This article first appeared in Digital Edge, The Edge Malaysia Weekly on November 11, 2024 - November 17, 2024

While unicorns — companies with at least US$1 billion in annual revenue — chase high valuations at the expense of profitability, centaurs can focus on building solid businesses that can withstand economic fluctuations, said panellists at the Entrepreneurs Summit V, which was organised by NEXEA and held at the Asia School of Business. This is because centaurs — companies with at least US$100 million in annual revenue — can have a significant impact on the local economy by creating jobs, fostering innovation and contributing to the overall development of the tech industry.

“From the viewpoint of the Retirement Fund Inc (KWAP), it doesn’t really matter [whether a start-up has achieved centaur or unicorn status]. What matters is we have sustainable companies that would be able to grow and provide returns to its investors … Create companies that are able to withstand the ebb and flow of the economy, and then that [will become] an interesting proposition,” said Saifulbahri Hassan, director and head of private equity at KWAP.

“The pandemic was sort of a watershed. At that point in time, there was a huge reset. The reset basically says you can no longer burn capital just because you want to build market share [or] land a grant. You have to create companies that are sustainable … Now, more than ever, people are looking at sustainable companies because you cannot rely on capital being there forever while you’re burning through your balance sheet.”

Achieving unicorn status may be the pinnacle of success for many start-ups, but building centaurs may be a more realistic and achievable goal for most. “An important distinction is that a lot of unicorns are not profitable. They are burning and burning to get that revenue status up there,” said Roshan Thiran, founder and CEO of Leaderonomics.

Saifulbahri added: “A lot of our thinking about what should be the sort of leadership in venture capital is shaped by the West. If you think about it, our market is not like the West. In the West, you can create unicorns because you have a lot of capital …  As a pension fund, we are conservative. We do not want to be in a situation where we know we are burning money.”

The start-up journey is famously fraught with challenges such as limited capital and talent acquisition. It is also essential for entrepreneurs to expand their business into international markets to reach a larger customer base, as the Malaysian market may not be large enough, noted Liew Choon Lian, group chairman and CEO of MDT Innovation.

“Malaysia is a small market. If you really want to grow [your business], you need to look at the world. So, when you set up your company, think about how [you can] consistently innovate your products,” said Roshan.

Malaysian start-ups should focus on research and development to gain competitive advantage while collaborations with large companies can help start-ups scale and access new markets, said Liew.

“In my company, we invented new products every three to six months over the past 18 years. We spend a lot on R&D because technology is the core. Without technology, we are nowhere compared to many other good players out there … More than 90% of our revenue comes from overseas. Those are the markets [where they have] more budget to spend compared to our local markets,” he added.

In this stead, building partnerships is key to expanding into international markets, said Liew. Collaborating with local partners aids in navigating foreign markets, accessing new customers and leveraging existing networks.

“[For example,] we have a very big customer in Australia. It will take a Malaysian company years to qualify as a vendor. So, we find local partners [in the country] that are qualified vendors [of the organisation],” he added.

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