The startup ecosystem in Malaysia has never been exclusive to the Klang Valley and Cyberjaya, despite the high focus on both locations as hubs for local and international founders. In recent years however, states such as Penang, Sabah and Johor have been making strides in attracting startups through grants and initiatives.
So what have other states done to attract startups and develop an ecosystem to help both local and international founders grow?
Disruptr speaks to Tony Yeoh, Chief Executive Officer of Digital Penang, a government-backed non-profit organisation tasked to attract investment and entrepreneurs, on the growth Penang has experienced over the years. He also shares his aspiration in positioning Penang as a product development center and areas with potential for emerging startups to explore.
“Penang has a long entrepreneurship history from its days as a trading port with pioneers such as the Sarkies Brothers, Yeap Chor Ee, and Loh Boon Siew. As the State evolved into industrialisation, engineers who had worked in MNCs had left and started their manufacturing business, successfully listing them on the Bursa. This includes the likes of Vitrox, Greatech, Globetronics and Pentamaster,” he says.
Yeoh also highlights startups such as JobStreet, DeliverEat, Tableapp, SiteGiant, Exabytes and PiktoChart that have used Penang as their base and successfully exited.
He relates their success to the smallness and nimbleness of Penang coupled with its diversity and availability of talent which has proven ideal for an entrepreneur to market validate quickly.
“The manufacturing MNCs also support the ecosystem through its supply chain and knowledge transfer, hence product and engineering startups have more traction than the pure-play software app-based ones.”
In 2020, StartupBlink ranked Penang as the 2nd startup ecosystem in Malaysia and 349th globally.
How much has it grown for startups?
According to Yeoh, the pandemic has somewhat stalled the pace of startups in terms of growth in the last couple of years, but the State has started to observe activities ramping up as of recent. In comparison to Klang Valley, he believes the ecosystem in Penang is smaller, less saturated and the growth rate may be higher.
With new trends in technology such as NFT, metaverse, digital twins and high liquidity in capital, Yeoh is optimistic the incubation of ideas will pick up pace post-pandemic.
“Penang is also known as the Silicon Valley of the East, we have a robust manufacturing industry with 50 years of excellence housing more than 350 MNCs, over 3,000 manufacturing-related SMEs and attracts millions of tourists annually.
“Tech startups can tap into supply chains of these tech giants and industry players to solve real-world problems and issues. The state also offers an ever-growing talent pool from local universities with multidisciplinary skills,” Yeoh tells Disruptr.
At Digital Penang, startups can access a co-working space located within the Creative Digital District in George Town to set up hub and have the opportunity to be the first location powered by 5G infrastructure that meets digital demands.
Mid last-year, Government agency, Malaysia Digital Economy Corporation (MDEC) in collaboration with Draper Startup House announced the Founders Grindstone Bootcamp. The programme is a seven-week Bootcamp initiative that places entrepreneurs through a series of focused workshops to highlight their eligibility to investors as well their investment readiness.
The programme was held in conjunction with the launch of the first Draper Startup House in Penang. “By launching in Malaysia, Draper Startup House hopes to connect the larger Draper business ecosystem to startups in Malaysia and thus facilitate global trade and cross border commerce. We are excited to work with MDEC because of their ability to build global partnerships, which will further drive Malaysia’s digital transformation,” says Vikram Bharati, Founder of Draper Startup House.
February this year, the Penang state government launched its fourth seed fund of RM1 million for technology startups. The Penang i4.0 Seed Fund Stream #4 aims to empower early-stage startups.
In its previous funding streams, the fund had benefited a total of 37 startups and with the addition of the RM1 million allocation for its fourth stream, total funds to date is RM5 million.
The seed fund which closed its applications in late-March was open to startups in sectors related to the Internet of Things (IoT), advanced manufacturing, consumer digital, EdTech, health tech, clean tech and other tech-based activities
Building a product development center
“Penang or for that matter Malaysia is too small a market, hence startups need to look at the region and tap into the RCEP platform. We want to position Penang as the product development center, so we will fund startups from anywhere as long as they place their R&D and product development center in Penang,” Yeoh says.
Digital Penang is also observing several strong potentials in the fintech and blockchain space, with more recently Intelliware, FinHero and robo auditor aBot making their mark.
In the IoT and engineering space, warehouse robotics players like PingSpace and Wondernica have made their entry while easyParcel, FoodMarketHub and Dropby have penetrated the e-commerce space.
Yeoh also urges startups to tap into the Cleantech and Gamedev sectors as well as to explore the space technology segment involving satellites.
Building An Ecosystem for The Future
“Our role as a government agency is to spur more key players from the private sector to participate in the ecosystem such as incubators, accelerators, angel investors and Venture Capitals. We also collaborate with universities to stimulate the ideation pipeline and we are also working with the industry to put real world challenges out there for entrepreneurs to resolve through co-creation,” Yeoh says.
Since the establishment of Digital Penang in April 2020, the government agency has engaged more than 500 startups and entrepreneurs to guide and create access to the market in their startup journey as well as drive digital adoption through their #DahDigital programmes to more than 40,000 citizens in the move towards digitalisation.
The agency has also helped more than 300 hawkers in Penang to establish their respective social media presence. Additionally, as policy, the State government has designated its first creative digital district located in the UNESCO Heritage site, called CD²@GeorgeTown to attract beacons in digital services and software that can become anchors for the digital ecosystem.
Yeoh also says Digital Penang is currently focused on working with partners such as MATRADE and twinning with other foreign ecosystems to create better access to markets for startups. This is in relation to assisting founders to overcome the 3M challenge – access to Money, Markets and Mentors.
As for the future, Yeoh is hopeful that the government intervention will taper off and the market and ecosystem will be attractive and robust enough to attract private sector players to come in and participate.
“In our view, startup grants are not sustainable but funding should come from savvy private sector investors or validation from customers as market buyers. On this end, we have created a joint funding programme called Founders’ Grit Seed Program, where angel investors and VCs together with the State create a fund to screen and invest in startups,” Yeoh shares with Disruptr.
Digital Penang is also working with State departments responsible for Smart City projects to utilise these projects to give local startups opportunities to establish a proof-of-concept, become their reference sites and attract bigger international players capable of transferring their expertise and knowledge to the ecosystem.