This article first appeared in Digital Edge, The Edge Malaysia Weekly on February 13, 2023 - February 19, 2023
Two years ago, when Sivavenayakam Velayutham returned to his hometown in mainland Penang to assume the role of director of industry development and marketing at Digital Penang — the state government agency in charge of digital transformation — he noticed wide gaps in the local start-up ecosystem.
Unlike in the Greater Klang Valley, which has long been the hub of the start-up economy, the lack of a supportive start-up community and entrepreneurial incentives such as mentorship, funding, market access and visibility put Penang at a disadvantage.
Despite its vibrant manufacturing and electrical and electronics (E&E) industry, there are only about 80 start-ups today, he says. Founders struggle to make connections and grow their start-ups beyond the limits of the island state.
Just as Sivavenayakam was thinking about how to bolster the supporting structures, Melvin Ong — founder and CEO of Kuching-based web and digital marketing agency Karuna (Sarawak) Enterprise Sdn Bhd — approached him about expanding Karuna’s operations in Penang. Ong had been impressed by the state’s talent during the virtual hackathon that the company hosted at the peak of the pandemic in 2021.
Seizing the opportunity, Sivavenayakam proposed the launch of an incubator instead, which would not only help Ong scout for talent but also boost the local start-up scene by developing ecosystems that have considerable room to grow.
That encounter set the foundation for Ong to establish 25 Startups with the objective of providing mentoring and a soft-landing space for entrepreneurs to launch their ideas, grow their businesses and, more importantly, have better accessibility to start-up ecosystems throughout the country.
Sivavenayakam joined 25 Startups as an investor and partner a month later, as he believed he had more scope to make a change with the company than he did with Digital Penang. Besides Ong and Sivavenayakam, there are three silent funders. 25 Startups is currently based in Cyberjaya, Selangor, Penang and Kuching.
“We initially wanted to keep it lean and focused, and to just have 25 start-ups in our incubator, hence the name. But our strategy has now changed; we have incubators in different cities and we are connecting and inter-linking various ecosystems to work together,” says Sivavenayakam, co-founder and managing director of 25 Startups.
“We profile all the export-ready companies and take them to different markets and understand how they can expand. We look at the partners to work with, the potential targeted customers and whether we need additional support, for example, an international rep to take them to those clients.”
Having spent 13 years at Malaysia Digital Economy Corp (MDEC), Sivavenayakam has experience in scaling Malaysian companies that were ready to expand their presence in the region.
Before he left MDEC, he was head of global investment. “In this department, we worked based on the overall key performance indicators (KPI) of MDEC, which is the investment KPI. How many jobs do we create in a year and how much investment do we bring into the country?” he explains. “The goal was to bring in high-impact investors to set up in Malaysia.”
Sivavenayakam’s role in MDEC allowed him to view the landscape from a national perspective and, consequently, enabled him to identify the opportunities and gaps in Penang’s start-up ecosystem.
“My vision is to see how we can come up with more embedded products. I feel that everybody’s going into applications, so it is getting quite saturated. Penang has a very good E&E ecosystem … That’s its sweet spot, the intersection between hardware and software,” he says.
Leveraging Penang’s engineering prowess, 25 Startups is trying to connect to ecosystems throughout the country. This way, the other states will be able to tap the resources available in the Greater Klang Valley in a collaborative way.
“We thought one way to do that was to set up an incubator that has a presence in Kuching and Penang connecting to the Klang Valley and trying to help the ecosystem grow,” Sivavenayakam says.
“Everybody is just focusing on the Klang Valley ecosystem; they are missing out on the diamonds that can be found outside it. There could be amazing start-up founders from Kuching or any of the other secondary cities.”
Essentially, start-ups in states such as Penang and Kuching face challenges in expanding to the rest of the country and other regions. To address this issue, 25 Startups provides market access, funding facilitation, mentoring, training programmes as well as pilot projects. For instance, a pilot project for a start-up from Penang can be tested out in Klang Valley, alongside mentorship, to leverage the business.
There is also a need to support start-ups through their early stages as they experience growing pains and their founders venture into an exciting, yet treacherous, arena. Incubators provide the support needed for start-ups to gain knowledge and eventually thrive.
“At an early stage, a lot of founders struggle. First of all, in terms of their vision, many of them still have that local mindset. We can help them and show them it’s not about your local location, you have to start thinking big. We help them see how they can tweak their start-up idea so it is scalable,” he says. “We helped a Kuching-based Internet of Things (IoT) start-up connect to investors in Penang. We also helped a US-based vision analytics company get a pilot project in Penang. Finally, we connected a Penang company to the Kuala Lumpur ecosystem. These were the three validations we did before we started this [incubator].”
Start-ups are integral to the growth of the nation’s economy, as they spur more opportunities and are catalysts for growth. Start-ups drive the push for innovation while boosting employment rates.
This point is highlighted in the Malaysian Digital Economy Blueprint, which states that the country aims to increase the number of start-ups to 5,000 by 2025. The blueprint also states that it aims to attract two unicorns, whether homegrown or foreign.
To achieve these goals, the challenges need to be addressed. The Malaysia Startup Ecosystem Roadmap 2021-2030 outlines five challenges in the start-up ecosystem: They are a lack of private sector-driven funding; of local and foreign talent with the required technical and digital skills; of a clear path from ideation to commercialisation for start-ups; of robust policies and regulations to provide a sustainable start-up environment; and of validation and support, with a lack of access to cross-border market penetration.
The challenges and gaps can be grouped into five distinct areas: funding, talent, innovation, policies and regulations, and market environment.
25 Startups aims to bridge the gaps and tackle the challenges by, for instance, helping a start-up that is looking for relevant licences or approvals from government agencies. As policies and regulations are under the purview of government agencies, 25 Startups has established collaborations with entities such as MDEC, Cradle Fund Sdn Bhd and Cyberview Sdn Bhd.
“Through these government collaborations, we try to address the policy issues that the start-up is facing. For example, if a start-up is looking into a new area like Web3, how can agencies help with their issues, such as digital currencies?” says Sivavenayakam.
“Based on the problem statements, we try to engage the relevant agencies we have relationships with.”
25 Startups also works with venture capitalists (VCs) and connects them with the relevant start-ups, which are also advised on how to engage the VCs and obtain funding while meeting their expectations. The VCs that 25 Startups work with are Captii Ventures, Artem Ventures and Ficus Capital.
To enable start-ups to expand beyond Malaysian shores, 25 Startups has established partners in the local ecosystem such as KL as well as international markets such as Indonesia and Singapore.
“There are start-ups that are very strong in the technical space, but they don’t know how to grow. On the other side, you have start-ups in the Klang Valley that are very good in sales and marketing, and we see how they can work together,” says Sivavenayakam.
“The ideal is that a start-up from a small city in Malaysia should have access to a network of countries like the Philippines, Thailand and Vietnam from day one.”
To connect start-ups to a fresh talent pool, 25 Startups has collaborations with universities, including Universiti Sains Malaysia, Swinburne University of Technology Sarawak and Limkokwing University.
“There’s not much collaboration between the start-up world and the research world in Malaysia. Research is still stuck at universities. There is a huge gap, where there is not a lot of innovation or hi-tech start-ups in Malaysia, because these two ecosystems are not connected,” says Sivavenayakam.
Finally, to address innovation, he says 25 Startups identifies the problems experienced in the industry and has start-ups work on them. The company aims to be a platform that connects corporations to start-ups and address the problems that corporations face.
The Klang Valley, with its mature ecosystem, will maintain its status as the hub for start-ups and businesses, but there is a need for different ecosystems to collaborate to promote a cohesive unit. Sivavenayakam says Penang could use its status as a hardware hub to work with expertise from the software side in KL and develop an embedded ecosystem.
“We want to help start-ups outside the Klang Valley to become local or regional champions. All of us will be collaborating because that is how the start-up ecosystem works,” says Sivavenayakam.
“We plan to go beyond Malaysia eventually, to Indonesia and Singapore. How can our start-ups use our ecosystem to get into Singapore and meet other start-ups, venture capitalists or corporations to work with?”
To join the 25 Startups community, there is a nominal fee of RM500 and applicants must be a registered company, have an idea that has been validated and have a full-time founder. There are now 41 members — 20 in Cyberjaya, 20 in Penang and one in Kuching — including start-ups such as My Payment Gateway, VStream, HariWang and BlueSkies.
“A company will typically spend three years with the incubator. We offer an affordable membership model. Members can join any of our programmes, whether it’s related to market access, sharing sessions by industry experts or getting partner VCs to talk about their latest funds,” explains Sivavenayakam.
Safetruck and Easybook are members of 25 Startups. Safetruck uses software to effectively manage the fleet management system instead of the conventional tracking solution. Easybook is a one-stop platform selling bus tickets in Malaysia and Singapore.
“Safetruck is only three months old in Indonesia; we help by connecting the start-up to our ecosystem mentors and partners in Indonesia to guide it on how to get into Indonesia,” says Sivavenayakam.
Start-ups at different stages require different forms of market validations. For better validation, start-ups need to obtain them beyond Malaysian shores and in other countries such as Indonesia, says Sivavenayakam.
Market validations can also be obtained from pilot projects. An example could be a start-up that has developed a product that can be used by the city council. Since it is an early-stage entity, however, it may lack the contacts needed in the city council to pitch its product. This is where 25 Startups can step in, by helping to connect the two parties.
“Everybody thinks Indonesia is an easy market because we speak a similar language and have similar cultures. But, for me, it’s very different; Indonesia is a very complex market. It has its own players, and the way things move there is very different from Malaysia,” says Sivavenayakam.
“You need proper mentors or people who can guide them to get into those markets so the chances of failure are minimised.
“Many start-ups do things without proper validation. They might be validating with a few customers in their locality, but they have not validated this idea at a bigger scale. They end up doing something [that works] in their own city, but it might not be scalable.”
Those who do not meet the requirements to become members because of a lack of a minimum viable product (MVP) can pitch their ideas to 25 Startups to kick start their start-up journey and potentially turn their idea into reality.
25 Startups will then profile the start-ups and try to understand their vision, alongside their strengths and weaknesses. Based on that information, the start-ups will be placed in a programme. For example, a start-up looking for funding will be referred to VC mentors.
“We want to give everyone an opportunity to come in and pitch … There’s a long way for them to start a company or develop a minimum viable product, but we want to provide a service to hear them out,” says Sivavenayakam.
“If they have a very good idea with the right experience and connections, we will discuss how to make their start-up a reality.”
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