Corporate Malaysia could contribute to doubling venture capital funding to reach MYR 1.1 billion ($250 million) by 2030, a report said Monday.

Capital Markets Malaysia (CMM), an affiliate of the Securities Commission Malaysia (SC), Boston Consulting Group (BCG), and its tech build and design unit BCG X, said in the report that attracting increased private sector funding is essential for advancing the maturity of Malaysia’s venture capital ecosystem, enabling support for riskier growth ventures while fostering innovation.

The report found that with the right motivations and support, corporate venture capital (CVC) funding in Malaysia could be doubled to reach MYR 1.1 billion ($250 million) by 2030 against current available venture capital funding.

The trio launched ‘Advancing Malaysia’s Innovation Landscape: The Pivotal Role of Corporate Venture Capital’ on Monday, a report analyzing the current state of CVC activity in Malaysia, identifying key levers to catalyze a stronger domestic CVC ecosystem.

It is noted historically, the growth of CVCs has been driven by the energized United States market, but momentum has surged globally in recent years.

By 2021, there were over 1,000 CVC vehicles worldwide, with Asia accounting for $2 billion of the total $11.1 billion in global CVC deals in 2023.

Despite this broader trend, Malaysia’s venture capital (VC) activity has been slower in gaining traction compared with its Southeast Asian counterparts.

Between 2016 and 2020, the country’s VC market achieved 21% growth, a figure below the regional average of 38 percent.

A survey of business leaders in Malaysian corporates reveals several factors contributing to this slower pace of development.

Key findings of the report demonstrated that while corporate attitude to innovation is strong among established Malaysian businesses, there is some hesitation in considering corporate venturing as a strategy to achieve innovation goals.

Though 64 percent of Malaysian corporates agree that innovation ambition is connected to corporate strategy and is aligned with company goals, only 39 percent seriously evaluate corporate venturing as a strategy to achieve these goals in the next three years, said the report.

“The findings of this report offer valuable recommendations for building a sustainable and robust domestic CVC ecosystem,

“Beyond fostering innovation, corporate venturing is a powerful tool for established Malaysian businesses to capture new market opportunities while concurrently providing our startup ecosystem with the capital and market access required to scale,” General Manager of CMM Navina Balasingam said.

“We recognize the pivotal role the capital market can play in connecting established corporates to innovative startups through capital raising channels such as equity, debt and
venture capital funds,

“Strengthening our CVC ecosystem will lay the groundwork for more innovative, diversified, and competitive economy,” she added.

The report also showed 91 percent of VC deals in Malaysia are valued under MYR 10 million ($2.23 million), compared to 76 percent in Singapore and just 60 percent in Indonesia.

This leads to missed opportunities, as well-managed CVCs can allow corporates to access a wide range of industry verticals, especially technologies across various stages
of development.

By doing so, CVC can help companies stay competitive without relying solely on the success of single big bets, the report highlighted.

“It may seem counterintuitive, but when valuations are down, that is often the best time to invest,

“While we are still navigating the ‘tech winter’, CVC continues to drive innovation across Southeast Asia, and Malaysia has untapped potential to lead in this space,” said Hanno Stegmann, BCG X Managing Director and Partner.

“With the right approach, investing in early tech could unlock significant opportunities, boosting the country’s growth and elevating its reputation as a hub for cutting-edge industries,

“Of course, caution is understandable, but corporates don’t need to go all in at once. Strategic, incremental investments, coupled with partnerships – whether with VCs, entrepreneurs and startups accelerators and incubators, or the public sector – could help mitigate risks and position Malaysia’s CVC ecosystem for long-term success,” he added.

The report also highlighted that caution amongst companies is largely fueled by the perceived barriers to CVC exploration which are consistent across companies.

Risk aversion and perceived risks were cited by 81 percent of respondents as a key reason for not starting a CVC, with concerns over return on investment (ROI) driving this hesitation.

Other barriers include a lack of expertise in VC, a focus on core business and immediate business challenges, and a conservative investment strategy that favors stable returns.

“Recognizing the potential of a strong CVC ecosystem on mobilizing capital to the innovation economy, CMM established the Corporate Venture Capital Program in March 2023 to provide practical resources and tools to support Malaysian corporate leaders,

“The program focuses on building corporate venturing capability amongst Malaysian corporates, including developing effective startup valuation, deal sourcing and selection strategies to ensure companies are successful in their CVC endeavors,” Navina added.

According to the report, strengthening Malaysia’s CVC ecosystem to position the country as a leading hub for innovation and corporate investment in Southeast Asia will require corporations to embrace change, with leaders adopting a more open approach to collaboration and risk taking in the process.

To build the capabilities necessary to integrate and successfully drive CVC, it noted corporates can start small with well thought-out trials, allowing for opportunities to learn and adapt from early experiences, which can inform future strategies.

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