- Cradle Innovation Advisory help startups collaborate with corporates and SMEs
- Address gaps in governance, legal, and HR capability in startups with Lex Act
Spot quiz. What is the number one reason behind the failure of startups that Cradle Fund Sdn Bhd has funded over its 22-year history? If you stated the obvious, lack of funding, you would be wrong.
When Cradle asked this in a survey it conducted in 2022 with the roughly 1,500 startups it has funded since it was created in 2003, governance turned out to be the overwhelming reason cited by founders.
Could that have been a fluke result, coming during the pandemic though? Well last year Cradle did another study, this time with almost 100 founders, specifically around the importance of governance (which includes finance, HR and legal matters) in their operations. 99% said it was very important.
This lack of governance can lead to, “fighting with your partners, shareholders, and vendors,” said Muhammad Hafez Azhar, head of Cradle’s group legal and governance.
Ironically, the disagreements are not necessarily over running out of money he observed. “If your governance is not solid enough, when you are growing fast but don’t have enough protection to cover daily operationd, you are going to have problems.”
Governance also came up big with Tong Jae Shaun, Head of Innovation Advisory and Special Projects at Cradle.
“We hear a lot of stories of our startups trying to collaborate with SMEs and corporates after the third or fourth year (of getting Cradle funding), but a lot of those deals fall through because these businesses complain that the startups weren’t ready,” he said. Specifically, the issue was over the lack of proper corporate finance and governance within the startups.
Both Hafez and Tong were speaking on the first day of the Cradle LIVE! Startup ASEAN Summit 2025, on Nov 3 where they were sharing key details of Cradle Innovation Advisory (CIA) a new initiative Cradle launched on July 18.
CIA is a paid service offered to the ecosystem and has a larger objective than improving governance. It aims to address gaps within the Malaysian startup ecosystem, focusing on fostering collaboration and innovation between startups, small-medium enterprises (SMEs), corporates (government linked companies and multinationals), and academia.
It is an approach many other agencies, not just in the tech sphere, have tried (though not as a paid service), as a way to ease friction between the stakeholders they are tasked to help.
For those familiar with Cradle’s history, it had a more focused effort to ease the friction between its startups and the business world in 2017. Initiated by its late and much respected former CEO, Nazrin Hassan, this however was not a structured and formal programme but based on Nazrin personally approaching CEOs of some GLCs and convincing them of the value of collaborating.
Cradle’s new programme (see chart) is broader in its mission as it includes SMEs and academia as well, not just startups and large companies. The goal is the same though, to try and remove the friction that exists which has created a wall preventing startups, small medium companies (SMEs) and large companies from working together.
In the case of SMEs, it is well known that many are hesitant to fund R&D and innovation because of the risky nature of the investment. Yet with SMEs forming the backbone of the economy, the government has a strong incentive to help them innovate. “This is where our CIA comes in to help de-risk those ideas and processes,” Tong said.
Enter LexAct – de-risking governance for founders, risking anger of private sector service providers
Cradle describes LexAct as “a governance-centric service aimed at equipping startups with the necessary legal and corporate governance framework to establish a solid foundation for sustainable growth.” More important, it provides affordable packages and connects startups with vetted professionals who understand their unique challenges.
This tackles the two key points the 99% of founders shared with Cradle in its survey. That while they acknowledge the critical importance of governance, they are deterred by the high costs of specialized lawyers, IP consultants, and even company secretaries.
Coupled to this is the difficulty in finding the right, knowledgeable professionals for startup-specific needs in the first place.
Hafez said that Cradle views LexAct as a crucial part of its support services, introduced to address the affordability and accessibility of essential legal and HR services for startups with four pillars – legal solutions, company secretary services, Intellectual Property solutions and HR solutions.
No matter how well the service is taken up by startups, it is bound to rankle the private sector offering such services who will not appreciate Cradle undercutting the market and coming into direct competition with them.
Diving into the CIA
One of the programmes offered under CIA is the Corporate Innovation Lab Programs (CILP), where a series of six paid workshops branded as MyCatalyst are targeted at SMEs to help them understand the local startup ecosystem and how SMEs can leverage the strengths of startups to grow their own businesses.
There is a double advantage for SMEs that sign up.
“We want SMEs to work very closely with our startups (for the tech) and then to slowly penetrate working with the corporates because a lot of SMEs face problems here as corporates say these SMEs lack proper corporate finance, and have poor governance,” said Tong.
Cradle believes MyCatalyst with its six modules – Intellectual Property, Product Development, Go-to-market, Business Model Innovation, Corporate Finance, and People and Process – can help.
Next year the programme will be expanded to include C-suite modular programs for MNCs with the goal of helping MNC understand the startup ecosystem.
“This is where we hope to get buy-in from the highest level and convince corporations to work with startups and SMEs.”
Using Cradle’s database of startups, Tong explained that CIA intends to match the pain points of companies and their innovation plans with the solutions of its startups to help solve these specific problems and ease their entry into the corporate supply chains.
Cradle is already engaging with some MNCs including the Malaysian unit of Germany’s B.Braun to understand and find opportunities to plug its startups into.
Innovate Exchange Programme
There is an international scope to the CIA as well. “For example, we are working closely with WIPPD, a London-based strategy consulting firm, under our Innovate Exchange program which connects Cradle to WIPPD’S UK and EU network,” Tong said. As a result, Cradle has attracted some of WIPPD’s clients to set up in Malaysia, as they are keen to offer their technology and services to the market.
But it’s not one way, with Cradle also supporting Malaysian startups and SMEs to establish in Europe.
Keeping with the ‘not one way’ flow, Cradle, through the China Region Facilitation programme that it launched in tandem with CIA on July 18, aims to ensure that Malaysian SMEs and startups are able to plug into the supply chain of large Chinese companies entering the Malaysia market.
“These Chinese companies want to set up their infrastructure and ecosystem in Malaysia and we will advise them on how our startups and SMEs can support them,” Tong said. The goal is to ensure the business is not flowing in one direction. “We want our startups and SMEs to play a role and reap benefits too,” he added.
Cradle’s Foreign Investor Network
Yet another new collaboration is focused on attracting new funding into the country, specifically, angel funding. Cradle’s Foreign Investor Network, or “Zenith program” was recently launched in collaboration with Yayasan Dato Malaysia (YDM), an organisation of people who have received titles from the various state governments, federal government and the royal families from 10 Malaysian states. Cradle is also reaching out to overseas angel networks.
“This will enhance funding from overseas and help raise funds for our investment arm,” said Tong, sharing that Cradle is, “working very closely with China’s angel network right now.”
He hoped the efforts will bear fruit next year with Cradle able to provide more funding to its startups.
Angel Tax Incentive process streamlined for investors
While looking outside national borders to attract more angel investors, Cradle has been working to expand the pool of angels among Malaysian tax payers as well.
Introduced in 2013 to attract more investors to consider investing in startups in Malaysia, the key grouse against the RM500,000 max Angel Tax Incentive was over the cumbersome paperwork involved once an investor qualifies for it.
With the incentive administered by Cradle through its Angel Tax Incentive Office (ATIO), Tong shared some good news over the process to claim the incentive, which is now parked under CIA.
“We’ve already streamlined the process whereby if you do make an investment into a startup, you can now file the benefit you are entitled to via the tax office at LHDN. You don’t have to go through too many processes anymore,” he assured.
The key change is that previously an eligible investor has to wait for their investment period to reach the two-year maturity and then seek the approval letter from the Ministry of Finance where (processing takes time) before submitting it through Cradle and LHDN. Now, Cradle will run all the necessary documentation and due diligence during the investment period and issue the letter of approval with the maturity date. This then can be processed straight away on maturity, saving a lot of time.
Involving academia into the ecosystem
While Tong did not share any details of Cradle engaging with academia during his talk, in separate comments he made to DNA he clarified that Cradle does work closely with academia spin-offs and technology transfer offices, with the various workshops under CIA available to them as well.
“Academia is a solid foundation with which to form solid partnerships between startups, SMEs and corporates. It is also a huge source of talent. This is where we marry the industry,” Tong said.
