MaGIC: An estimated 40% of local tech startups will not survive if the Covid-19 crisis continues after May

Khairy plans to raise the issue of cash flow problems among tech startups with the government. — AZHAR MAHFOF/The Star

Despite the current difficult economic situation and the imposition of movement control order (MCO), investing in technology can protect companies and businesses, and cushion the economic impact, said Science, Technology and Innovation Minister Khairy Jamaluddin.

Although the government has introduced economic stimulus packages to wade through the difficult time, feedback given will help it understand the situation and ensure tech startups and the economy survives, he added.

This is vital, he said, as the Malaysian Global Innovation and Creativity Centre (MaGIC) estimated that some 40% of startups will not survive if the Covid-19 crisis continues after May.

The minister said that 35% of companies interviewed had said they needed loans, 24% needed grants and subsidy, and 4% needed loan repayments to be postponed, while 20% of startups asked for non-financial assistance such as business matching, market access and capacity building.

He said this in a webinar on Building Resilience In The Tech Sector that discussed the challenges faced by tech startups during Covid-19 MCO, on March 30.

The session had representatives from Malaysia Debt Ventures Berhad (MDV), Cradle Fund Sdn Bhd (Cradle) and Malaysia Venture Capital Management Bhd (Mavcap).

Mavcap acting CEO Shahril Anas said that the MCO had provided opportunities for some startups to pivot and leverage on the MCO such as by working with B40 lorry drivers to deliver groceries, while others such as online travel agencies are seeing zero income.

Cradle acting group CEO Razif Aziz said that most startups have a low cash buffer and they could not last more than two or three months during the current crisis.

“The burn rate is unprecedented because this has never happened before,” he said.

Initially, the startups thought it was just a supply chain issue but consumer confidence has also been affected as most buy mainly food while the services sector has literally come to a halt.

“They need relief funds from the government,” he said, adding that companies too need to check their cash flow and prioritise, which includes looking at other opportunities and shifting to online business.

And if need be, they also need to renegotiate contracts with service providers for a win-win solution, he said.

Shahril said some companies that had managed to raise funds, their “runway” can be extended for 12 to 18 months, but those raising funds now are facing problems.

“We, as shareholders, will assist in terms of bridging (services) to keep them afloat,” he said.

In terms of resilience, Mavcap said it has not encountered a situation like this where some are seeing zero revenue and urged the government to inject more funds.

“We need extra fund infusion to give the startups a lifeline for the short term, at least six to 12 months,” he said, suggesting for a relief fund to be channelled to the three agencies to disburse to startups.

When Khairy asked what MDV could offer since banks have offered a six-month moratorium, MDV CEO Nizam Nadzri said that the moratorium is also applicable to customers who took a term loan from the organisation.

He said MDV will give good consideration to rescheduling and restructuring loans of those that received project or contract financing from it.

“We will help bridge the cash flow,” he said, adding that it will expedite the process for companies that need to pay for operating costs and salaries.

Meanwhile, Razif said that while MDV worked with venture capitals that had larger amounts and could conserve their funds, Cradle’s startups received small grants – only RM300,000 based on its last programme.

With most of the companies not having investors at the early stage of their venture, he proposed that the government provide a special package for startups to offer some relief.

“They are asset light and can probably only cover wages, rent and Cloud services.

“No need to give a large amount of money, they will still need to practise financial discipline on their part,” he said.

On March 27, Prime Minister Tan Sri Muhyiddin Yassin had announced an economic stimulus package amounting to RM250mil.

But tech startups said they still could not meet bank requirements and they often had to get funding overseas though Shahril claimed that they do not need to get funds from overseas as Mavcap is partnering with foreign funders.It currently runs 11 funds and still has US$20mil (RM86.3mil) left in the fund, he said, adding that Mavcap has also set up another two funds worth US$30mil to US$20mil (RM129.5mil to RM86.3mil) for Greentech Fund and US$10mil (RM43.2mil) for Fintech (blockchain).

“We will process it fast. Desperate times need desperate measures. Those into e-commerce and green tech, please come to us,” he said.

Meanwhile, Nizam said MDV which has existed for the last 15 years will back startups with projects that overcome the lack of confidence among banks in new businesses.

“That is something we can do. But in terms of Bank Negara requirements, the loans covered under CGC (Credit Guarantee Corporation), I suggest startups talk to the bankers to see if they are applicable,” he said.

Razif said that startups could not meet a lot of requirements and Cradle is in consultation with the banks to explore the possibility of meeting requirements halfway.

Meanwhile, Nizam said it is business as usual for MDV – existing customers can send their fund disbursement documents to MDV for it to process and new tech companies can still apply online.

The issue of cash flow problems among tech startups will be raised to the government, said Khairy.

He has heard the challenges and the relevant agencies urging the government to inject more relief funds into startups, as their cash flow could not last beyond two or three months during the Covid-19 crisis.

“I have heard about their challenges, especially the problem with cash flow,” he said.

“I will discuss with the other ministers on how the companies can be helped.”

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