Disruptr chats with Aaron Sarma, General Partner of ScaleUp Malaysia on the accelerator’s recently concluded Cohort 3 which announced investments into 11 startups. He shares his thoughts on the highlights of the cohort, how have things changed since Cohort 1 and what can founders expect from Cohort 4.
For more information on the winners of Cohort 3, check out our previous coverage here.
With the recent graduates of Cohort 3, what are some of the highlights and strong points that you would like to share?
Aaron Sarma: We started ScaleUp Malaysia in 2019 with the aim of helping some great founders find their stride and get to their next level of growth. In the last 30+ months we have had the pleasure of working with 60 companies and investing in 30 great founders.
Cohort 3 was really special. We were able to not only bring our programme to these new founders but we also brought some great partners on board. We worked with venture capital firms, a government agency and many ecosystem partners. On the VC side we had Quest Ventures who worked with us in Cohort 2 and Indelible Ventures, a new firm with an exciting mandate.
Quest Ventures has invested in some of the region’s fastest growing startups such as Carousell and Carro. Indelible Ventures, a US based VC firm focuses on B2B SaaS startups in Malaysia. To top it off, MranTi (then MaGIC and TPM respectively) came aboard to support our companies with support from the government. Cohort 3 truly was a successful public-private partnership.
We’ve selected some great companies from Cohort 3 which will get RM250,000 from ScaleUp Malaysia and our partner venture firms. Our 11 selected companies range from various industries such as education, manufacturing, media and retail. Many of these companies are poised to make meaningful breakthroughs over the next few months.
How has the startup ecosystem changed since Cohort 1 went live?
Aaron Sarma: We’ve seen a lot happen since we launched ScaleUp Malaysia in late 2019. It goes without saying that the pandemic is a huge part of this shift. In the private sector we’ve seen a growing need for digitisation and digitalisation in the market. Businesses have seen the need to adopt new solutions and business models. This has been a boon for the startup space which needed a new breed of entrepreneur to emerge to meet these needs.
We’ve also seen more investors and accelerators emerge to meet the needs of the market. This is great progress and ultimately we think we need much more growth in this area.
We’ve also seen the government step up to institute new initiatives such as the Malaysian Digital Economy Blueprint which shows its commitment to digital development over the next 10 years. The creation of Dana Penjana, a government matching fund also is a step in the right direction to support the ecosystem with RM1.2b worth of capital. In addition to this, agencies such as MranTi are paving the way for new innovation in the ecosystem.
The trend lines are encouraging but there is certainly a lot more we can do to develop the ecosystem.
What’s lacking in the current startup ecosystem in Malaysia and what can be done? What sort of changes is Scale Up Malaysia looking to advocate? Who are other stakeholders that you think should step up and make a change?
Aaron Sarma: I see 2 main areas that require more support to further develop our ecosystem.
Firstly, we have a major talent deficit. This is across the board. We need more skilled professionals who can code and develop solutions and we need good executive talent to grow and scale our startups. To develop technical talent we need to ensure that the workforce is highly competent and we need to stop the brain drain. The development and retention of talent is critical to our success and is important for our startups to be able to raise capital.
Executive talent is also important for growth – ultimately, startups need to scale and become fully fledged businesses. To attract high quality executive talent we need to ensure that the best performers are incentivised to work in high risk, but high growth enterprises.
Which brings us to the question of capital. I’ve been very vocal about my support of Dana Penjana as it has facilitated such a large injection of capital into the ecosystem. Although this is far from enough, Dana Penjana should not be a one and done situation.
We hope that the government allots fresh funds to facilitate the creation of more VCs in the market. Even without government support, the process for setting up a fund should be simplified so more investors can participate and invest in startups. Corporate Malaysia should also be incentivised to participate in venture growth startups.
These two aspects of talent and capital are interconnected and critical to the success of our ecosystem.
How do you think Covid has influenced the ecosystem and strategies among startups in Malaysia?
Aaron Sarma: Covid-19 has certainly had a profound impact on the ecosystem. In principle, we’ve seen some companies go through very rough few years with many shutting down. Some have been able to pivot their businesses and find new ways to make ends meet. The sharpest founders are able to identify the opportunities the pandemic has presented and develop new models to serve those needs.
What areas do you think hold high potential for startups to tap into in 2022?
Aaron Sarma: I think 2022 is actually going to be a very challenging year for startups. We had a period where governments all around the world were pumping a lot of capital into the markets to keep the economy afloat. We are now seeing a bit of contraction. Globally funding has slowed down by 19% in Q1 2022 as compared to last quarter.
Startups need to focus on building good unit economics and sound business models. The opportunity for them is to prove that these models can work at scale as that is what savvy investors are looking for in this economic climate.
In an interview on Notepad, you mentioned that Islamic Digital Economy is one focus area that holds high potential. What do you think needs to be done to pave the way for this industry to give birth to startups with good solutions? What challenges should they start identifying?
Aaron Sarma: The Islamic Digital Economy has high potential. With 1.8 billion practicing Muslims in the world it is amazing that there isn’t a clear market leader in this space. This is our opportunity in Malaysia as a modern Muslim majority country with digital ambitions. We should aim to be leaders in this space.
Many of the pitches that we see so far are early stage concepts. We need entrepreneurs who are able to translate real needs into functioning products. The fundamentals of creating a startup remain the same.
How do you identify hidden gems in the ecosystem?
Aaron Sarma: We try to meet as many entrepreneurs as we can. As of right now we are accepting new applications at www.scaleup.my for our next Cohort and our team has multiple meetings every week with new companies who apply for the program.
We find that the best companies have a very similar DNA: great founders who are passionate about what they do and are striving to hone their skills, a good product with a clear roadmap and a strong thesis on how to address their market.
Many of the founders we meet are very much diamonds in the rough. They have a good service or product, they have some traction but there are certain fundamentals that we can help fix. The founders that embrace the process really excel.
As we move into the endemic phase, what would this mean for the ecosystem?
Aaron Sarma: I think it’s really important that founders focus on the fundamentals of building a business. Ever more so now that the market is starting to open up and business starts to look more like it did pre-pandemic.
The danger founders would have is to take this as a signal to be reckless. The lessons hard learnt during the pandemic remain true. Focus on building healthy cash flows, keep on iterating on products and serve their customers.
What does the future hold for the ecosystem?
Aaron Sarma: On a macro level I think the next year or so will be challenging. We’re seeing many economies around the world suffer as the effects of the various Covid-19 stimulus packages wear off. In Malaysia we’re experiencing inflation and the ringgit has had a bumpy few months. This is not the moment for founders to be complacent.
At an ecosystem level it’s actually quite exciting. We’re about to see Carsome, Malaysia’s first unicorn IPO in the coming months. We’ve seen our portfolio companies get great traction from local and regional VCs. Additionally it’s encouraging to see the focus from the government in the ecosystem from the new R&D focussed development in MranTi, to the new grants at Cradle fund and the additional capital being pumped in via Penjana Kapital.
That said, it is important that we continue to focus on developing our talent and ensuring there’s sufficient capital in the ecosystem as we discussed earlier.
Why should startups start applying for Cohort 4 and what should we be looking forward to?
Aaron Sarma: Cohort 4 is going to be very different from our previous cohorts. After working with some amazing founders from Malaysia and around the region we’re reinventing how we work with companies to help them grow and scale even faster. I can’t speak to the exact details of these changes but stay tuned to our social media or express interest for Cohort 4 at www.scaleup.my for more information.
Our mission continues … onwards and upwards!
Scaleup Malaysia is accepting applications for Cohort 4! If you are a founder looking to embark on a market expansion journey and if you are interested to prime your business to be investment-ready, then this is the cohort for you.
Register now at https://lnkd.in/dKKvUcjR