KUALA LUMPUR (Dec 13): With an economic downturn on the horizon, the tech ecosystem is undeniably concerned about the consequences of a possible recession. But there are opportunities that come with the threat, said the panellists at the “Outlook 2023: Challenges and Impact on Southeast Asia’s SMEs & Startups During Global Recession” event organised by Malaysia Venture Capital Management Bhd (MAVCAP) on Tuesday (Dec 13).

“Never let a good crisis go to waste,” said Khailee Ng, the managing partner of 500 Global Southeast Asia, explaining how the global financial crisis in 2008 contributed to the evolution of the venture capital (VC) industry.

Ng pointed out that the number of smartphone users have increased exponentially in the past five years, including users from remote localities and non-obvious markets — which presents an immense opportunity for tech companies to explore. This is why the current economic conditions is “a good time” for VCs to invest in companies that cater to the marginalised communities or the B40 group.

Female entrepreneur-backed companies, which are often sidelined, are another segment that also presents prospects, said Thomas G Tsao, the co-founder of Gobi Partners. Funding female founders and the female economy fulfils the diversity, equity and inclusion (DEI) framework, which would leave quite an impact on the economy.  

“Part of the overvaluation of tech companies and startups is because there's too many men, men tend to exaggerate while women founders, it is claimed, are more practical and provide realistic evaluations. I think that's an interesting thesis, we should test for all the female entrepreneurs in this room,” said Tsao.

Tsao is also bullish that Malaysia is the perfect hub for TaqwaTech — a term Gobi Partners coined — defined as an ecosystem that has built a product to serve a large Muslim community. Tsao foresees plenty of opportunities in the tech space, which is still relatively underrated.

Opportunities aside, the risks in terms of sufficient funding for startups is still a concern, said Paramjit Singh, the chief investment officer of MAVCAP. Startups also need to steadily sustain their performance for continuous funding from investors.

The economic situation is so precarious that predicting even the near future is impossible, observed Charles Wong, the co-founder and managing partner of TNB Aura, a Singapore headquartered VC focused on Series A and B technology investments in the region.

“Ensuring you [tech companies] have the ability to choose when you go out to market as a portfolio company has big ramification. As a funder of portfolio companies, we need portfolio diversification. But at the same time, we need to ensure that for those that are able to go out [commercialise] are profitable,” said Wong.

“And so, with that comes a serious threat. How do we make the most of what is possibly going to be the best ever vintage for Southeast Asia in 2023? We've seen portfolio companies that have turned profitable and we've got two other portfolios now that are doing S$20 to S$30 billion in earnings before interest and taxes every year. So we're very bullish on it," he added.

Even if the fear recession does not impact the Malaysian economy as predicted by Bank Negara Malaysia, resets will continue to happen, especially in tech.

As such, collaboration is key to ensuring the tech ecosystem is able to withstand an economic crisis.

“Everybody in this room is trying to create a Malaysian ecosystem. So I think what we need, without any of the negative undertones, is a MAVCAP mafia. A kind of an ecosystem that's going to work together.

“Essentially, where the strategic players work together [as a] community. I'm a big fan of the show, Narcos, again, none of that negative undertone, why not create something called a 'KL Cartel' or a 'Khailee Cartel' and bring people together?

“There is competition amongst all the VCs here today. But again, with MAVCAP leading, there could be so much collaboration, [although] the competition is good as well. This might just be the spark [Malaysia needs],” said Tsao.