Digital regulations are increasingly impacting Malaysia’s startup ecosystem, according to a study by Oxford Economics commissioned by Digital Prosperity Asia. The report reveals that compliance costs, talent allocation, and innovation are being significantly affected, with potential losses of RM 792m in annual venture capital (VC) investment if regulations become more restrictive from 2026 to 2035.
The study highlights that 88% of Malaysian startups face operational constraints due to digital regulations, with 23% describing the impact as major or severe. Compliance-related costs have risen for 81% of startups, and 68% have implemented new processes to meet regulatory requirements. This includes engaging external legal support and shifting workloads to compliant cloud services.
Talent costs are also on the rise, with 74% of startups reporting increased expenses for compliance, cybersecurity, and data governance expertise. Additionally, 67% of startups are diverting funds from research and development to compliance, leading to delays in product development for 57% of firms.
Investment uncertainty is another concern, with 63% of startups finding it harder to raise capital due to regulatory pressures. The study predicts a 26% reduction in VC funding over the next decade if regulations tighten, equating to 210 fewer startups and approximately 22,000 fewer jobs by 2035.
Henry Worthington, Managing Director at Oxford Economics, emphasised the need for well-designed regulations that balance safeguarding trust with supporting innovation. Koh Liang Wei from Digital Prosperity Asia echoed this sentiment, advocating for clear and consultative regulatory frameworks to foster growth.
The findings underscore the importance of regulatory design in shaping Malaysia’s startup landscape, with implications for future policy decisions.
