KUALA LUMPUR, July 17 — The startup industry in Malaysia has seen positive developments but more must be done to establish the country as a startup hub, the Securities Commission (SC) Malaysia said.

Chairman Datuk Seri Awang Adek Hussin said that deepening the pool of capital as well as encouraging Malaysia’s investor community to invest in the startup ecosystem are two critical areas moving forward to establish the country as a startup hub.

He said the small and medium enterprises (SME), as well as startups, played an important role in driving activities at the national and state levels as they contributed half of the country’s gross domestic product (GDP).

"Given the importance of SMEs to the economy, it is crucial to address the supply-demand gap for financing these businesses,” he said at the launch of Dana Penjana Selangor in conjunction with the Corporate VentureCapital (CVC) programme today.

He said capital market financing provided a viable solution by allowing SMEs to raise funds in a flexible and creative way.

"This will facilitate them to grow and contribute more to the real economy as well as potentially going for listing in the stock exchange,” he said.

On the financing supply side, Awang Adek said SMEs have difficulty in accessing sustainable funding for their business whereby traditional bank loans might also have limitations in meeting their financing needs.

"On the demand (of financing) side, SMEs, particularly startups, often face higher risks and lower survival rates than larger firms.

"This leads to a pattern of high entry and exit rates across various economic sectors, which causes financial institutions to view them as riskier loan prospects,” he said, adding that this dynamic further hindered SMEs’ access to financing.

He said the capital market could foster investor confidence and attract more capital to fuel SME growth by emphasising governance, transparency, disclosures and investor interest.

"The government must be credited for its commitment to develop the Malaysian startup ecosystem,” he said.

He said the revised Budget 2023 highlighted several initiatives aimed at supporting businesses, particularly micro, small and medium enterprises (MSME).

"Among others, RM40 billion is allocated to MSMEs for financing as well as guarantees by government agencies,” he said.

However, he said that funding gaps in terms of fundraising still existed whereby startups struggle, especially in the later stages of financing, a situation referred to as the "Death Valley” in the venture capital (VC) industry due to the lack of funding.

"This is where matching fund programmes have proven to be effective in attracting private investors into Malaysia,” he said.

He said this approach struck the right balance between optimising public spending and crowding in private capital into the ecosystem.

"Additionally, these programmes serve as community builders as well as a bridge between Malaysian startups and the global investor community,” he said.

He said the Dana Penjana Nasional, which is administered by Penjana Kapital Sdn Bhd (PKSB), is one notable example which leveraged the expertise and networks of both local and global VC managers to effectively identify and support promising startups.

"I am pleased to see this model is being replicated at the state level. The launch of Dana Penjana Selangor exemplifies the state government’s commitment to fostering a thriving startup ecosystem,” he said.

He said this should complement existing programmes in supporting and nurturing tech startups, paving the way for both the Selangor and Malaysian economies to become centres of innovation and entrepreneurship.

Awang Adek said there is also growing interest from various states such as Selangor, Penang and Sarawak to help startups and SMEs via capital market financing.

He said the SC is also committed to facilitate a comprehensive "funding escalator” to give startups more funding options throughout their growth lifecycle.

"Other SC measures include opening up registration for new equity crowdfunding (ECF) and peer-to-peer (P2P) market operators, including for those offering Shariah-compliant solutions.

"The SC also introduced the DIGID fund with the aim to co-fund innovative projects that use technology, advancing the digital agenda for the Malaysian capital market,” he added. — Bernama