World Bank: More Flexibility Required To Stimulate VC Activity In Malaysia

The World Bank’s “Malaysia: Assessment of the Start-Up Financing Ecosystem” report has identified two main funding gaps among startup lifecycles in Malaysia. The first of these occurs during the ideation stage, involving businesses facing a need to develop a Minimum Viable Product (MVP) and those in the early-stage Series funding in the Series A and B rounds.

The report further highlighted that in recent years, the government grant funding has been moving towards concentrating on the commercialisation stage of a firm’s lifecycle.

In addition to this, an accompanying study in the report cites the need for greater rebalancing of support towards start-up financing and proposes the need to recalibrate existing programmes towards the current needs of SMEs.

Furthermore, the World Bank has pointed that venture capital activity in Malaysia is still relatively underdeveloped compared to other countries in the region.

From its analysis, the report found that Malaysia’s average deal size for seed funding is comparatively low as compared to its regional peers, indicating a lack of high-quality investment opportunities.

Malaysia’s share of VC-funded seed funding deals in the region has also declined over the past five years, standing at a marginal 7 percent of total deals in 2020. In 2019, with notable increases in Vietnam and Thailand, Malaysia’s share saw a decline, indicating that deal flow remained stagnant.

World Bank has also highlighted that Malaysia’s average deal sizes for seed funding are comparatively low relative to its regional peers, indicating a lack of high-quality investment opportunities.

Over the past five years, Malaysia’s share of the number of deals in the early-stage VC rounds of Series A and B have also fallen significantly, standing at a marginal 6 percent of regional share, a sharp decline from  14 percent recorded in 2016.

In other areas, the report highlighted the lack of tax incentives to stimulate the growth of the VC sector and a need for more flexibility to enhance onshore VC activities.

However on a positive note, international VC investors still consider Malaysia to be an attractive destination. From a regional perspective, Malaysia stands out as an established market, with good governance and rule of law.

In efforts to address funding gaps, the report has suggested improvements to the implementation of the Dana Penjana Fund of Funds (FoF) which could further strengthen its effectiveness as a funding vehicle within Malaysia’s financing ecosystem.

Furthermore, improving the clarity of the legal and regulatory framework for the VC industry will be essential to enhance investor confidence and to crowd-in more private VC funds.

For further reading, click here to read the full report.

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