HTBV Podcast: Unlocking the Trillion dollar SEA Startup Ecosystem — Malaysia’s context
with Chan Yip Pang
Thank you for your strong support for our Series 1 — Hard Truths by Vertex podcast. We are now back with our Series 2.
Vertex Ventures Southeast Asia & India is a pioneer in investing in tech start-ups in this region and has helped to build a number of unicorns. In this podcast, we want to share and uncover Hard Truths — raw, unfiltered insights and venture capital experience across Southeast Asia & India. Tune in to hear from leading founders, innovators, venture capitalists and industry experts in the region and to gain industry insights from those in the know.
Listen on Spotify: https://open.spotify.com/show/2JMf3yPwhuOIY85rpx5B2Y?si=e682a6607f0146e0
Watch on YouTube: https://www.youtube.com/watch?v=tT_cDAOsBMA&list=PLPbU1xKnX4FXGY0Q5USG1zW3ZoS3LvhU4&index=18
Our Guest, Chan Yip Pang’s Bio:
Chan Yip Pang is Executive Director at Vertex Ventures SEA & India. He focuses on Pre-A, Series A and Series B investments in Fintech, Consumer and Enterprise Software.
Prior to joining Vertex, Chan Yip was the Asia Pacific Investment Director in Experian Ventures (the corporate venture arm of one of the largest credit information firms globally) where he focused on financial inclusion for the next billion users. He was also part of the M&A team and has worked on key acquisitions for the company. In addition, he represented Experian as board of director/observer in several portfolio companies.
Elise: Hi, I’m Elise Tan, and I’m your host for this episode of Hard Truths by Vertex Podcast. Today, I have my colleague and Executive Director of Vertex Ventures Southeast Asia and India, Chan Yip, with us. Hi, Chan Yip.
Chan Yip: Hey, hi, Elise. Thanks for having me.
Elise: So today we are talking about the Malaysian startup ecosystem.
It’s really interesting because Malaysia is one of the ones with the highest GDP in Southeast Asia. Malaysia has been growing in terms of the ecosystem in the past decades. And today, Chan Yip is going to share more about the evolution as well as the different aspects of the ecosystem.
So Chan Yip, do you want to let us know a bit more about yourself?
Journey from an electrician’s son into the VC ecosystem
Chan Yip: Yeap, sure thanks, Elise. So I actually grew up in Malaysia, specifically Malacca — the historical small town that a lot of tourists go to. And since very young, I was actually exposed to technology. My dad was an electrician and while he didn’t have a lot of education, because he studied only until Primary 6, he understood the implications of computers right.
Since I was young, I was exposed to tech — I remembered when we had our first computer, which was the 486 so it was one of the coolest gadgets back then. And then subsequently, I came to Singapore to study. So I went to the National University of Singapore and it was a transformative experience for me because back then I was actually selected for this program called NUS Overseas College or in short called NOC and that actually placed me to work in startups in Shanghai.
And that was when I got exposed to a startup ecosystem plus also the VC ecosystem. So since then, that has actually guided my career decision moving forward.
Elise: Wow, computers in that time. I think we were born around the same kind of era. Having a computer is really rare during our time, believe it or not.
So it must be a great experience being exposed to it. My first experience with computers was actually just to play a computer game Solitaire or something like that. So I’m nowhere as technical or technically introduced as you.
So what did you do? How did you end up in Singapore?
Chan Yip: Yeah, you’re right. I think the computer was quite rare at the time. So it actually costs a bomb, right? And my brother, sister actually went on to become computer scientists except for me. But anyway, after joining NUS, when I graduated, I actually went on to join Singapore’s Economic Development Board (EDB) which is the main government agency responsible for attracting foreign direct investments into Singapore.
So I decided to take on that role because it provided me with the opportunity to work with tech companies and I’d like to be in the investment scene. After all, EDB is about attracting investments into Singapore. But when it came to 2013 and 2014, I started realising that the startup scene in Singapore as well as across Southeast Asia was growing pretty quickly.
So back then, there were companies like Shopee, Grab or Tokopedia. They all started around the same period. So therefore, in 2013, I decided to join EDBI which is the investment arm of EDB. So that’s how I kickstarted my career in investments.
Elise: Wow. It’s quite an experience, going through the NOC program, being exposed to startups in early days, and especially in the hearts of the financial district in China, Shanghai. And then after that, you join EDB, which I think really exposes you to various industries and investments, which then helps you to really get started in this space.
I’m just curious, how did you get to know Vertex?
Chan Yip: Being an aspiring VC, everyone would have definitely heard of Vertex because Vertex is probably one of the biggest VC brand names, especially back around 2010, right? Whereby there weren’t that many VCs around. So Vertex was the top-tier VC. And that reputation was actually cemented by the fact that they invested in Grab, which was one of the biggest tech companies around this region. And I was lucky enough because I actually worked with a couple of current Vertex colleagues who actually used to work in EDBI.
And when this opportunity came up, someone within Vertex actually thought: “Why not give him a try”. He actually helped to submit my resume and subsequently, I was interviewed. I managed to secure the job. I was pretty lucky in that sense.
Elise: Yeah, great to have you as part of the team.
So before joining Vertex, you were with Experian, and I think that really gives you an exposure to how CVC works, which can be quite different from (financial) VC. One of the questions I’m often asked by entrepreneurs is what are the differences right between a corporate VC and a financial VC? Maybe you can share a bit with us.
What is the difference b/w corporate VC & financial VC?
Chan Yip: Yeah, just a bit of background. So I was from Experian.
I was actually leading the venture team for Asia Pacific. I was also double-heading as the M&A personnel within the company. So I think for any corporate VC, the key difference compared to a financial VC is that a corporate VC will always look into investment from a strategic point of view.
So that means if Experian were to invest in a company, would that startup that we are investing in can potentially bring value back to the corporate? So that will always be the lens that they’re looking at. So as a result in terms of the type of companies that we could look at maybe it’s a bit more narrow.
But that’s it. There are also certain opportunities that we can go after, right? So if I can do a deal whereby one plus one equals three. So that’s where I think those are the deals that would actually make sense for us to actually invest. So I think that will be the key difference between a corporate and a financial VC like Vertex.
Elise: Yeah. And in terms of stage, would you recommend someone who is in an early stage, for example, fundraising in series A to be reaching out to a CVC or would financial VC be a better option for later stages?
Chan Yip: Yeah, CVC is probably a better option for later stages because when you are very early on, you don’t want to be distracted by corporates. So because sometimes when corporations invest in you, there is a certain direction they want to drive you to.
I would say if you want to explore CVC maybe Series C or Series D will make a bit more sense because that is the point whereby your company would be quite established. Your products are already there, so you don’t need to do a lot of customisation in order to fit what the CVC requires.
And then there would be the point that you scale, right? So what you want to do is actually leverage the corporation’s distribution network. And then with your differentiated product you combine these two together, you can potentially become quite a strong force in the market. So I would say those two would be the two key considerations.
Elise: And I’m just going back, relating it to the Malaysian ecosystem, how do you think would be the split between the CVC and financial VC?
Chan Yip: Oh interestingly, actually in Malaysia, there’s more CVCs coming on board. For example, there is Maxis, there is Sunway. But I would say by large, the market is still driven by private VCs. And these private VCs, a number of them are actually funded by the government. In which I think it’s actually healthier.
So given that the Malaysian ecosystem, it’s still trying to build up from a trough from 2018 to 2022. So right now I think things are picking up again. So with that, I would think that the future is bright moving forward.
Elise: Great. Going back to Malaysia — you have grown up there, and I think with the investment exposure, you have seen how the ecosystems have grown. So could you maybe walk us through what has happened over the years? What were the exciting moments?
The 3 phases of Malaysian tech development
Chan Yip: Yeah, I would say that I can probably divide the Malaysia tech development into three different phases, right?
So first is 2012 to 2017 and then 2018 to 2023. And then, right now, 2023 onwards. So for the very first phase 2012 to 2017, it was actually a very exciting era. I would say it’s probably the golden era for Malaysian tech because that was when companies like Grab or Carsome were set up. They started in Malaysia first.
And then you also have companies like Aerodyne that have done really well, and during that period, it was the Najib administration. So he was a very supportive prime minister of the tech ecosystem. In fact, he actually started this agency called MaGIC, and MaGIC for a while was actually the premier Investment hub for Malaysia because they managed to build a strong community. But in 2018 to 2022, I would say Malaysia actually went through a period of transition.
That was because firstly, there were a couple of government changes, plus the fact that COVID happened during that period. So this period, we didn’t really see that many quality companies actually coming out of Malaysia. But in 2023, I think we are starting to see some things picking up.
So especially with this new government taking charge, I think that helps with building the ecosystem because right now, for example, the Minister of Economy used to run the startup himself, so he knows what it takes to actually run a company and to grow a company and we are seeing more efforts by the government.
Elise: Wow. Yeah, it’s definitely exciting times to come. And if you don’t already know: This whole series that we are doing, we call it — “Unlocking the Trillion dollar SEA ecosystem startup”.
And when we talk about the Southeast Asian market, we need to talk about Singapore, Malaysia, Indonesia, because these are big markets in Southeast Asia. And then the other thing not to overlook is the growing GDP per capita. So in terms of GDP per capita and population, Malaysia has 32 million people, which is actually five times Singapore’s size and GDP per capita is one of the highest as well. In context, Malaysia is one of the important markets that we look at when we do startup investments.
So maybe we can also just go to talk about our portfolio, what are some of the startups we have invested in Malaysia?
The most notable investments in Malaysia — Grab and PetSnap
Chan Yip: Yeah, sounds good. So far, we actually have three Malaysian portfolio companies and the most notable one would definitely be Grab — whereby we were the first institutional investor into Grab and when we invested, it was still a KL-based company. Subsequently, we have invested into StoreHub, as well as RPG Commerce, but then more importantly, we have also invested into Malaysian-founded companies, so Sunday as well as PatSnap.
PatSnap is also doing very well. So right now I think it has already achieved a “Unicorn status”. I think overall from what we have seen from the Malaysian founders is that they are definitely a very resilient bunch, plus also very resourceful, right? So I think those two traits are really something that differentiates Malaysian founders compared to some of the peers in the region.
Elise: Definitely, I think being a Singaporean, we are very aware that Malaysians are really hardworking and we can see how they have contributed to Southeast Asia growth. In our podcast, we always talk about how we play to the strengths of the market and what kind of notable trends as well as kind of signs of successful startups.
And we’d love to hear that from you as well. So, what do you think would be playing to the strengths of Malaysia? What kind of sectors should entrepreneurs be looking at? What are we interested in as an investor?
The advantage of Malaysian Ecosystem — Hungry founders with low costs
Chan Yip: So I think as mentioned earlier, Malaysian founders are definitely pretty resourceful. And then when it comes to adversity they definitely know how to navigate around it. So I think that in itself is actually a very strong trait. And the fact that Malaysia also is an English-speaking country. So they tend to have a bit more international exposure as well which gives them more advantage in terms of understanding situations that are happening around the world, and how they can learn — be it from the Western world or even the Chinese, because Malaysia has a pretty large Chinese population as well. But at the same time, there is an advantage of cost whereby (Malaysia) has the advantage of Singapore but at the same time, it’s not as expensive, right?
If you look at the cost of living there, the people there are as hungry as the Singaporeans, yet the cost of living is not as expensive. They work hard. So I think that in itself plays into the advantage of Malaysia. In terms of trends that we are seeing, I think Malaysia is still pretty much a consumption economy.
So if you look at the GDP contribution by private consumption, it actually goes up to 60%. And some of the companies that seem to be quite successful in Malaysia tend to be consumer companies, right? So starting with Grab, for example, and then of course we also have RPG Commerce, which sells a lot of water bottles and cookware in Malaysia.
Some of the companies that have gone on to IPO, they are also consumer companies, right? So the names I can think of would be like Mr. DIY, or Tealife that’s actually doing extremely well as well, even though they are not listed yet. We also have Farm Fresh, which was listed recently.
So all these companies are actually very highly valued in Malaysia.
Elise: Great. Malaysia is one of my favourite holiday destinations. And you mentioned Mr. DIY, it is also my favourite store as well, especially when I go shopping with my family. Yeah, I think these are all exciting businesses coming from Malaysia.
So I just want to take a step back as well, you may already know Vertex has just launched our fifth fund of $541 million. So we are again going to invest into early stage companies. So this means it could be as early as seed in some cases, but pre-A, series A and series B. So our cheque size is typically 2 to 8 million.
Across Southeast Asia, not just Malaysia, we’re in the sectors of consumer, enterprise, finTech, healthcare, sustainability, mobility. But in general, we are agnostic. So I think what we have invested so far is primarily in the consumer and enterprise space, but we are definitely open to other areas as well.
Elise: Great. And I also want to just ask you this quick question. So, I think definitely in terms of economic activity, Kuala Lumpur will have quite a bit of startup activity. Which part of, which other part of Malaysia is also very active?
Chan Yip: So interestingly, I think that, again, the Malaysian government is actually doing a pretty good job. Of course, Kuala Lumpur is the main city where a lot of startups are. But increasingly we are also seeing some activities in Penang.
And recently the Malaysian government, MYstartup entity has gone on to Sabah as well as Sarawak to actually extend the outreach. Hopefully we’ll be able to see differentiated startups from those regions moving forward.
Elise: So Chan Yip, thanks for sharing quite a bit about yourself as well as the evolution of the Malaysian market and what is to come. What do you think is Vertex’s investment thesis for Malaysia? What do you think will work well?
The Vertex investment thesis for Malaysia — look for ambitious founders
Chan Yip: Yeah we generally invest in six different verticals, right?
So number one is the consumer. Second, finTech, third enterprise software, fourth, healthcare fifth, sustainability, and number six is mobility. So in terms of thematic focus, we’re probably not going to deviate away from that. But our investment thesis is always the same, right? Whereby we want to back founders that are working on very ambitious problems.
We want to be solving problems that are difficult to solve and the market should be big enough for such a problem to exist as well. So with all this, I think that will be the key criteria when we look for investments. So we always back ambitious founders and yeah, we want them to succeed.
Elise: Chan Yip, what do you think, through your observations of the ecosystem, what are some of the hard truths and advice you would give entrepreneurs who are working in the Malaysia ecosystem?
Advice for Malaysian founders — the capital is there, you just need to get started
Chan Yip: Yeah. So I think the Malaysia ecosystem interestingly, there’s actually quite a bit of money because if you look at the VC funding by the government actually up to 45 percent of the VC funds are actually supported by the government.
So in terms of availability of capital, it’s definitely there. But what probably can be done a bit better, All can be improved is actually in terms of the top of the funnel whereby right now, if you look at what the Malaysian government is doing they’re trying to attract the likes of Antler and Plug and Play because they realise that actually top of the funnel is where the issue is.
So it’s actually a great time for entrepreneurs that want to start up a company right now because you get more support at the early stage level with someone like Antler to have experience of building companies across the region. I think that would be a good start. And as you build a company, don’t just think about Malaysia as a market, right?
So think about Southeast Asia. I think that one is quite important. Malaysia, actually has to build champions for Southeast Asia. And we have pretty good examples, right?
For example, Grab right now is a regional company and Carsome is also a regional company. So definitely you have good examples to follow. So I will urge Malaysian founders to think big and eventually leverage some of the resources that the Malaysian government has put in place.
I think that will really help the Malaysian companies to scale accordingly.
Elise: Great. I’m just curious, do you think that being in Malaysia also gives the entrepreneurs an advantage expanding to neighbouring countries like Indonesia because of the language, because of perhaps, certain similarities.
Chan Yip: Yeah, definitely. So Malaysians, other than speaking Bahasa (Melayu), also speak Chinese and speak English. With this combination of three languages, which is widely spoken across the world, I think that definitely gives a Malaysian advantage, right? Because it gives them the exposure plus the ability to understand what’s happening outside and then translate that to certain advantages to Southeast Asia.
And the fact that Malaysians in some ways are pretty similar to Singaporeans, but at the same time, it’s not as expensive, right? So the cost of living there is great. And plus the quality of life is also pretty good in Malaysia. So I would urge the entrepreneurs to actually take advantage of these two facts and then build a company that is in terms of unit economics very attractive and then work on big problems that can actually scale across the region, right?
So with that, I think definitely Malaysia’s, Malaysian entrepreneurs have an advantage in terms of building a scalable company across the region.
Elise: Yeah, got it. We talk about the funnel earlier and how Malaysia is increasing the earlier part of the funnel. I would also like to ask you about the end of the funnel, which is — What are the usual exit opportunities for Malaysia?
The exit opportunities for Malaysian companies
Chan Yip: Yeah, in the past couple of years, there have been a number of big companies that have gone on to become listed companies, right? Take for instance Mr. DIY or CTOS.
So Malaysia as an exchange or public listed exchange, we actually have a pretty good valuation as well. But the downside of that is that you have to be a profitable company before you can list in Malaysia. If you are a tech company that’s scaling pretty quickly perhaps you can explore other regions, right?
So for instance, Australia could be one market. And we have also seen companies coming into Singapore to list and those that are bigger ones have actually gone on to NASDAQ to actually list. So the options are definitely there. It depends on the scale of the company and at what stage, whether you’re profitable or you’re still burning money in order to gain more market share.
So I would say that as a whole, those options are definitely there. It’s just up to be explored.
Elise: Yeah, and then I think earlier you mentioned how important it is to also scale into the region. And as they scale into the region, really there are opportunities all around, it’s not just one market.
And I just want to ask you what have you learnt along the way, in terms of observing the ecosystem’s growth — It could be in the Malaysia context, or it could be because of your long investing experience. Yeah. What can you share with the audience?
Advice for entrepreneurs — focus on what you can control
Chan Yip: Yeah, so I think right now we are definitely in a down cycle but go up or down, right?
I would think that in general, this is a cyclical thing that we have to go through. So it happens once every 10 or 15 years, there’ll be one event that’s happening. So I think for an entrepreneur at the end of the day, what is most important is to solve a big problem for their customers, right?
And then once you actually do that, regardless of whether it’s a down cycle or up cycle which is something that you cannot control, you will still be able to build a great business. So just focus on what is within your control, build a big business out of it and then let the rest of it take care of itself.
Elise: Very true. What are your thoughts about, when it comes to valuation and expectations, how should entrepreneurs be thinking about it?
Chan Yip: Yeah. So I think interestingly for the past couple of years because of COVID and then a lot of money printing as a result, valuation went up very high in 2021. So that kind of helps the entrepreneurs to have certain mindsets already, currently. So I think when the market comes down the entrepreneurs will have to adjust accordingly.
And more importantly, entrepreneurs have to think about what it actually takes to actually build the business. So if you need to raise money go out and raise money. Because if you are able to raise money in this environment, it’s actually an advantage because you, as a company, if you are able to raise 10 million, and if your competitor or your neighbour is not able to raise 10 million, that could be an advantage, right?
So I would urge any entrepreneurs to think about what it takes to succeed. And if you need to raise money in this environment, even though it’s a lower valuation, still go ahead and do it. Because at the day, it’s all relative. If you are doing better than your competitors, then that’s what is most important, because you are gaining market share.
Elise: And I think getting market share at the expense of your competitor and when your competitor has less cash flow, perhaps, that, that is a great strategy.
I’ll just want to share that Southeast Asia and India, as a fund, are present in quite a few cities in Southeast Asia and India.
However, for Malaysia, we are covering it from our Singapore office. So maybe you can share with us, if someone in Malaysia is building something interesting, how should they reach out to you?
How to reach out?
Chan Yip: Yeah, actually I visit Malaysia pretty often, so almost once a month. So if you want to reach out to me, you can always ping me on LinkedIn or you can actually reach out to our friends in Malaysia, right?
So for example, Endeavor or Credo — all of them would know me. Feel free to reach out to them or just ping me directly on LinkedIn.
Elise: Thank you so much. It was such a pleasure speaking to you and learning about the Malaysia ecosystem from you.
Chan Yip: Thanks Elise for having me.
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