CONSIDER a Malaysian entrepreneur with a problem that looks like a good one to have. She has built a real business. There are customers, revenues and employees. She sees an opportunity to expand, perhaps from Penang into Johor, perhaps into Indonesia or Vietnam, and knows how much capital she needs.

Then comes the difficult part.

She may not have the collateral a traditional lender requires. She may need several years before investment in equipment, technology or expansion produces predictable returns. And although her company could become a successful regional business, it may never deliver the exponential growth or rapid exit a conventional venture capital fund seeks. So where does she go?

This question deserves attention as Malaysia seeks to strengthen its position in advanced manufacturing, semiconductors and other higher-value industries. The conventional prescription is that Malaysia needs more venture capital, but the more important challenge may be different: Malaysia needs more capital willing to take different kinds of risk.

Malaysia is hardly devoid of capital. It has established banks, government-linked investment companies, institutional investors, family businesses and a growing venture capital community.

Yet the Securities Commission Malaysia estimated the financing gap for micro, small and medium enterprises (MSMEs) at RM290 billion in 2022, citing factors including information gaps, market infrastructure and stringent lending criteria.

That figure does not mean Malaysia's banks are unwilling to finance businesses. Bank Negara Malaysia reported that banks and development financial institutions approved RM186.7 billion in new SME financing in 2025, with outstanding financing continuing to grow.

Both realities can coexist. Considerable capital is being deployed, yet businesses with particular financing requirements can remain underserved.

Return to that entrepreneur. She needs meaningful growth capital to hire engineers, purchase equipment or enter new markets. The bank looks at her collateral and repayment capacity. The venture capitalist looks at her potential valuation multiple and exit. She looks at her business.

All three may be making perfectly rational decisions, yet the result can still be that a viable company cannot obtain the capital it needs to grow.

A good company and a good venture capital investment are not necessarily the same thing.

Venture capital performs an important function, particularly in financing innovative businesses with uncertain prospects but potentially exceptional returns. Its economics, however, influence which companies investors support and the growth trajectories they encourage.

A profitable manufacturing company expanding regionally may offer attractive long-term returns without becoming a unicorn. An advanced manufacturing supplier may need patient capital to develop capabilities, secure certifications and establish relationships with international customers. These are not inferior businesses; they simply have different financing requirements.

For one company, the answer might be conventional equity, for another, private credit. Elsewhere, it could be revenue-based financing, growth equity, blended finance or patient capital prepared to wait longer for returns.

Malaysia has already demonstrated the potential of alternative financing. According to the Securities Commission, equity crowdfunding and peer-to-peer financing platforms had facilitated more than RM9 billion in cumulative funding by December 2024, benefiting over 20,000 businesses.

This is encouraging, but it also raises a larger question: how can Malaysia develop a wider range of financing options for businesses that have moved beyond the start-up stage but are not yet large enough to access institutional capital easily? Capital should fit the business, rather than forcing the business to fit the capital.

Malaysia's New Industrial Master Plan 2030 seeks to develop higher-value industries, strengthen domestic capabilities and improve economic complexity, but industrial transformation cannot depend solely on attracting multinational corporations or announcing investment commitments.

The harder task is ensuring Malaysian companies can participate meaningfully in the opportunities those investments create. Consider semiconductors, attracting international investment is important, but so is helping domestic suppliers invest in automation, expand their capabilities and compete for more sophisticated contracts.

The same applies to businesses supporting data centres, renewable energy infrastructure and regional supply chains. These investments may require longer financing horizons than conventional venture investors prefer. Their returns may be commercially attractive without being spectacular.

Malaysia's Securities Commission has recognised this challenge – its five-year roadmap for MSMEs and mid-tier companies aims to increase capital-market financing, targeting RM40 billion in annual funds raised by 2028. Importantly, the roadmap identifies mid-tier companies as a missing middle: businesses often too large for SME-focused assistance but lacking the scale of major listed corporations. This is precisely where a more diverse financing ecosystem could make a difference.

Malaysia has an advantage many emerging markets would envy: substantial domestic institutional capital. Its pension funds, government-linked investors and financial institutions collectively represent significant pools of long-term capital.

That does not mean these institutions should abandon their mandates or take inappropriate risks. Their responsibilities to beneficiaries and stakeholders remain paramount, but appropriately structured investment vehicles, specialist fund managers, credit guarantees and partnerships with development finance institutions could help direct more capital towards productive businesses.

Bank Negara Malaysia is already moving in this direction. Its 2025 Annual Report describes a transition towards guarantee-based SME financing support from 2026, intended to reduce collateral requirements, share risks and encourage private financing for underserved businesses.

The principle is important, public institutions need not finance every business directly. They can help create conditions under which private investors are willing to assume risks they might otherwise avoid.

The objective should not be to subsidise weak businesses. It should be to make commercially viable investments possible where financing gaps or mismatched investment horizons would otherwise prevent them.

For much of the past decade, governments across Southeast Asia have become fascinated by start-up ecosystems. Start-ups are counted, funding rounds are counted and unicorns are celebrated, but starting companies is not the ultimate objective – growing them is.

Malaysia should therefore ask not only how many start-ups it creates or how much venture capital it attracts, but how many promising domestic businesses successfully expand, improve productivity, employ more people and compete internationally.

This also requires attention to regulation, talent, market access and the practical difficulties of operating across borders. Capital alone cannot compensate for an environment in which expansion is unnecessarily complicated.

Malaysia does not need to replicate Singapore or Silicon Valley, it needs a financing ecosystem reflecting its own industrial strengths, business structures and economic ambitions. That means continuing to attract venture capital while recognising that venture capital is only one part of a much larger financing system.

Malaysia already has entrepreneurial talent, established financial institutions and considerable investment capital. Therefore, the opportunity is to connect these strengths more effectively.

Ultimately, success should be measured not simply by how much money flows into investment funds, but by how much productive business activity that money makes possible.

When a Malaysian entrepreneur has built a good business and knows where she wants to take it next, how many doors can she knock on? A genuinely competitive economy makes sure there is more than one.

Jeep Kline is founder and managing partner of Raisewell Ventures and a faculty member at UC Berkeley’s Haas School of Business. Shawn Balakrishnan is a partner at The Penta Group, where he leads its Asia operations from Singapore.