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Hello friends,

In the past 4-5 years, most folks, especially those in government agencies involved in the tech ecosystem, would always lament that Malaysia lost out big time when Grab (originally MyTeksi) moved its HQ from Kuala Lumpur to Singapore in 2014. 

“We gave away our unicorn to the folks down south,” one officer lamented. Another bureaucrat questioned “Why didn’t any of the large GLICs/GLCs invest in Grab and made them stay in MY?” These comments were often uttered in the local tech ecosystems.

Is it really the case that MY loses out?

It does seem so until it is revealed that Permodalan Nasional Berhad (PNB) invested in Grab’s upcoming IPO through a merger with Altimeter Capital’s SPAC recently. Valued at US$39bn, it is by far the biggest SPAC merger globally to-date. 💪

Source: Wall Street Journal

We don’t know the exact investment amount. Based on publicly available information, Grab, in conjunction with the SPAC merger, is also raising a cool US$4.1bn in fresh capital. Judging by the sheer size of the capital raise, I would hazard a minimum check size of US$100mn for PNB to join the IPO party.

Looking back through the wayback machine, MY-based funds did contribute capital during MyTeksi’s early days. Cradle provided a development grant while 500 Durians invested seed capital to the startup between 2012 and 2015.

Of course it would have been a much better outcome financially for Cradle if it received a share of Grab in exchange for the capital, instead of a straight out grant. It can still claim some bragging rights though.

500 Durians I imagine would have multiplied its initial seed capital a few times if not tens or hundreds times over, in return for making a bold bet on the fledgling startup early on. Kudos to the team! 🙌 

On the other hand, none of the large local institutions, that I know of, would stand to reap the financial gain from this IPO. Although, KWAP the pension fund, might benefit from Grab’s IPO through its shareholding in Uber, provided it still holds some Uber shares. Based on the IPO filing, Uber held 23% in exchange for selling its South East Asia operations to Grab back in 2018.

The other institutions - EPF, LTAT, Khazanah - will sit on the side lines. It is perhaps due to their mandate to invest conservatively in order to (primarily) protect their capital base, while providing decent investments returns.

To be fair, Khazanah did actively invest in tech funds and startups up to 2018, with relatively good outcomes. It invested in Alibaba, SEA (which owns Shopee), Skyscanner, Farfetch, Auto1, Palantir and SoFi to name a few. I am not entirely sure if the current management continues with the strategy or it has different mandates today.

Software Is Eating Your Lunch

In the past decades and centuries, the world has shifted from a largely agrarian society to that of an industrial economy. Moving forward, digital transformation will underpin the global economic output as the next growth engine. 

Marc Andressen proclaimed in 2011 that software is eating the world. In other words, technological advancement will creep in many corners of our lives and drive economic growth of a country. We already carry a super computer in our pockets/handbags everyday - the smartphones. The pandemic only accelerates this shift, as we have witnessed in the last 12 months or so.

As such, the large Malaysian institutions would be prudent to re-orient their investment portfolios to capture the value that will be unleashed from the next wave of digital transformation.

Baby Steps

In order to drive and capitalize the value from the next technological waves, it is only prudent for these institutions to recalibrate their portfolios. Yet, it might be disruptive to make a wholesale change in one go. Instead, they can take one of these approaches to realign their portfolio construction (mix of public and private investments):

1. Set aside at least 1-2% in the beginning, of their portfolio allocation for tech investments, with a view to increase it higher in later years;
2. Invest into a tech-focused fund-of-funds (these funds raised money from investors and invest into other venture capital (VC) fund managers);
3. Invest into VC funds directly
4. Co-invest with the fund managers into promising startups in their portfolios;
5. Invest directly into tech startups; or
6. Invest directly into publicly-traded tech companies across the globe.

These are some of the indicative steps these institutions can take to expand their investment footprints into the tech sector. The pivot into tech can be done incrementally, concurrently or a mixture of various approaches. It all depends on their risk tolerance levels, internal team capability, confidence and conviction. The main important factor is their recognition of the need to include and expand into tech investments.

Nurturing the Local Ecosystems

Investing into funds and startups globally are commendable efforts in order to benefit from the upcoming secular trend - digital transformation - impacting us. At the same time, these institutions should also play an active role to develop the local/regional tech ecosystem. In this regard, it is recommended for these pensions funds, asset managers and sovereign wealth funds to also invest in local/regional emerging fund managers, not just the global established ones.

Just like VCs invest in young startups, big institutions ought to support young VC managers in order to spread the capital base wider, so that local startups don’t have to rely on foreign VCs for funding. By doing so, they will give birth to outstanding local and regional fund managers, able to compete with their more established brethrens, all the while enriching our tech ecosystems.

Never Too Late

In investing, it might typically take years before investors can reap investment gains across any assets class. Tech investing is no different. And it should be positioned as a medium to long-term investment strategy to fully realize the potential.

Investors in Grab, Airbnb, Tesla, Facebook and Amazon all waited for years before they began to reap the fruits of their investments. More importantly, these investors usually put their gains back to work by investing in new startups and existing and/or new fund managers. These fund managers in return invest in more tech startups to churn out more unicorns. And the cycle repeats itself after these unicorns (and decacorns) march past the exit doors and the proceeds are being reinvested into the ecosystem, thus creating a flywheel.

It is understandable to lament past losses. Yet it will be more productive to learn from those mistakes and seize the opportunities to create more Grabs of the future, starting today. It is never too late.

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Extra Reading

• An 82-year old installs his own electric utility pole in his quest for the best sound
• Learning how to learn pretty much anything

Until the next post,

Reez Nordin

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