Funding

Making Sense of the Tricky Funding Road for Fintech Startups in Malaysia

by Johanan Devanesan October 27, 2023

The fintech funding landscape in Malaysia has been a hot topic of discussion in recent years, with significant growth and innovation in the sector. To shed light on the challenges and opportunities that fintech startups face, a roundtable discussion was held with key industry experts at the Fintech Frontiers Conference.

The “Breaking Malaysian Fintechs’ Series B Barrier” panel included Sai Kit, Managing Partner of Artem Ventures; Thomas G. Tsao, Co-founder of Gobi Partners; Dato’ Syed Haizam Jamalullail, Managing Partner of The Hive Southeast Asia; Sam Shafie, Co-Founder and CEO of pitchIN; and was moderated by Wilson Beh, the President of the Fintech Association of Malaysia (FAOM).

The discussion revolved around the challenges and prospects for scaling local fintech companies, particularly the hurdles they face when seeking Series B funding. The conversation covered various aspects of fintech investment in Malaysia, regulatory challenges, and strategies for success.

How the Panelists Approach Investing

Before diving into the core topics, each panelist was asked to provide insights into their roles in the investment landscape. Sam Shafie, the winner of the Ecosystem Builder of the Year accolade at the Fintech Frontiers Awards,  highlighted his role in facilitating investments through pitchIN, a licensed platform by the Securities Commission. He emphasised the power of crowdfunding and how it can complement traditional VC funding for fintech startups.

Sam Shafie (left) with Dato’ Syed Haizam Jamalullail

Sam stated,

“Crowdfunding can provide a crucial stepping stone for fintech startups. Despite having also raised money from VCs in the early rounds, they came on the [pitchIN] platform to really utilise the power of the crowd before they could actually then go and scale the company.”

Dato’ Syed Haizam Jamalullail, as the Managing Partner of The Hive Southeast Asia, shared his perspective as an investor in early-stage fintech companies. He stressed the importance of helping these companies reach Series B and beyond, as his exits would primarily come from those stages.

“The fintech companies that I’ve invested into, a lot of them are [Fintech Frontiers Awards] nominees, Finology, Senang insurance, Payd, and it’s in my best interest to get them to Series B and beyond,”

Dato’ Syed claimed.

Thomas G. Tsao, a co-founder of Gobi Partners, discussed his Payd decision to relocate to Kuala Lumpur in 2015. He praised the development of the fintech ecosystem in Malaysia and highlighted the potential for Malaysian fintech companies to compete globally.

“Malaysia, with its sizable market and cost-effectiveness, is an attractive destination for fintech startups. However, sustainability and defensibility are key factors for attracting Series B investments,”

Thomas said.

Sai Kit, Managing Partner of Artem Ventures, outlined his dual role as an active investor in fintech and his responsibilities as the Chair of the Malaysia Venture Capital Association. His insights revolved around the investment landscape and the challenges faced by fintech startups.

“Fintech startups looking to secure Series B funding should be prepared to expand regionally and demonstrate a sustainable growth trajectory,”

Sai Kit noted.

Challenges in Series B Fundraising for Fintech Startups in Malaysia

The panel delved into the challenges faced by Malaysian fintech startups when seeking Series B funding. As fintech startups in Malaysia mature and seek to expand their operations, securing Series B funding becomes a critical milestone. However, several challenges unique to the Malaysian fintech ecosystem make this journey particularly demanding.

Artem Ventures Managing Partner Sai Kit elaborating

One prevailing misconception in the Malaysian fintech landscape that panellists pointed out is the fixation on the size of Series B funding, often comparing it to funding rounds in more mature ecosystems like Silicon Valley. Panelists felt that the focus should shift away from comparing raw numbers and instead concentrate on achieving specific business milestones.

Sai Kit shared,

“Every Series is about, how much money do you need to get to a milestone that you need to sell to your investors, that’s more important than how much money that the investor pays you. So, it’s the outcome that matters a lot more.”

He emphasised the need to shift the focus from the amount raised in Series B to the milestones achieved and the outcome delivered. He also highlighted Malaysia’s competitive advantage, with relatively lower business costs compared to neighboring countries.

Tom Tsao brought up the importance of regional expansion for fintech startups. He encouraged startups to have a product capable of rapid regionalisation. He also stressed the need for cutting-edge, innovative business models, given the regulatory differences across Southeast Asian countries.

Coming from the alternative fundraising perspective to venture capital, Sam Shafie noted the progressive regulatory framework for equity crowdfunding (ECF) in Malaysia. He cited PolicyStreet, one of the most successful fintechs in terms of fundraising that was co-founded by moderator Wilson, and MoneyMatch as examples of fintech companies successfully raising funds through ECF before moving on to Series B funding.

Regional Expansion Strategy

A critical challenge for fintech startups in Malaysia is developing a clear and effective regional expansion strategy. Malaysia, while a substantial market in its own right, can also be seen as just one piece of the Southeast Asian puzzle. To attract Series B investors, startups must demonstrate their ability to become leaders in the Malaysian market and effectively expand their footprint in the broader Southeast Asian region.

Dato’ Syed Haizam Jamalullail (middle) flanked by Sam and Gobi Partners’ Thomas G. Tsao

Dato’ Syed Haizam underlined the importance of regional thinking:

“For Series B readiness, fintech companies should chart a clear path for regional expansion, adapting their products to the unique dynamics of each market.”

Regulatory Engagement

Navigating regulatory complexities is a challenge faced by fintech startups worldwide. In Malaysia, this challenge is no different. Startups seeking Series B funding must strike a delicate balance between compliance and innovation. Engaging proactively with regulators and addressing their concerns is vital.

When discussing regulatory challenges, Sam further highlighted the importance of maintaining a collaborative approach with regulators, mentioning that,

“Companies like pitchIN, for example, we like the space to be regulated. It gives us clarity in terms of what we can and cannot do.”

He also mentioned the evolving regulatory framework for ECF in Malaysia, and how “a lot of the engagement that we on the ECF platforms have come with the regulators” involvement.

Advice for Founders and Investors

The panelists shared valuable advice for founders and investors in the fintech space. Sam Shafie advised founders to be prepared for a high level of scrutiny during fundraising and to have their data and business plans in order.

Thomas G. Tsao

Tom Tsao encouraged founders to focus on achieving regional dominance before seeking Series B funding. He highlighted the collaborative nature of the Malaysian ecosystem and the support available to entrepreneurs.

Sai Kit advised founders to attract investors by demonstrating a compelling story, a great team, and momentum in their business. He emphasised the importance of attracting investors rather than chasing money.

Collaboration and Continued Growth