This article first appeared in Digital Edge, The Edge Malaysia Weekly on May 11, 2026 – May 17, 2026
Malaysia has had a venture capital (VC) industry since 1999, just after the Multimedia Super Corridor (MSC) was set up in 1996. The formation of MSC Venture Corporation (MSC Ventures) marked an early push to fund the first generation of start-ups setting up in Cyberjaya, enticed by the MSC’s ambitions and inspired by the rise of billion-dollar US tech companies such as Amazon, Yahoo and Netscape.
Many founders wanted to emulate these companies with the dream of becoming successful billion-dollar companies themselves. As we now know, this did not happen and, even today, almost 30 years later, we only have one unicorn — Carsome. Slim pickings for a nation that had big dreams and was the first to set up a thriving start-up ecosystem in Southeast Asia.
Many would blame this, at least partly, on the weakness of the local VC industry which, despite billions in government funding, has not brought returns commensurate with the support provided. MSC Ventures was not the only fund as even more money was channelled to Malaysia Venture Capital Management Bhd (Mavcap) and other funds from 2001 onwards.
So, what has gone wrong? Why haven’t we succeeded while our neighbour Singapore, which started later, has gone on to be hugely successful?
This was a question that the former minister of science, Yeo Bee Yin, asked me when she appointed me as task force chairman to recommend a restructuring of Malaysia’s funding agencies. This was the first time a minister had asked a tough question about our funding ecosystem.
There have been studies on the VC industry but these were always conducted by paid consultants, not industry players. The task force I spearheaded consisted solely of local industry players — from VCs, private equity, equity crowdfunding, angel investors and entrepreneurs. We completed our task in just three months, engaging with 67 organisations and 268 individuals. In case you are wondering, we did not get paid a sen, except for a wonderful thank-you dinner hosted by the minister. We did it because we were passionate patriots doing this for our country, not for payment.
So, what did we discover and what is the solution to the VC problem in Malaysia?
1 Is it a lack of money?
According to the Securities Commission Malaysia’s Annual Report 2024, total VC funds in Malaysia stood at RM6.7 billion, of which 36% or RM2.41 billion was contributed by the government through its agencies and investment companies. Sovereign wealth funds (including Khazanah and others) and pension funds contributed another 23% (RM1.55 billion). In total, almost RM4 billion (59%) came from the government and related organisations.
However, this is only a snapshot of current VC funds, not a historical view over the last 30 years, during which billions more were contributed by the government.
While RM4 billion is small by global standards, it is significant in Malaysia and should have done much more for the start-up ecosystem. But the expected outcomes — large, successful, global or regional start-ups — remain poor.
2 Could the RM4 billion have been leveraged?
While RM4 billion looks substantial, if the government had followed a “fund of funds” (FOF) model, this amount could have been doubled.
In an FOF model, the government invests in new funds, where fund managers match the amount invested with capital from the private sector. This matching can be 1:1 or more. For instance, in Singapore’s early days, the government recognised that fund managers might struggle to raise funds for VC as it was still a nascent industry. It offered a matching of initially 7:1 and later 4:1. That means for every Singapore dollar a fund manager raised privately, the government matched it with seven dollars and later four. Today, that matching is sometimes 2:1 but often 1:1 as the industry is now fairly mature.
This outsized support by the Singaporean government catalysed the VC industry and today it is one of the most successful globally.
3 Agencies as VC investors have a poor track record
Recent reports by The Edge and other media show that the Malaysian VC industry has a poor track record, largely because over the last 30 years, most of the money has been driven by government agencies. One reason for this? The fund managers in these agencies were not compensated like typical VCs.
In a typical VC fund, managers are paid management fees — usually 2% to 3% of the fund size (the larger the fund, the smaller the percentage) — over the fund’s life (typically seven to 10 years). This is primarily to cover the costs of running the fund. The real returns for fund managers come when they secure successful divestments (namely exits) with above-average returns. Usually, this requires a net return of more than three times the fund size. Fund managers then receive a 20% share of profits (known as “carry” in VC terminology) after repayment of capital and any agreed interest.
Government agency managers were not given carry; they were paid a salary and an annual bonus — they were essentially employees, not fund managers. They were not truly incentivised to achieve extraordinary exits. Private VC managers, on the other hand, must ensure successful exits and are therefore driven to invest in the best companies they can find. I am not saying the agency fund managers were not capable, but in the private sector, if you do not achieve successful exits after 10 years, you have effectively wasted a decade of your life and forgone much higher earnings. The same did not apply in government agencies.
4 Fund seed and early stage or there is no late stage to fund
Seed stage here refers to both start-ups with no revenue and those with minimal revenue (below RM500,000). This stage is tough as the risk of failure is high when these start-ups have not yet proven their business model. This is, however, balanced by the potential for larger rewards when they succeed as investments are made at low valuations.
If we do not fund this stage, these companies cannot grow into larger businesses that later-stage VCs can then support — a common lament among late-stage investors. Angels do provide funding at this stage, but follow-on funding from VCs is still needed.
We have failed here because very few VCs fund this stage as investors tend to avoid high risk. This is where the government can play a catalytic role by providing higher matching funds for VC managers willing to invest at this stage.
5 Trust non-finance executives to be fund managers
Most agency managers have been bankers and corporate finance executives. The thinking is that, because they are finance professionals and VC is essentially about financing start-ups, bankers and corporate finance executives would make better fund managers.
But if we look at the top VC funds in the US — from Sequoia, Kleiner Perkins, Andreessen Horowitz and others — the majority are run by operators and founders. There are exceptions, where funds are led by finance professionals, such as Benchmark or Accel, but most are not.
So, it is time we trusted founders, operators and ecosystem builders to run VC funds as the evidence shows they can be very successful.
Resetting the model
Our recommendations were thus very clear:
1. The government should not invest directly via agencies; instead, it should invest through FOF as this has been proven to be the most effective approach in many countries. This was adopted by Penjana Kapital in 2020 and is also the current model under Jelawang Capital. It also allows the government to leverage its capital, doubling or at least increasing it by 1.5 times through matching with private sector funds.
2. The FOF model also “crowds in” funding for VC. By providing matching funds, it encourages the private sector to co-invest, bringing more capital — and talent — into the VC ecosystem.
3. Investments must cover all stages, from seed to early to late stage. Penjana Kapital adopted this fully and Jelawang also somewhat reflects this recommendation. However, while Penjana was very clear about the different stages and types of funding, Jelawang has kept it more open. It is hoped that when fund managers apply for matching funds with Jelawang, this will be taken into consideration as without early-stage funding, we will not have late-stage-ready start-ups.
4. We recommended higher government matching for early-stage funds as the task force’s study and engagements clearly showed that VC investors in Malaysia are too few and very risk-averse. If the government were to provide, say, 4:1 matching for early-stage funds, more private investors would be willing to take the risk. This has not been adopted, which is one reason many funds struggle to raise capital. Penjana provided 1:1 matching and even then some funds could not be raised. Now Jelawang is providing only 30% of a fund — far less than Penjana. What do you think will happen? Most fund managers will be unable to raise a fund and, even if they do, it will be small. Jelawang has indicated it is willing to consider fund sizes of RM40 million, which means it would provide RM12 million, leaving fund managers to raise RM28 million. I fear Jelawang will soon discover that very few managers can raise this amount. I hope they reconsider this model or we risk wasting another year with insufficient VC funding in the ecosystem.
5. We also recommended a minimum fund size of RM50 million as smaller funds mean lower management fees, which in turn limits the ability to hire adequate talent. However, this was based on higher matching funds. Currently, Jelawang’s minimum fund size is RM40 million but with much lower matching. It will be very tough for capable fund managers to participate and we risk not attracting the best talent.
6. We also recommended partnerships between local and foreign fund managers to tap into the experience and networks of foreign VC professionals, including exit opportunities. Penjana Kapital made this a requirement but Jelawang does not. It should be encouraged as it would help build local VC talent — a key recommendation of the task force. We cannot build a successful VC industry without capable and well-connected local fund managers.
The VC industry has been floundering for three decades. The task force put forward strong, practical recommendations but a change in government in 2020 meant the former minister was unable to implement them. Perhaps now Khazanah and Jelawang can. We cannot afford another three decades of drift or we risk falling even further behind our neighbours.
Sivapalan Vivekarajah is co-founder and senior partner at ScaleUp Malaysia Accelerator (scaleup.my) and adjunct professor at Sunway University’s School of Science and Technology. He is also the author of Supercharge Your Startup Valuation.
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