What’s A Unicorn Startup & Why Malaysia Hasn’t Grown One

Many of us may be familiar with the term unicorns by now, but unfortunately Malaysia is not yet too familiar to have one with us (you might have a strong opinion on this, but keep your horses).

The United States has the most unicorns to date, which is not surprising, but Asia as a whole also breeds a lot of unicorns. In fact, in Southeast Asia alone, Indonesia, Singapore and the Philippines represent the region with 5, 3 and 1 unicorns respectively.

Today, many Malaysians are still disappointed with the missed opportunity to house Grab, which is not only Malaysia’s first unicorn, but also the first decacorn (a company valued at over $ 10 billion) in South Asia. -Is.

So what were we missing, and what is still missing today? Why hasn’t Malaysia grown a unicorn yet? As we write about the startup ecosystem, we have to admit that these are questions that often preoccupy us. Before we dive into that, it would be good to lay the foundations of what we know about unicorns again.

What is a unicorn?

Put simply, Unicorns are start-ups valued at US $ 1 billion, a term first coined in 2013 by Aileen Lee, who founded Cowboy Ventures, a seed-stage venture capital firm.

Fun fact: The Canadian version of unicorns is called narwhals.

There are more conditions for startups valued above, like the term decacorn that I mentioned earlier, which is given to start-ups valued at US $ 10 billion.

Other terms include hectocorns or super unicorns ($ 100 billion), mini-horns ($ 1 million), Soonicorns (startups likely to become unicorns), etc.

As of April 2021, there were over 600 unicorns in the world, including decacorns and hectocorns. They come from a variety of industries such as fintech, e-commerce, artificial intelligence, internet software and services, automotive and transportation, etc.

How do you become a unicorn?

Now, in addition to being valued at US $ 1 billion, Aileen Lee has also described unicorns as rare tech startups. Indeed, for the most part, unicorns are usually startups that introduce disruptive innovation through their technology.

Take for example Uber or Airbnb, which have changed the way we share raw materials through technology and have become pioneers in their industries. Companies that have the first-mover advantage are more likely to become a unicorn, but that’s not a guarantee.

87% of unicorns’ products are software, 7% are hardware, and the rest of the 6% are other products and services, according to RazorPay. Some other common characteristics of unicorns are that they are generally B2C and are private startups.

To add, the valuation of a unicorn has nothing to do with how it behaves financially. Take for example Grab, which as a whole is still not a profitable business, although CEO Anthony Tan says it is profitable in some verticals. Still, the start-up is expected to be valued at US $ 39.6 billion.

For many startups, the $ 1 billion valuation will come from large investors and funding rounds, but an acquisition can also bolster a company’s status overnight.

What are the benefits of being a unicorn?

If you were to do a simple research on “why startups should aim for unicorn status,” you would actually find sources that tell you otherwise, as some believe unicorns tend to just hunt and burn investor money. , and that a “good” startup is one that should be cultivated by blood, sweat and tears.

In fact, from this research, you’ll find that more and more people are advising startups to aim to be camels rather than unicorns, especially during COVID-19.

Dictionary time: Camels are startups that balance cash flow and growth like managing costs sustainably and not burning their funding or cash flow with a growth mindset at all costs.

Kaufman Fellows

Despite this, investors are still keen to invest in Soonicorns to turn them into unicorns due to the potential that they will generate massive returns later on. A small investment in a Soonicorn early on could mean an impressive return if he later succeeds as a unicorn.

Now fame is undoubtedly one of the perks that unicorns derive from being recognized as a rare and high-value private startup, but other perks include being a role model for the startup ecosystem. and attract the attention of a greater number of (local) investors. and foreign) and government.

When a startup becomes a unicorn, it signals the potential of the industry that will inspire the government to seek them out more and create more ambition within the pool of investors.

But why is Malaysia struggling to grow unicorns?

To begin with, we are not a rich country. Our GDP per capita (used to measure standard of living) is US $ 11.4K, which is a big difference if you were to compare countries with unicorns like Singapore and the United States, whose GDP per capita is US $ 65.2K each.

However, not being rich isn’t the only thing that bothers us as having a smaller population further narrows the market for people who are willing to see the value of your services and pay for them.

Even the largest nations like Thailand with a population of 70 million, Vietnam (100 million) and the Philippines (110 million) struggle to create unicorns, so it’s more unlikely that we can harbor one. in Malaysia, with an average smaller population of 32.7 million.

Due to our population and the size of our market, Malaysian entrepreneurs would have to go regional in order to qualify for unicorn status, and unfortunately most of the time that means moving the head office elsewhere, said Kashminder Singh, co- founder of pitchIN with The Edge.

International VCs are generally more present in Singapore which is why Grab moved when they couldn’t raise enough funds in Malaysia due to the lack of financial support and avenues we have locally.

Additionally, large VCs like Alibaba and Softbank that have the funds to bolster the status of a startup closer to the unicorn are unlikely to fund startups without a regional presence, said Chok Kwee Bee, CEO of VC Teak. Capital, in the same interview with The Edge. .

Another hurdle we have is with our talent – not the lack of it, but the lack of money to hire the best talent. Poor talent translates into mediocre startups, making it harder for them to aim for the unicorn club.

According to Proficeo’s Doc Siva, one of his ScaleUp Malaysia companies wanted to hire one of the top talent, but that talent’s demanded salary was high, as he was earning almost RM 30,000 per month (SG $ 10,000) in Singapore. Unable to afford it, it slipped through the company’s fingers.

On Jobstreet Singapore, it shows that it costs S $ 8,000 to S $ 20,000 to hire a technical manager, S $ 10,000 for a sales manager and $ 8,000 for a sales manager. This might be considered the benchmark for hiring top talent, but it’s rare that your average Malaysian startup has enough funds to afford them.

Malaysia wants to attract or grow 5 unicorns by 2030

Even though we have not yet cultivated a unicorn in the last decade, Malaysia aims to attract or grow 2 unicorns by 2025 and 5 in total by 2030, whether they are startups. local or foreign, according to the MyDigital plan.

Some of the initiatives they described there include creating digital industry clusters as a regional hub, introducing a one-stop-shop platform for investment opportunities, and improving incentive programs for attract targeted investors.

Dictionary time: A single window is a platform it is mandated by the government and allows the submission of information to meet regulatory requirements between economic operators and government authorities. A Single Window is a single entry point for data, and data only needs to be submitted once.

Trade Facilitation Implementation Guide

While that sounds pretty ambitious given our progress so far, it’s safe to say the government is paying more attention to the importance of having a unicorn in the country.

A starting point for us would undoubtedly be for our government and relevant agencies to first identify the soon to be potential unicorns in our country, talk to them and understand what their needs are, and respond to those needs before they escape us. they too are looking for better opportunities. regionally.

From there, we can then identify the parts of the framework that gave the desired results and find better ways to replicate and improve our performance.

It’s been years and years of seeing countless players in the startup ecosystem say that Malaysia will see a unicorn. soon, well, we’d like to see more than just ambitious plans, but concrete actions and the execution of those actions are happening.

  • You can read more articles about unicorns that we have written here.

Featured Image Credit: Grab

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Jothi Venkat

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