9 Budget 2024 recommendations as rocket fuel for Malaysia's Soonicorns 

• Critical to offer visas for foreign students who study in local universities 
• Time has come to implement a Local Technology Procurement Framework

“Soonicorns” or “Soon-to-be-unicorns” are late stage technology companies most of whom have raised venture capital funding and have the potential to become unicorns. 

These late stage companies have gone beyond the high-risk startup stage, have crossed the “chasm of death” and have proven products, customers and revenues. Some of them may even be profitable. They are at the high growth stage and with funding secured will use this funding to not just grow their businesses locally but also regionally. Hence why they have the potential to be the future unicorns of Malaysia.

People often generalise startups as companies at the early stages that are high-risk companies without a proven business. However, many of them have matured, are less risky and many even employ anything from 50 to 200 employees. Their needs from the national budget are therefore quite different from the needs of the early stage startups.  

As such we wanted to know what Soonicorns need from Budget 2024 and the following budget recommendations were obtained from the 24 companies that are part of the 100Soonicorns Program run by Proficeo Consultants and ScaleUp Malaysia in partnership with Penjana Kapital. 

There are 9 budget recommendations for the Finance Minister and Economy Minister to consider when tabling Budget 2024 in October. Most of them don’t require government funding. Yes, you read that right.

Enhancing the talent pool

Having the right talent is critical for all companies, but more so for Soonicorns. At their stage of growth, they need better qualified and experienced talent both local as well as foreign. This need grows even more as they scale their business regionally. However a lack of talent as well as government policies and processes that make it difficult to hire talent is currently holding back their growth. 

The government aspires to create more unicorns in Malaysia, but we can’t achieve this goal if we conspire to prevent the hiring of the best talent whether through lack of visas or by making the process so difficult that hiring becomes a painful process. We need to allow our best companies to hire the best talent to ensure national policy is achieved.

Malaysia is also blessed with many exceptional public and private universities and in 2022 there were 170,000 foreign students enrolled in Malaysian universities and colleges. We lose all this talent despite having spent 3 years educating them because they are not allowed to work in Malaysia for a certain period after graduation, visa free. Some developed countries do this to boost their talent ranks but, frustratingly, we do not. We should endeavour to keep this talent to help grow the Malaysian economy.

Recommendation #1: Visas for foreign students who study in local universities 

We recommend that the government allow foreign students from Malaysian universities who get a job with a startup to be given a 2-year work visa to live and work in Malaysia. The minimum salary should be at least RM3,000 to qualify for the visa. This will increase the pool of highly talented graduates that startups can hire.

Recommendation #2: Auto-Approve work visas for talent hired by tartups

This recommendation is for the hiring of foreign talent. Currently it can take 6 to 9 months to get visas approved for foreign talent and the process isn’t transparent. We recommend that the government streamline the process, simplify the visa processing rules, make it transparent and have a process to automatically approve visas of talent hired by startups. To ensure there is no abuse, we propose that only companies with Malaysia Digital (MD) status, MySTI certified and Bionexus companies be approved for this auto-approval of visas.

Recommendation #3: Allow HRDF funds to be used to pay for locally produced technology tools for talent enhancement

There’s a large pool of funds in the Human Resource Development Fund (HRDF) but it can only be used for training. If the objective is to enhance the talent pool of contributors, then there’s more that the funds can be used for including for the purchase of software and tools for talent development, assessment, testing, performance analysis and more.  By enabling the procurement of such tools HRDF will help their contributors to do a lot more than just provide training for staff. We’re now in the 21st century and it's time for HRDF to consider newer forms of talent enhancement. 

Malaysian startups produce many of these software tools hence we recommend allowing HRDF funds to be used to procure software tools developed by Malaysian startups that are MD or MySTI certified. We recommend the higher amount of RM100,000 or 25% of their funds in HRDF to be used for this purpose each year.

Fostering local technology procurement for GLICs and GLCs in Malaysia

Addressing a critical issue in Malaysia's economic landscape: the need to promote "Local First" technology procurement for Government-Linked Investment Companies (GLICs) and Government-Linked Companies (GLCs). This proposal seeks to incentivise GLICs and GLCs to purchase more technology from local, certified Malaysian digital companies, thereby creating a supportive environment for these companies to grow and contribute to Malaysia's economic advancement.

GLICs and GLCs play a pivotal role in Malaysia's technology procurement, but their risk management frameworks often prioritise international products to mitigate potential or assumed risks. This approach inadvertently stifles the growth of local technology providers. Without support from these major buyers, local companies struggle to achieve the scale necessary to expand regionally and globally in a sustainable manner. This issue hinders Malaysia's ability to establish itself as a prominent player in the global technology landscape.

Recommendation #4: Implement a local technology procurement framework

This budget proposal recommends the implementation of a "Local Technology Procurement Framework" for GLICs and GLCs. Under this framework, these organizations will be encouraged to prioritise purchasing technology solutions from local MD or MySTI certified Malaysian companies with at least 51% shareholding controlled by Malaysians. 

Currently many GLICs and GLCs are reluctant to procure local technology solutions because of the need to be certified by international certifications that are prohibitively expensive for Malaysian startups. This is not necessary and a MD or MYSTI certification will do an equally good job at verifying local solution providers.

Recommendation #5: Double tax deduction for purchasing certified locally produced technology

In addition to the above Framework, to further encourage the procurement of local technologies, we propose that GLICs and GLCs be eligible for a double tax deduction on the amount spent on local technology procurement from MD & MySTI certified companies.  

Enhancing cybersecurity and ISO certification

Cybersecurity is a major issue today and SMEs are increasingly being targeted by cybercriminals due to perceived vulnerabilities. Robust cybersecurity measures are essential to safeguard sensitive data and intellectual property. With increasing digitization, it is imperative for SMEs to fortify their cybersecurity infrastructure and acquire certifications like ISO to not only enhance their competitiveness but also safeguard their operations. 

Recommendation #6: Government subsidy for adopting cybersecurity and ISO certifications

We recommend that the government allocate RM50 million in funds to subsidise the purchase of cybersecurity and ISO products and services of Malaysian MD or MySTI certified companies with a 50% subsidy up to a maximum of RM100,000 per annum. This will help a minimum 500 SMEs to raise the bar on Cybersecurity and ISO certifications and thereby better protect their digital systems, IP and customer data as well.
 

Supporting Women Owned Startups

Women-owned businesses are a major driver of economic growth. In Malaysia, women-owned businesses contribute an estimated 30% to the country's GDP. Supporting women-led businesses can help to boost economic growth and create more job opportunities for women, which can lead to a more equitable society. A study by the Malaysian Employers Federation found that women-led businesses are more likely to hire women than male-owned businesses. Women owned businesses are defined as 51% of shares held by women and the CEO or Managing Director is a woman.

Recommendation #7: Double tax deduction for purchasing locally produced technology by women owned businesses

Buyers of local technology products and services from Malaysian women owned startups to be eligible for a double tax deduction on the amount spent on procurement up to RM1 million per annum.

Supporting women-led businesses can help to improve Malaysia's reputation as a country that is committed to gender equality and social justice. By supporting women-led businesses, Malaysia can show the world that it is a country that is open to innovation and diversity.

Fostering investments into Shariah-compliant P2P financing products

Shariah-compliant P2P Financing is still in the early stages, with the Securities Commission Malaysia (SC) reporting in their Annual Report 2022 that of the total RM3.87 billion funds raised since the industry was introduced in 2016, only 9% are Shariah-compliant, which is equivalent to just RM348 million. This is an extremely low sum especially since Malaysia wants to continue to be number one in the world for Global Islamic Finance.  

P2P Financing has always been an alternative financing product compared to bank and other traditional lending products. P2P Financing is specifically catered for MSMEs that are normally underbanked and may find it difficult to gain access to credit from banks. 

Recommendation #8: Tax exemption for investments into Shariah-compliant P2P financing products

Similar to exemptions for sukuk products whereby profit paid or credited to any individual, unit trust and listed closed-end fund in respect of sukuk approved by the SC is exempted from income tax, we recommend that any profit paid or credited to any individual, corporation, unit trust and listed closed-end fund in respect of Shariah-compliant investment notes to be exempted from income tax up to RM1 million per annum.

With this tax exemption, more investors would come into the P2P Financing market, and this would act as a much-needed incentive to accelerate the growth of Shariah-complaint P2P financing in Malaysia

Deeper GLC involvement in digital ecosystem via startup investments or acquisitions

This policy proposal is to get all profitable GLCs to acquire or invest into startups at a minimum of one exercise a year. 

There have been some initiatives in the past to get our GLCs to work closely with local startups but there hasn’t been much progress. 

In contrast, if you look at how Microsoft, Google, Yahoo etc acquire smaller companies, they are actually acquiring not just the product and innovation but also the talent of the acquirees. This is a good practice to create more value and make the bigger company more innovative. Imagine TNB acquiring a new energy company or MRCB acquiring a property tech company. 

It is difficult to change mindsets, but what if we have a policy to get all profitable GLCs to acquire or invest into a startup, like an ESG drive? Management will then include such an agenda in their yearly budgeting and they can allocate funds for investment or acquisition.

More acquisitions will lead to more exits and more successful venture capital funds and thereby encourage more investors to invest directly into startups or into venture capital funds. This will also help the government in making Malaysia a hub for venture capital in Southeast Asia.

Recommendation #9: Mandate all GLCs with profits above RM100 million to make a minimum of one investment or one acquisition a year 

The quantum of the investment or acquisition is immaterial; the recommendation is a policy proposal mandating investments and acquisitions annually.

These 9 recommendations are relevant not to just Soonicorns but to the wider technology ecosystem in Malaysia. The tax impact on the government’s budget is minimal but the impact on growth stage companies is huge. 

While there is a drive to create more startups, the immediate return on investment to the economy will be obtained by supporting the more than 5,000 startups that exist today, many of them already at the high growth stage. We need to add rocket fuel to speed up their growth and this is not just more money, but creating a stronger environment to foster startup growth. We hope the government will take these recommendations into consideration in Budget 2024.

Dr. Sivapalan has a Ph.D in Venture Capital from University of Edinburgh, Scotland and is Co-Founder and Senior Partner of Scaleup Malaysia Accelerator (www.scaleup.my) and Proficeo Consultants (www.proficeo.com). He also runs “100Soonicorns” a special program to groom late stage startups to achieve unicorn status. He is also the author of the book ‘Supercharge Your Startup Valuation’ published in 2021. Visit his LinkedIn profile at https://www.linkedin.com/in/drsivapalan/