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Here's what being a unicorn startup really means, and a look at Malaysia's struggles in growing one over the years.

Faye Lee  |  MY
Published 2021-04-28 10:53:04
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A lot of us may be familiar with the term unicorns by now, but unfortunately, Malaysia isn’t all too familiar with having a homegrown one yet (you may have a strong opinion on this, but hold your horses).

The US has the most unicorns as of today, which is no surprise, but Asia as a whole is bringing up a lot of unicorns as well. In fact, in Southeast Asia alone, we have Indonesia, Singapore, and the Philippines representing the region with 5, 3, and 1 unicorns respectively. 

Today, many Malaysians are still disappointed by the missed opportunity of housing Grab, which is not only the first unicorn in Malaysia, but the first decacorn (a company valued over US$10 billion) in Southeast Asia.

So, what did we lack, and what’s still lacking today? Why hasn’t Malaysia grown a unicorn yet? As we write about the startup ecosystem, we’ve got to admit that these are questions that are often on our minds. Before we delve into that though, it’d be good to re-establish the basics of what we know about unicorns.

What Is A Unicorn?

To put it simply, unicorns are startup companies 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 are called narwhals.

There are more terms for startups valued higher, like the term decacorn which I mentioned previously, that is given to startup companies valued at US$10 billion. 

Other terms include hectocorns or super unicorns (US$100 billion), minicorns (US$1 million), soonicorns (startups with a potential to become unicorns), and more.

As of April 2021, there are more than 600 unicorns around the world, including decacorns and hectocorns. They come from a variety of industries like fintech, e-commerce, AI, internet software and services, auto & transportation, etc.

How Does One Become A Unicorn?

Now, besides being valued at US$1 billion, Aileen Lee also described unicorns as rare tech startups. This is because for the most part, unicorns are usually startups that introduce disruptive innovation through their tech.

Take for example, Uber or Airbnb, who changed the way we share commodities through technology and became the pioneers of their industries. Companies that have the first-mover advantage have a higher chance of becoming a unicorn, but it’s not a guarantee.

87% of the unicorns’ products are software, 7% are hardware and the rest of the 6% are other products and services, according to RazorPay. Some other common features of unicorns are that they’re usually B2C and are privately-owned startups. 

To add, a unicorn’s valuation has nothing to do with the way they perform financially. Take for example Grab, who, as a whole, is still not a profitable company, though CEO Anthony Tan claims it is profitable in certain verticals. Yet the startup is set to be valued at US$39.6 billion.

For many startups, the billion-dollar valuation will come from investors and sizeable funding rounds, but an acquisition can also boost a company’s status overnight.

What Are The Benefits Of Being A Unicorn?

If you were to do a simple search of “why startups should aim for the unicorn status”, you actually will find sources that tell you the opposite, because some are of the opinion that unicorns tend to just chase and burn through investor money, and that a “proper” startup is one that should be grown through blood, sweat, and tears.

In fact, from this search, you’ll find that more people are advising startups to aim to be camels instead of unicorns, especially during COVID-19.

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

Kaufman Fellows

Despite this, investors are still keen to invest in soonicorns to grow them into unicorns due to the potential of them bringing in massive returns later. A small investment in a soonicorn at the start could mean impressive yield if it finds success later as a unicorn.

Now, fame is undoubtedly one of the benefits that unicorns get from being recognised as a rare, high-valued, privately-owned startup, but other benefits include being a role model for the local startup ecosystem and attracting the attention of more investors (local and foreign) and the government.

When a startup becomes a unicorn, it signals the potential in the industry which will get the government to look out more for them, and create more ambition within the pool of investors.

But Why Does Malaysia Struggle To Grow Unicorns?

For starters, we’re not a rich country. Our GDP per capita (used to measure the standard of living) is US$11.4k, which is a big difference if you were to do a comparison with countries with unicorns like Singapore and the US, whose GDP per capita is US$65.2k each.

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

Even larger nations like Thailand with a population of 70 million, Vietnam (100 million) and the Philippines (110 million) struggle to create unicorns, so it makes it more unlikely that we’ll be able to house one in Malaysia, with a way smaller population of 32.7 million.

Because of our population and market size, Malaysian entrepreneurs would have to go regional to be able to achieve the unicorn status, and unfortunately, most of the time that means moving headquarters elsewhere, shared Kashminder Singh, co-founder of pitchIN with The Edge.

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

Moreover, big-name VCs like Alibaba and Softbank who have the funds to boost a startup’s status closer to unicorn are unlikely to fund startups without a regional presence, said Chok Kwee Bee, managing director of VC Teak Capital, in the same The Edge interview.

Another hindrance we have is with our talent—not the lack thereof, but the lack of money to hire top talents. Mediocre talent results in mediocre startups, which makes it harder for them to aim for the unicorn club. 

According to Doc Siva of Proficeo, one of his ScaleUp Malaysia companies wanted to hire a top talent but this talent’s asking salary was high, as he was earning close to RM30,000 a month (SG$10,000) in Singapore. Being unable to afford him, he slipped through the company’s fingers.

On Jobstreet Singapore, it shows that it costs S$8,000 to S$20,000 to hire a CTO, S$10,000 for a sales director, and S$8,000 for a channel sales manager. This could be taken as the benchmark for hiring top talents, but it’s rare that your average Malaysian startup company would have sufficient funds to afford these.

Malaysia Wants To Attract Or Grow 5 Unicorns By 2030

Even though we’ve yet to grow one unicorn over the past decade, Malaysia is targeting to attract or grow 2 unicorns by 2025 and 5 in total by 2030, be they homegrown or foreign startups, according to the MyDigital blueprint.

Some of the initiatives they’ve outlined there include establishing digital industry clusters as a regional hub, introducing a Single Window platform for investment opportunities, and enhancing incentive packages to attract targeted investors.

Dictionary Time: A Single Window is a platform that’s government-mandated and allows for the submission of information to fulfill regulatory requirements between economic operators and government authorities. A Single Window is a single-entry point for data, and data should only be submitted once.

Trade Facilitation Implementation Guide

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

A starting point for us would definitely be for our government and relevant agencies to first pinpoint the potential soonicorns in our country, speak to them and understand what their needs are, and address those needs before they too slip through our grasp in search of better opportunities regionally.

From there, we can then identify which parts of the framework yielded the desired results and come up with better ways to replicate and improve our performance.

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

  • You can read more unicorn-related articles we’ve written here.

Featured Image Credit: Grab

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