From the tabling of Budget 2023, Prime Minister aka the Finance Minister said government-linked companies (GLCs) such as Khazanah Nasional Bhd and the Employees' Provident Fund (EPF) would invest in local startups with high-growth potential with an investment of RM1.5 billion.
The Prime Minister said with the GLCs’ accumulative value estimated at RM50 billion this year, the role of the GLCs and government-linked investment companies (GLICs) are huge drivers of the country's economy.
Yes, high-growth startups are amazing and every country craves and hopes to have an enormously successful startup in their own country.
Without the startups like Zoom, the world would probably be less productive today. Thanks to the technology created by the company, we are able to stay in touch with family, friends, and co-workers despite being sequestered at home during the MCO. Lawmakers can still work during the pandemic while the economy trudges along.
In the early days of every start-up, they are money-losing machines for a while, sometimes a bit.
In Budget 2023, the unity government appeared to have taken exceptional measures to support and acknowledged that SMEs are the foundations of our economy.
A specific group of companies is the weakest among the SMEs, which is fundamental for economic growth and driving progress through innovation or job creation. They need urgent financing, but in most cases, they will see none of the funds that the government said it will deploy in the coming months even though the Prime Minister said government-linked companies (GLCs) will invest in local startups that are innovative and with high-growth potential.
A startup might have a number of customers and earn some income, but not enough to cover expenses.
At this stage, it needs to grow fast and will remain a startup until it reaches breakeven. Those at this stage will have no revenue at all. They are still developing their prototype, working on a new technology and have yet to reach the first customer. In either case, some or all of a company’s expenses and investments will need to be covered by external sources of financing.
Startups rely on equity financing since they do not have what banks look for when offering a loan, profits and fixed assets. The future is uncertain and to count on new investors is to be naive. Funding from investors, individual or corporate literally disappear after the pandemic.
Surviving is all that matters but surviving in these circumstances when you are still losing money is fraught with difficulty.
The GLCs, especially Khazanah and EPF, are focusing 100% on their portfolio companies. Even if they did invest, monies are funnelled through venture capital funds and accelerators. Some are looking at fundraising to finance and maintain their growth.
In all honesty, none is keen to invest in startups when there is no certainty on their sustainability as GLCs are not well equipped to analyze startups. None really understand startups but are required to be in the market because it is a direction from the government.
They would have to find these young companies, analyze them and negotiate a deal with each one. Most likely they will end up investing in companies that the established venture capitalists or investors bypass because they are bad companies.
If the process of funding goes through GLCs that do not understand the financing of startups, it will be a long process.
Instead of directing the GLCs to provide funding to startups, get the GLCs to hire start-ups to help solve their issues. For example, challenge local startups to identify and address the needs of the GLCs in the next phase of digitization with AI and quantum computing. This will help to create a vibrant startup ecosystem in the country.
Simplify and handhold the startups. Fund support through the provision of support services by startups to the GLCs.
If the conditions for accessing money are based on a strong balance sheet and income statement, then most startups will die. This would make the already critical situation of the economy even worse, as we would be losing many of the jobs and innovations that will be necessary for economic recovery.
Instead of directing the GLCs to fund them, why doesn’t the government direct the regulating authorities such as the Securities Commission and Bursa Malaysia to allow startups to access fundraising through the capital market? Both regulators, oversight and frontline, always state that they continue to innovate in response to evolving markets and inspire the full confidence of the investing public and market participants alike. They should provide greater support to promote greater seeding in the formation of innovation-based companies and startups in the country.
Based on the existing regulations for the listing of companies on the ACE Market on Bursa Malaysia, there is no minimum operating track record or profit requirement so long as a sponsor is prepared and willing to sponsor the said company for listing for a period of no less than 3 years.
Unfortunately, in the last few years, despite the rules stating there is no necessity for a company to have a minimum operating record, each of the companies that were listed have track records and historical profits that meet the requirements for companies to be listed on the Main Market in Bursa Malaysia.
The listings of profitable companies on the ACE Market, a platform where an applicant does not need to have a minimum operating track record, effectively crowded out any startups from seeking a listing on the same board and potential investors from investing in them.
Innovative startups need help now.
Listen carefully to the local startups and scale-ups, find out and determine their needs and act firmly.
Government leaders please act decisively, and start-ups will help you save the country’s economy in return.
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