How CVCs can unlock value for Malaysian businesses
MALAYSIA is a country with bold innovation ambitions, as we look to expand and evolve the national technology landscape.
Corporate venture capital (CVC) can be a vital catalyst to achieve these ambitions.
Successfully advancing innovation will require both substantial investment by leading Malaysian corporations and an energised collaboration with the local startup ecosystem.
This is critical to delivering corporate success, as well as achieving the targets of key roadmaps such as the Malaysia Startup Ecosystem Roadmap 2021-2030.
Such investment has seen significant growth in the last decade, with over 1,000 CVC entities established globally by 2021 — the peak of the activity.
While a recent slowdown has cooled startup activity somewhat, CVC is still a critical part of the region’s business landscape.
Singtel Innov8’s investment in Wiz.ai and Beacon’s investment in Grab both highlight growing engagement in corporate ventures across the region.
Despite global and regional growth, however, CVC activity in Malaysia remains relatively subdued compared to South-East Asian leaders such as Singapore, Thailand and Indonesia.
Identifying and addressing the reasons for this discrepancy are essential.
Boston Consulting Group (BCG), with its tech-build and design unit BCG X and Capital Markets Malaysia, engaged over 30 senior leaders of Malaysian corporations, undertaking detailed discussions and surveys to understand this landscape in a recent report: “Advancing Malaysia’s Innovation Landscape: The Pivotal Role of Corporate Venture Capital”.
The findings provide a strategic pathway to enhance CVC performance in Malaysia.
Malaysia’s current CVC landscape
CVC represented just under half (46%) weighted average of total venture capital (VC) funding in South-East Asia from 2021 to H1 2024.
Over the same period, Malaysia had a CVC funding share of 21%, demonstrating significant untapped value potential.
In absolute terms, the combined value of CVC and VC funding in Malaysia reached US$379mil over this timeframe, compared to US$2,511mil in Indonesia and US$7,654mil in Singapore.
Despite this lower base, however, there are encouraging shoots of growth that hint at a maturing ecosystem in Malaysia.
Malaysia’s domestic VC market grew 21% between 2016 and 2020. While certainly an important indication of growth, Malaysia is still 17 percentage points behind the South-East Asian average.
This is down to several factors, including the limited presence of VCs compared to comparator nations, access to suitable talent and existing deal flow.
While Malaysia’s VC ecosystem has traditionally relied heavily on government-related funding, promising signs of transition are emerging.
Notably, there has been an increase in non-government funding in recent years — rising 10 percentage points from 27% in 2021 to 37% in 2022 — catalysed by the Malaysian Government’s Dana Penjana Nasional (DPN) programme.
It should be highlighted that not all stages of Malaysia’s startup ecosystem are presented with the same funding situation.
A significant 91% of VC deals in Malaysia are valued under RM10mil, compared to 76% in Singapore and just 60% in Indonesia, indicating a major gap in mid to late-stage funding.
With a significant pot of untapped liquidity held by Malaysian corporates, CVC could offer a powerful opportunity to energise a more holistic startup ecosystem, in turn supporting a culture of innovation that can drive benefits for the whole economy.
Investing in growth
A key motivator for corporations to initiate CVC programmes is their role in driving growth and innovation.
If executed well, CVC can provide an accelerated and cost-effective path to access new technology capabilities that is crucial in today’s fast-evolving technology landscape.
What’s clear is that there is an appetite for innovation in Malaysia.
Two thirds (64%) of executives in the research agree that their innovation ambitions are linked to corporate strategy and aligned with overarching strategic goals.
However, a lack of consensus at the senior level may be a barrier, with under half (40%) of executives agreeing that achieving the company’s innovation ambition is a strategic priority for top management and is widely communicated throughout the organisation.
There is also clear hesitation about the pathway to establishing a CVC, with just 39% expecting to do so in the next three years, and only 8% already having done so.
The challenges echo many of those seen across business transformation initiatives — risk aversion, lack of VC expertise, a focus on core business and immediate business challenges, conservative investment strategies and bureaucracy.
Despite the common challenges highlighted above, a few pioneering companies in Malaysia are already demonstrating the value and benefits of CVC.
For instance, Malaysian conglomerate Sunway founded Sunway City KL as a startup laboratory, leveraging this experience to inform strategic partnerships for future CVC development.
Multinational energy company PETRONAS established PETRONAS Ventures to strategically align its CVC objectives with the overarching group strategy, assessing both financial and non-financial outcomes to understand success.
Meanwhile, infrastructure conglomerate YTL has deployed exploratory investments to build exposure and scale carefully with clear business alignment.
Three levers for success
These successes, alongside our broader research and experience, have enabled us to identify three key levers to catalyse a stronger CVC ecosystem in Malaysia.
> Educate and enhance awareness for board and senior leadership. This should be supported by an increase in strategic role modelling, using a portfolio approach to help manage risk and optimise returns, backed by a dedicated investment committee.
> Create opportunities to start small. Start small to provide early, low-risk exposure to CVC. Partner with VCs to leverage experience and market understanding, and implement co-investment funds to mitigate perceived risks.
> Improve connectivity between startups, corporates and funding sources. Develop centralised platforms to improve cohesion across the ecosystem, and strengthen corporate-investor links. Encourage regular networking events to build and reinforce these connections.
These three levers provide a platform to uplift Malaysia’s CVC ecosystem, which would be crucial to unlock capital in our business environment to energise innovation.
We know innovation can be hard and risky. Yet, despite the recent corrections of valuations and the so-called “tech-winter”, we see a wealth of untapped opportunities for Malaysian corporates.
Smart investors invest when valuations are low, and this suggests the time to double down on CVC initiatives is now.
With the right ambition and strategy, corporations are positioned to turn those green shoots of growth into a fully-fledged ecosystem, one that benefits not only their business, but the economy as a whole.
Hanno Stegmann is a managing director and partner, as well as the Ventures Southeast Asia head in BCG X.
Nurlin Mohd Salleh is head of BCG Malaysia, as well as a managing director and partner.
