Magic’s Google-esque Cyberjaya complex places a premium on comfort. Photo: Alex Pettiford

Why startups in Singapore and Malaysia must fight to catch up to behemoths like China

By: Foong Li Mei - Posted on: December 4, 2017 | Business

Singapore and Malaysia are playing catch up with global tech capitals, but their pace may be slowed by talent that’s starting to look too timid for the cutthroat business

The startup founders stood on the pedestal, their faces lit by a glaring spotlight. Each of them had just a few minutes onstage to hawk their businesses to the audience, and it was an important room to win over – full of potential investors with deep pockets, some of whom had flown in from overseas.

The pitching session, held in October at the Malaysian Global Innovation and Creativity Centre (Magic), was part of the government agency’s Global Accelerator Programme (GAP), which consisted of 54 startups from ten countries this year.

Magic, located in Malaysia’s purpose-built tech city known as Cyberjaya and
boasting a brightly coloured, Google-esque interior as its hub, is emblematic of Southeast Asia’s newfound obsession with tech and ‘startup ecosystems’.

With their eager installation of funding schemes and supportive policies, many Southeast Asian governments are banking on their techies to bring ‘unicorns’ to life – startup lingo for firms valued at more than $1 billion.

The sector is a money magnet, after all. According to market intelligence firm CB Insights, global investments in the Southeast Asian tech scene hit a record high of $6.5 billion in the first nine months of this year – more than double the $3.1 billion achieved within the whole of last year.

Singapore is leading the region’s push to close the gap with tech hubs in the US, Europe and China, behemoths which still came out on top in the Global Startup Ecosystem Report 2017 by US-based organisation Startup Genome. Singapore did emerge as the world’s best in certain areas, though, dethroning even Silicon Valley in fields such as access to tech talent and the ability to tap international customers and capital. Indeed, CB Insights noted that Singaporean tech startups have bagged more than $7 billion since 2012, making them the highest-funded in the region.

James Tan, managing partner of Southeast Asia-focused fund Quest Ventures

But the city-state is facing competition from a keen neighbour boasting a larger market: Malaysia, the birthplace of the celebrated unicorn and ride-hailing service Grab. Magic’s GAP was the sole Asian programme in the world’s ten most-active accelerators list in the Global Accelerator Report 2016 by Gust, a global funding platform connecting startups and investors.

However, despite having many of the requisite structural and financial buttresses in place, Malaysia and Singapore are not growing as ruthlessly as their counterparts in established tech capitals, such as China.

“In China, startup teams typically work 18 hours a day and do not get weekends off for the first two years of the business. It’s because of  the hyper-competitive market,” says Jeffrey Paine, founding partner of Southeast Asian venture capital firm Golden Gate Ventures. “When my friends from China came to visit our office and co-working spaces, they were shocked that by 6pm half the people in the building have gone home.”

Paine adds that the visiting Chinese teams often expressed bafflement at the yearly achievement of local startups; they could hit that number within five days back home.

That could be one reason why Southeast Asia is lagging far behind the $27.8 billion in investments that Chinese tech firms netted in the first half of this year alone. The mainland’s unicorn boom began just a few years ago, though – according to a Bloomberg report, no more than one Chinese firm was valued higher than $1 billion every year from 2010 to 2013. In 2014, five reared their heads. Another 19 galloped into view the following year.

Sonam Pelden, head of regional marketing at ServisHero, speaks at Magic’s MA Symposium in October

On the upside, a less combative environment means startups in Malaysia and Singapore play nice with each other. Every tech player interviewed by Southeast Asia Globe concurred that the local network is highly supportive and cohesive.

One of them is Alan Cheah, CEO of Malaysian car-sharing platform GoCar. “Help is often just a phone call away. Local startups are very protective of their community,” he says.

Lucas Ngoo, co-founder of the Singaporean mobile classifieds marketplace Carousell, also recalls pulling through the app’s embryonic stage by tapping the knowledge and contacts of other startups at the co-working space they shared. The team was even connected to a future investor there.

But playing too nice can cripple the industry. James Tan, managing partner of Quest Ventures, a venture fund focusing on China and Southeast Asia, says that local startups should emulate China’s ruthlessness and “get big fast”.

“There is nothing wrong with wanting to stay as a small entrepreneur, but if so, why play in the fast-growth tech game? Tech startups have to grow by penetrating new cities or countries, including expansion by acquisition. Otherwise, you are just setting yourself up to be acquired by the Chinese or the Americans when they enter your market.

“Why would we want that when we understand our region best? We should try to conquer as many markets here as possible, which is what Grab is doing,” he says.

The cautious footing may be due to the prevalent fear of failure in the region.

According to Tanuja Rajah, programme manager of Magic’s GAP, local founders tend to tie their names to their endeavours.

“The mindset is: ‘If my startup fails, I fail,’” she says. “Many founders here also refer to their startup as their ‘baby’. It is precious to them.”

MomoCentral’s Chin Su Yuen believes Singapore should place more value on its software engineers

Paine observes similar ties between identity and success. Both he and Tanuja have noticed less attachment to startups in Silicon Valley, for example, where founders bounce back from flops quicker to dive into new ventures.

“In the US, startups will do their best, but if the business doesn’t work out, founders often pack up, move on and return investors’ money. But here, startups fight harder and try whatever it takes to stay alive,” says Paine.

Of course, such determination can work in startups’ favour, but protectiveness of their ‘babies’ may drive founders into possessive-parent mode. Tanuja has encountered local teams guarding their business plans and figures like state secrets; not even their mentors can get security clearance.

Sonam Pelden, head of regional marketing at ServisHero, a Southeast Asian app for hiring local services from home repairmen to gym trainers, is no stranger to such attitudes. She points out that the top question from aspiring entrepreneurs under her mentorship is how to prevent others from stealing their ideas, and that often they are not comfortable sharing problems and experiences.

The Bhutanese based in Malaysia notes that such a mindset is at odds with why startup hubs like Silicon Valley flourish – the best and brightest flock there to learn from each other.

Copycats, in fact, are unavoidable in a tech playing field still finding its footing. Paine estimates that the top 30 to 40 startups in the region are copied and localised versions of others from mature markets. There is nothing wrong with this, he emphasises, pointing out that India, China and Japan started the same way.

One of Magic’s main coworking areas, where entrepreneurs and startups can rent affordable desk space. Photo: Alex Pettiford

“But don’t copy blindly. You need to do it in the way that scales,” he adds.

Scaling requires greater human resources. It also means bigger headaches. This is why founders’ leadership and flexibility in handling change are top criteria for both Tan and Paine when betting on a startup.

They do lament the relatively slim pickings, though. Tan says that he funds only 0.07% of the pitches that flood his inbox. For Paine, it is 1%. 

While founders are celebrated as the star of a startup, Chin Su Yuen believes that the region should place more value on another driving force of the industry – tech talent. Chin is the co-founder of MomoCentral, a Singaporean marketplace matching more than 1,000 startups and firms around the world with tech freelancers.

“The West seems to value good computer developers and engineers as professionals. But here, we see businesses in general treating developers like cheap labour. I was told by a developer friend that clients see them as glorified construction workers,” she says.

In its report, Startup Genome notes that a software engineer in Singapore typically takes home $35,000 in annual salary, falling way short of the global average of $49,000. The gap is even more pronounced in Kuala Lumpur, where software engineers are paid $10,600 on average.

Alan Cheah, CEO of Malaysian car-sharing platform GoCar

Since the entrance of Google and Facebook in the local playing field, though, Chin has noticed that the appreciation of tech talent is rising.

Similarly, in Malaysia and Singapore’s quest to take a seat at tech’s top table, the countries’ other teething troubles are likely to improve with time. Investors seem to be putting their money on it, too, as is evident from the funding mega-rounds of more than $100m – some of the biggest in Southeast Asian history – pouring into the region this year.

For now, the governments at both ends of the causeway are locked in a tug of war for startup talent and capital, each of them waving tax breaks at investors. Hot on the heels of a Malaysian visa programme launched last year to ease entry for global entrepreneurs, Singapore also enhanced schemes to spark an influx of foreign tech firms in March.

Looking ahead, Tan says, a key tactic will be for Singapore and Malaysia to remain comrades, rather than competitors.

“Malaysian tech firms looking to raise more money can park in Singapore and use it as a gateway for regional expansion,” he says. “Singapore, on the other hand, should look to Malaysia as a viable hub for hiring engineers and setting up a high-value talent base, not just low-value talents like customer service.”

After all, going hand-in-hand is easier than sustaining an arm wrestle.

This article was published in the December edition of Southeast Asia Globe magazine. It is part of a three-part series that surveys the startup scene in Southeast Asia: Malaysia and Singapore, Cambodia and Vietnam. For full access, subscribe here