Investors eyeing tech start-ups offering post-pandemic solutions
25 Oct 2021
Investors are increasingly looking for tech start-ups that provide high-value solutions in the areas of education, finance, logistics and healthcare.
RM Applications Sdn Bhd co-founder and CTO Lokesh Gupta said the pandemic has taught us the importance of technology to stay contactless — be it remote working, online shopping, food shopping — contactless payments among others is the primary reason for investors’ increasing interest in the technology business driven by innovation, disruption and digitalisation.
“The rule of thumb for investors is to generate a substantial return with small capital to begin with but with a potential to scale up as the business grows. This is the reason tech start-ups are the preferred sector due to its lean capital requirement in comparison to traditional manufacturing-driven industries.
“The kind of business, investors possibly keen to invest in are e-learning, e-commerce, e-hailing, e-health and e-financing,” he said to The Malaysian Reserve recently.
Scale Up General Partner Aaron Sarma further explained that investors are looking for start-ups who are meeting the needs of the new normal and the ensuing economic recovery that involves three main classes of start-ups.
“The first is start-ups which focus on the digital delivery of products and services. Companies that meet the needs of the supply chain through logistics, those who help service providers connect using new communication technologies and those bridging the financial divide with new fintech solutions are on the forefront of interest for many investors.
“The second class of start-ups are companies that build on the technologies of the Industrial Revolution 4.0. These are companies that build on the digital infrastructure of the first class of start-ups to help the small and medium enterprises and corporations adopt new technologies in blockchain, artificial intelligence, extended reality and more.
“Third, many investors are looking for impact investments. These are companies that are looking to solve the problems laid out in the United Nations’ Sustainable Development Goals,” he added.
The development of funding interest in the said sectors is driven by the pandemic that altered day-to-day arrangements which boosted the need for innovation.
Malaysia Digital Economy Corp (MDEC) chief digital industry officer Gopi Ganesalingam said the lockdowns have provided
the higher income group with more disposable income as everyone starts to save costs on travelling and other expenses, admittedly the funding activity in the Malaysian tech ecosystem was halted in the earlier period of the pandemic due to investors being more cautious than usual in terms of making high-risk investments.
“Nevertheless, we have seen more and more new investors coming into the tech funding ecosystem wanting to diversify and change their investment appetite. Although we do not see angel investments skyrocketed during the pandemic and subsequently post-pandemic, we are seeing an increased involvement from retail investors in the Equity Crowdfunding (ECF) and Peer–to–Peer (P2P) Financing scene which are the new ground for ‘new angels’,” Gopi said.
Gopi further explained that according to MDEC counterpart in Securities Commission Malaysia, the number of investors for ECF and P2P has increased from 20,000 to 30,000 in total.
“Since the pandemic, a total of 78 companies have successfully fundraised on ECF, with a whopping 457% increase in total capital raised through ECF which amounts up to RM127.73 million compared to RM22.92 million pre-pandemic.
“These encouraging numbers are definitely made possible through the involvement of new retail investors which are expected to continue post-pandemic period,” Gopi added.
Aaron also emphasised that for tech start-ups to rake in the capital from the investors, they need to have well thought out business models with positive unit metrics and a clear go-to-market strategy so that investors understand how their capital will be put to use.
“In this part of the world, the key is to have good sound business models because unlike other markets such as the US or China, there is limited appetite for risk capital to invest in start-ups that aim to do research and development before commercialisation,” he said.
Malaysian Business Angel Network (MBAN) council member Dr Melissa Foo Suyin also highlighted that in terms of commercialisation after product-market fit, the size of the market is an important factor for early-stage investors hence, start-ups can increase their chances of getting investment by targeting bigger markets and strengthening their go-to-market strategies.
“For start-ups to truly scale, they have to work with partners in the ecosystem and look beyond the Malaysian market. For example, MBAN is a founding member of the Asean Angel Alliance and together with MBAN’s counterparts in other Asean countries, we hope to create bridges for start-ups to access the Asean market,” she said.
Source: The Malaysian Reserve