured into the industry’s Asian players reached over US$2.2 billion in 2021. This was up 204% from the previous year and constituted 25% of global wealthtech venture funding, according to a
report
 by digital wealth platform Endowus and professional services firm KPMG.

In the past week, Vietnamese wealthtech firm
Tititada
 and Singaporean player
StashAway
 also received funding.

Versa currently offers two main products: Versa Cash, a cash management service, and Versa Invest, a collection of global funds
actively managed
 by Affin Hwang Asset Management and other partners.

With Versa Cash, users can enjoy returns of up to 2.5% per annum – more attractive than the
0.25%
 interest rate that Maybank currently offers on its savings account for amounts below 100,000 ringgit (around US$22,200). Users can grow their savings for emergencies and short-term goals. There are no lock-in periods or penalties for early withdrawals.

However, unlike fixed deposits at a bank, the product is not risk-free, although Versa says it is a “very low-risk” offering. To achieve its annual rate of return while maintaining its risk level, Versa Cash invests in money market instruments and low-risk fixed deposits.

Offerings like Versa Cash may seem similar to savings products offered by the new wave of
digital banks
 that are launching in the region.

That said, new digibanks can be expected to be more generalist in their approach compared to wealthtech firms, which will continue to offer specialized services, advice, and products. Where wealthtech platforms may also differentiate themselves is in the field of investments.

“We think there’s a huge, growing pie for everyone, but wealth management will be evolving in its own direction and deepening at a rate that digital banks will probably find it hard to compete with because of the level of focus … as a result, we see more partnering in the ecosystem,” Endowus CEO Gregory Van said at a press event on Monday.

For Versa and other wealthtech firms, cash management products may be a way to attract funds and build a brand before venturing into other products. Singapore-based Syfe, for instance, also has a similar product called Syfe Cash+, which offers a higher interest rate, no fees, and quick withdrawals.

Versa Invest’s focus on actively managed funds contrasts with other players such as Endowus, which tend to use more passive strategies.

There may be other potential concerns as well. First, the presence of Affin Hwang as both a shareholder in Versa and a manager of its users’ funds might present a conflict of interest.

Second, the annual management fee of 1% per annum is not as favorable as other players such as StashAway, which charges its Malaysian users an
annual fee of 0.8% or lower
.

Going forward, how might Versa develop its business? One option would be to borrow a page from Endowus’ book. The latter was the first digital wealth platform that enabled its users to invest their public pension funds through their
Central Provident Fund accounts
, a mandatory savings scheme for working Singapore citizens and permanent residents.

Perhaps Versa can work with the Malaysian equivalent, the Employees Provident Fund (EPF), to enable EPF members to invest part of their savings with Versa products.

With average monthly salaries in Malaysia
below
 other Asian countries like Singapore, China, and Thailand, platforms like Versa offer an alternative for workers to grow their wealth and achieve financial well-being.

–
Simon

NEWS YOU SHOULD KNOW

Also check out
Tech in Asia’s
 coverage of the fintech scene
here
.

1⃣
SG digibank Trust hits 100,000 customers within 2 weeks of launch
: According to Trust, users between the ages of 18 and 90 signed up on the platform, which is backed by a partnership between Standard Chartered Bank and Fairprice Group.

2⃣
SG

fintech firm M-Daq expands into Japan with new office
: The profitable firm, which offers forex solutions, has processed over US$32 billion in cross-border transactions across 45 markets since 2016.

3⃣
SG wealthtech investment grows 7x, outpaces region: report
: According to the report by Endowus and KPMG, Singapore’s wealthtech investments climbed to over US$161 million in 2021 as prominent firms in the country proliferated.

4⃣
Philippine finance app secures $20m debt facility from Helicap
: BillEase, which offers personal loans, e-wallet top-ups, and buy now, pay later services, has raised US$55 million in debt and equity to date.

5⃣
Revolut wants to compete with PayPal and Apple at online checkouts
: The UK-based fintech firm has signed up retailers such as Shopify to implement a new one-click payment feature, and it will allow customers to earn cashback on their mobile or desktop purchases.

6⃣
Goldman’s Apple Card business has a surprising subprime problem
: Losses on credit card loans at the bank, which counts the Apple Card as its biggest credit product, hit 2.93% in the second quarter – the worst among US card issuers.

FYI

Atome’s 2021 profits nearly triple as revenue sources shift

Photo credit: Atome

The BNPL firm’s earnings showed solid profit growth, but revenue from the Philippines and Vietnam shrank in favor of Singapore and Malaysia.

That’s it for this edition – we hope you liked it! Do also check out previous issues of the newsletter
here
.


Can Malaysia find its niche as a Shariah fintech hub?

In Southeast Asia’s tech scene, Malaysia occupies a no-man’s-land of sorts.

Its 32 million population – substantially smaller compared to its neighbors’ – is less conducive to cultivate single-market, local startups. The country also isn’t a global financial hub like Singapore, which has attracted startups and venture capital firms to set up regional operations.

But there is one niche where Malaysia could differentiate itself: Islamic fintech.

The country is a global leader in traditional Islamic finance. According to
a report
 by the Islamic Corporation for the Development of the Private Sector (ICD), Malaysia represented 13.2% of global Islamic banking assets. The country comes in third after Iran (28.5%) and Saudi Arabia (21.2%) and has nearly 8x more assets than Indonesia (1.7%), which has the world’s largest Muslim population.

So far, however, its government and startups have been slow to capitalize on this advantage.

In 2021, Malaysia’s Islamic fintech sector generated US$3 billion in transaction volumes. Meanwhile, the country’s Islamic finance space as a whole reported assets of over US$272 billion, according to central bank data.

What gives?

Malaysia’s
long history in Islamic banking
 – it introduced the Islamic Banking Act and established
Bank Islam Malaysia
 in 1983 and enacted the Takaful Act in 1984 – is an undeniable advantage for Islamic fintech startups.

Malaysia was also in pole position in the Global Islamic Fintech (GIFT) Index for 2021 and 2022. The index measures 19 indicators in over five categories: talent, regulation, infrastructure, capital, and Islamic fintech market and ecosystem.

Naoto Nomura, a general manager at the Malaysian outpost of Japanese lender Aeon Credit Service, says that for aspiring Islamic fintech players, Indonesia is more attractive in terms of market size and talent pool.

However, the Kuala Lumpur-based executive adds that Malaysia has a better regulatory system in place. This makes it easier for companies in the sector to set up operations, launch products, and collaborate with larger incumbents.

“It’s a very good strategy to start [in Malaysia] and then explore out into other markets,” says Nomura, whose company was part of a consortium – along with Aeon Financial Service and MoneyLion – that obtained a
digital banking license
 from Bank Negara Malaysia (BNM), the country’s central bank.

Nomura says that part of the infrastructure includes Shariah finance scholars who can help draft new financial products, providing advice even on new trends like blockchain and cybersecurity.

“We are quite amazed at the knowledge and literacy they have beyond finance,” he says. “For them, Islam is a value system, [but] it’s also a science.”

Thus far, however, local startups have not seized the opportunity that Malaysia’s status in traditional Islamic finance presents.

According to the Islamic Fintech Database, which tracks some 375 Islamic fintech firms as of 2022, Malaysia has the fifth-highest number at 37. The country trails behind Indonesia with 61, followed by the United Kingdom (45) and the United Arab Emirates (42).

However, the number that have raised venture funding, according to our database, is much fewer.

One of them, Ethis, has expanded into Indonesia since 2015. More recently, Ethis
collaborated with VC firm Gobi Partners
 to set up a US$20 million Shariah-compliant global seed fund, which will start investing in the ASEAN and the Middle East and North Africa region.

Other local firms primarily operate partnerships with companies from neighboring countries. Shariah-compliant payments platform PayHalal, for instance,
partnered
 with Singapore-based buy now, pay later firm Atome in October 2021. Through the deal, PayHalal merchants can offer installment payment options to their customers.

Meanwhile, Al Rajhi Bank Malaysia formed a strategic partnership with Moneythor in April to
develop the Singapore company’s digital banking
 services in Malaysia.

A launchpad for expansion

One avenue the country can take, some experts say, is creating a Singapore-like hub model, where foreign companies enter Malaysia to set up regional operations.

Nomura’s colleague Ajith Jayaram, who is the chief transformation officer at Aeon Credit Services Malaysia, is one of those who think this could work. Beyond Malaysian fintech firms expanding abroad, he sees success in foreign players coming to Malaysia to create an Islamic financing business model then launching it to other Muslim markets.

He believes this would be possible due to the maturity of the country’s Islamic finance ecosystem and support from the central bank.

“If the digital Islamic bank model works well, it’s always been our goal to use Malaysia as a stepping stone, to launch this bank into other countries where we (Aeon Credit) operate out of,” he says. Aeon Credit has a significant presence throughout Asia, operating in Malaysia, Indonesia, the Philippines, India, Hong Kong, Taiwan, and its home market of Japan.

One such fintech firm trialing a new product in Malaysia is Singapore-based alternative digital financing platform Funding Societies, which launched a Shariah-compliant trade financing product for MSMEs.

Funding Societies data saw a demand for Islamic finance from Malaysian Muslim entrepreneurs, though the service is also appealing for non-Muslims given the emphasis on fairness and transparency in fees and charges. There was also demand among investors due to the shared principles between Islamic finance and
environmental, social, and governance
 investing.

Wong Kah Meng, group COO at Funding Societies, tells
Tech in Asia
 that Malaysia was a natural fit for the firm’s launch due to the receptiveness of local businesses toward Shariah-compliant financial products and the mature financing framework in the country.

Wong Kah Meng, co-founder and CEO of Funding Societies Malaysia / Photo Credit: Funding Societies

“Each market that Funding Societies is in currently acts as a testing ground for uniquely localized products. We are more than happy to expand products that work into other markets,” Wong says.

Meanwhile, Dima Djani, co-founder and CEO of Indonesian peer-to-peer (P2P) lender Alami, says Malaysia is definitely a destination the firm is interested in entering, as it’s near Indonesia and has shared values.

“The other Shariah fintech companies are still positioning themselves as P2P lending companies. And P2P lending, in general, has seen challenges in terms of securing VC investments,” he says.

Recently, Indonesia is seeing a societal and
cultural shift
, where young, middle-class Muslims are embracing a more conservative take on Islam. These consumers now opt for Islamic banking to avoid practices barred by Islamic law like exploitative interest payments known as “riba.”

Likewise, Malaysian Islamic finance prohibits riba and requires products to be vetted by the
Shariah Advisory Council
.

See also:
A new digital bank could instill VC faith in Indonesia’s sharia fintech

More urgency?

Of late, there may be more urgency for Malaysia’s Islamic fintech space to develop even further. The
GIFT 2022 Index
 notes that other Southeast Asian countries are quickly closing the gap.

Indonesia rose one spot to third place, overtaking the United Arab Emirates; Singapore was up four spots taking eighth place; while Brunei saw the largest jump, rising 11 spots to enter the top 20.

Malaysia’s Shared Prosperity Vision 2030 blueprint put the industry at the intersection of Islamic finance and the digital economy as a key to sustainable and equitable economic growth. The government has also put into place
programs
 to support the space’s development.

Some government agencies are now working with Islamic fintech firms to distribute financing as well, such as local fintech player Microleap and Bank Pembangunan Malaysia
collaborating
 to finance Malaysia Digital Economy Corporation (MDEC)’s digital agritech program.

Whether these efforts, combined with recent investments into the sector, will keep Malaysia at the forefront of Islamic fintech is still a work in progress. For one, MDEC, in its Islamic Fintech Report for 2020, highlights some challenges that the space still contends with.

Some concerns include a lack of clarity on fintech products that are not under the purview of BNM or SC, which creates market doubts on startups, and a lack of high-level direction on the Islamic fintech agenda.

Bank Islam Malaysia’s app Be U. / Photo credit: Bank Islam

MDEC also says that the venture capital environment is not mature enough to meet the funding needs of Islamic fintech startups. The local tech talent pool, for instance, is hampered by lower remuneration offers compared to neighboring countries.

To be fair, Islamic fintech globally still accounts for a small cut of the total Islamic finance pie. The Organization of Islamic Cooperation
estimates
 the fintech transaction volume of participating countries to be around US$79 billion in 2021. In comparison, the total market value for the global Islamic finance industry then was at US$2.2 trillion.

The top countries by market size were Saudi Arabia (US$26 billion), Iran (US$19.1 billion), and Malaysia in distant third (US$4.8 billion). (Indonesia wasn’t far behind, with an estimated US$4.2 billion market size.)

Perhaps Islamic digital banks will be the way forward for Malaysia, as they involve the country’s more prominent tech companies. Aside from the Aeon Credit Service consortium, the other Islamic banking license went to the group of KAF Investment Bank, Jirnexu, MoneyMatch, and Carsome.

Though part of a consortium that received a conventional digital banking license, fintech firm Boost has also
dabbled in Islamic finance
. In February 2022, it launched Shariah-compliant micro-financing product Capital Plus targeted at MSMEs.

Since then, existing Islamic banks have also entered the digital banking space. Most recently, publicly listed Bank Islam Malaysia
launched
 its Be U app in July 2022, which it invested 34 million ringgit (US$7.52 million) to set up.

Currency converted from Malaysian ringgit to US dollar: US$1 = 4.42 ringgit.


Malaysian wealth management app secures 8-figure funding

Versa
, a digital wealth management service, has secured an eight-figure funding round led by Hibiscus Fund, a VC fund managed by RHL Ventures and South Korean financial services conglomerate KB Investment.

[Front L-R] Versa’s co-founders Nelson Wong, Teoh Wei Xiang, and Richmond Yau with the Versa team. / Photo by: Versa

The round was also backed by OSK Ventures, Singapore-based HPRY Ventures, and returning investor Affin Hwang Asset Management.

Versa’s mobile app helps users manage their finances and gain interest on their otherwise idle cash with a platform that offers returns similar to those from other low-risk deposit options and with the flexibility of a savings account.

The Malaysia-based fintech startup was established in 2020 and was one of the first recognized market operators to obtain approval to operate from Malaysia’s
Securities Commission
.

It is currently offering net returns of 3.2% per year for savings in its cash management service, Versa Cash. Versa’s investor and partner, Affin Hwang Asset Management, manages Versa Cash.

Versa is also close to hitting US$44.44 million in transactions, having doubled its transactions since the beginning of 2022. In June 2022, it also introduced Versa Invest, an investment fund managed by top global fund managers.

Versa CEO
Teoh Wei-Xiang
 said the funding will help drive the company’s vision of empowering more people to achieve financial wellness goals and bridge the financial literacy gap in Malaysia.

Versa was also a recipient of the Cradle Fund Sdn Bhd (Cradle)
CIP Ignite II grant
 for commercialisation, a conditional grant of up to 500,000 ringgit (US$111,000) for tech based start-ups.

See also:
Pleasant surprise in Malaysia’s digibank race

Currency converted from Malaysian ringgit to US dollar: US$1 = 4.5 ringgit


Malaysian game dev acquired for $1m, set for Vietnam expansion

Mason Games
, a mobile game development studio based in Malaysia, has been acquired for US$1 million by Iglobsys Technology, a local company focusing on big data analytics and blockchain.

Mason Games founder and CEO Daryl Lau / Photo credit: Mason Games

The acquisition will bolster Mason Games’ plans to start its first blockchain game project, the company said. It also aims to set up a game development office in Vietnam later this year.

Founded in July 2021, Mason Games is a developer of casual strategy and idle games with Asian influences. Some of its titles include
Math Cat Boxing
,
Scoopy
, and
Monkey Madness
.

Daryl Lau
, founder and CEO of Mason Games, said the acquisition will “carve out larger market footprints in mobile gaming, especially in Southeast Asia.”

Meanwhile, Iglobsys Technology director Jackie Chong said the deal is a good opportunity for the firm to enter the consumer business as it has the “potential to amass an extensive database of users over a short time.”

Established in 2018, Iglobsys Technology helps clients improve their productivity and competitiveness. It has a presence in Singapore, Vietnam, and Indonesia.

See also:
Blockman Go could be Garena’s next big hit after Free Fire