- 5 months ago
Half of global venture capital is now flowing into AI. But are the biggest gains going to big tech, leaving smaller startups on the sidelines? Scott Fox of the Startup Council reveals who’s really winning, and what it means for talent and investment flows.
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00:00welcome to our one you review my name is into joining me on the show today is Scott Fox he is
00:15the founder and CEO of Startup Council now Scott is from the United States his built companies his
00:22also backed startups as a venture capitalist and angel investor and written three bestsellers on
00:29entrepreneurship now Scott is on a mission to help underrepresented founders worldwide Scott
00:36great to have you on the show and welcome to Malaysia thank you Cynthia I'm happy to be here
00:40now Scott for those of our audience who have not met you before how do you usually introduce yourself
00:46what is your world all about if you can share with us my world's about innovation and empowering
00:50entrepreneurs to take advantage and benefit from the digital revolution that's going on all around
00:55us so if I introduce myself I do a lot of things and I've been at it for a while so it's kind
00:59of a long introduction but basically I'm a these days I'm mostly an angel investor but that's
01:03based on my experience as a serial internet entrepreneur I founded as you said several
01:08companies and these days I spend a lot of time doing this which is traveling around and helping
01:12startup ecosystems around the world accelerate to empower entrepreneurs and spin up the economy
01:17to create more jobs and innovation so you have mentored and you have invested in startups globally
01:21um what first drew you to this world and what keeps you passionate about it well that's a great
01:26question I've literally written books about this but I do get excited about it and entrepreneurship
01:30is really exciting because it means that people can take simple ideas and change them into world
01:35spanning platforms and you've seen this this is one of the reasons that the US State Department
01:39brought me over here was to help inspire Malaysian people to innovate on their own to create their
01:45own versions of what works for Malaysia and to grow the Malaysian economy in concert with the US growth
01:50and what excites me is that these ideas can come from nothing just you and I over coffee might have
01:55an idea and with the reach of digital technologies and a little financial backing perhaps you can
02:01really create things that not only solve problems but may make the world a better place and make you a
02:06lot of money too it works out really well when it works it doesn't always work but when it works
02:10it's great talk to us about your trip to Malaysia so far what's the intention here what's your mission
02:15sure well the the US State Department invited me so the embassy here in Kuala Lumpur was generous
02:20enough to invite me over so we started in Johor Bahru last week and I spoke at UTM and with some
02:26community groups and then we were in Penang for several days and lovely Georgetown I've been to
02:31much of Southeast Asia but I hadn't been to Malaysia before so I'm very happy to be here the folks are
02:35so welcoming and the food is you know I guess you know the food is great but and then we arrived here
02:41in KL and meeting with different groups of entrepreneurs and then after this I'm going
02:45to a talk for investors because I'm mostly an investor these days but you need all those
02:49different parts of the community so that's what I've been seeing here the State Department set up a
02:53great itinerary to have me meet all different aspects of the ecosystem and hopefully connect
02:58them together use me as an excuse and then we'll together share some knowledge and hopefully build
03:03greater relationships and businesses all right I'm very interested to hear more about the the findings of
03:09your trip to Malaysia so far but I would like to zoom out a little because let's talk about
03:14starting a business now going back to the basics right isn't quite simple as before if we look at
03:2010 years ago the focus was all about growth at any cost right but now we hear more about survival
03:26sustainability secured and profitability so how different is the founders playbook today say
03:34compared to 10 years ago what are some of the challenges that you've never maybe imagined say
03:39starting out 10 years ago yes well obviously the answer has to it's a two-letter answer AI that's
03:44that's what's really happening and impacting everything in the world that I play in so I'm
03:48mostly an early stage investor in technology a software guy mostly and the rule book is being
03:53rewritten as we speak and actually literally I'm working on a new book about this because we have
03:58to kind of rewrite the rules as you suggest but we've seen the teams get a lot smaller because a lot of
04:04the work for coding and development can be outsourced the platforms have better reach so even if you're
04:10not a coder you can test things out inexpensively and that changes the risk profile for us as investors
04:15as well as for founders because less capital is needed and you can go farther faster and it changes
04:21the risk-reward because if today with a million dollars you might be able to do what somebody required
04:2710 million dollars to do 10 years ago or a hundred million dollars 10 20 years ago my first company
04:32I raised my first venture round back in 1997 and back then everything that we do today all the money
04:38we raised are things that you could probably do today on your phone right just easy it gets faster
04:42all the time but the capital requirements are shifting and that means that the the creative
04:47opportunities are increasing but also the competition hmm okay so let's talk about AI so efficiency
04:54productivity that has increased tremendously but what are your thoughts about how um startups and
05:01founders are saying that the gains are locked up by big tech because if you look at the um in practice
05:08most founders aren't really building foundation models they are users of AI tools right right these are
05:14good questions you've thought about this thank you the yes I agree the foundational model they're expensive
05:20right um there was a press conference just this week you probably saw where uh at the white house
05:25president trump had a dinner with a lot of tech ceos and he turned to mark zuckerberg the founder of meta
05:30and facebook and asked him how much you're going to spend on AI this did you see that yeah 600 billion
05:34dollars in one year I mean so yes I think um entrepreneurs are largely priced out of creating the llms
05:41new llms but that means I think this is a lot like what we saw with web 1.0 there was a first wave of heavy
05:47infrastructure investment things got very heated but then things came back hopefully not as dramatically
05:52as they did during the web 1.0 crash but I think we're now looking at AI 2.0 and AI 2.0 to me there's
05:58a lot of versions of this is but you have these big platforms so you're not going to compete with them
06:02but you can use them you can use the tools you can use the distribution just as we were talking about
06:07I have a YouTube channel I don't compete with YouTube they're a distribution channel for for our services
06:11right for our community services so looking at this next wave AI 2.0 I think is about um use there's essentially
06:19an oligopoly of these big AI llms but you can use their tools and build businesses around orchestration
06:27um optimization communicating solving business needs that use the AI as a service not as a competitor
06:36and there's a whole wave of those just as we saw with the web enabling the the ground level
06:41infrastructure inspiring all kinds of apps and services where you see where are we at that curve
06:47right now you talked about how we have seen the first stage and 2.0 where are we at yeah I think
06:52we're just entering 2.0 in Silicon Valley they're already there right because there this is where we
06:57spend a lot of time looking around trying to see around the corner and see the future and uh that's
07:01already happening but I think there's plenty of room here it seems to me a lot like the mobile
07:05revolution you remember uh 20 years ago everybody were getting their first phones and it was just
07:10a blank screen like what do you what do you do with this thing right and then came the app revolution
07:15there's an app for that and it's pretty soon you're if you look at your screen or my screen there's all
07:19kinds of apps I think we're going to see the same thing in AI new ways to leverage this massive
07:24infrastructure investment that is then translated into real world use cases because as you know
07:30these big companies they're they may be making money but nobody's really sure it's mostly
07:34everybody's testing stuff right they haven't really figured this stuff out so the next wave is
07:38what's the killer app what are the killer apps is it is it a FaceTime or email or you know all these
07:43different versions that we now take for granted those were startups uh 25 years ago too and now we need
07:49to figure out how to use AI to do that all right um I wanted to bring this back closer to this part of
07:53the world so if you look at VC money um AI is pulling more than half of global VC money at this point
08:00and it does look like they are clustered in the US China and maybe perhaps India for a founder in
08:08Malaysia or Southeast Asia what is the realistic part to tapping into this AI driven growth yes yeah
08:17it's a great question and I get this I speak all over the world and everybody wants to know how to get
08:21their piece of it because it's challenging um like I said I don't think you're going to try to compete
08:26with open AI or raise a half a billion or billion dollars to start your own perplexity that's that's
08:32not realistic for any of us right but what is available is the local approach and the market
08:38here in Malaysia is has its own unique characteristics that means that there are also problems to be
08:43solved that are unique to Malaysia or at least regionally right in Southeast Asia so I think the
08:47opportunity for entrepreneurs here is exciting and that's why literally why I'm here is to try to
08:52help brainstorm what those opportunities are what is it unique about you know maybe the traffic in KL
08:58somebody could do something about that using AI I mean real practical stuff right entrepreneurs are
09:02problem solvers so I would be looking at your daily life and figuring out what could be better but not
09:08necessarily you don't have to be creating a Facebook level globe-spanning platform you could
09:14solve a small problem in your neighborhood or for your family or for the people at your mosque or
09:19whatever your community group is and that is a totally legitimate way to do business I'm mostly
09:24talking about venture capital and really big companies because we're looking for moon shots
09:27right but these smaller businesses are actually what my books are about how to build a lifestyle
09:32business that solves problems and makes money that's a totally legit thing and then the beauty is if you
09:37can figure it out in your neighborhood or your community or across Malaysia there's probably other
09:42markets that you can then expand to so instead of maybe looking to the future and aiming for the moon
09:47right away solve a real problem with real customers make enough money to survive sustain and then expand
09:54from there that's an absolutely legitimate way to go okay so let's talk about your conversations with
09:59relations here so far so you have at one week let's talk about talent right you spoke with many young kids
10:05and students so if you look at talent concentration say a decade ago you see top engineers flock to startups yes it's all about you know building something exciting but
10:14uh now you see the uh preference for stability big tech corporates right so how is that also affecting a talent movement from your vantage point
10:25yes talent is obviously the key to all this stuff and you've probably seen the crazy headlines about
10:30uh... facebook again recruiting ai engineers and paying them hundreds of millions of dollars just craziness
10:36um... but they might have the chance to make that money back so they're not there they're they see it as an investment
10:41so for local talent um... a couple things first of all there is real talent here and i think
10:48malaysia is like a lot of other ecosystems i've visited where there's a lot of talent what there isn't as much of is confidence
10:54and you don't have a lot of unicorn success stories and you know like a paypal mafia or facebook mafia that's here reinvesting in the community
11:02but i can see that you're one or two of those deals away and that's going to make everybody say oh we can do this
11:09and that's what malaysia needs and that's why i'm here to encourage people to try that so if you have that if you have that kind of talent
11:15um... i was speaking at the uh... yc la young southeast asian leadership initiative conference in georgetown monday
11:23and talented people from all across the region and a lot of the discussion is brain drain really we don't want people to leave
11:30right um... so we want to keep them here and encourage innovation locally but one of the beauties one of the few silver linings of the pandemic was zoom right and you can now participate in the global economy from anywhere so my advice to those young people was
11:44you don't need to start a business right away get some corporate experience so you have some context so you know what problems need to be solved and what is worth solving and where there's some money to pay to do it
11:51and then as that evolves you can then bring your own unique take on that which may have a malaysian flavor and i would start there and get going as soon as you can because things are moving you don't have to quit your job either like even on the side
12:06building you know a sandcastle is built one grain of sand at a time and starting sooner is better than later
12:13are there areas that look particularly exciting to you that you think that hey this might be a good opportunity formulations
12:20well i don't know how to download food but i would start there if somebody can figure that out you guys have such lovely food
12:26um so yeah there's that of course but um i think the diversity that you have here one of the reasons that malaysia and the united states get along so well together i think is that we're both diverse cultures with many languages and religions and um a sort of welcoming attitude and and that that is honestly rare and unique and particularly i've been impressed and these are my views not the embassy or the state department you know america's full of you know 300 million different people
12:55you know 300 million different people with different opinions so this is me but i've been uh very impressed at the uh religious integration as well the role of muslim women here seem to be very active in the states they don't we don't see that as much and it's so exciting compared to other versions of islam you might see around the world um and exporting some of that um the islamic banking fintech stuff halal food i mean there's angles there that you do better than anywhere else i've seen in the world that i think are very interesting
13:24then of course you have your diaspora the chinese contributions here and the indian contribution
13:28uh the back and forth between malaysia and the people that do leave and then come back and immigrate back and forth
13:34that's it's so dynamic i i'm not educated enough to know what the problems are there but there are certainly issues there that could be addressed nicely by entrepreneurs in malaysia and i would encourage
13:45um you all are here you're kind of the the fish in the water and you don't see the water but as an outsider i see this is a lovely culture people are welcoming
13:53they talk and eat together so well um that that's a unique thing and trying to package that again i don't have the answer
14:01but that's a direction i would look because that's a way you can compete as opposed to and you speak english
14:06right i mean largely anyway um those are all advantages that you have against even regional competitors like
14:12a vietnam or a thailand or indonesia this is some good stuff and i don't know quite how to productize it
14:19but that's your job all right so we've talked about people we've talked about talent i do also want to
14:24talk about um policy and politics of course besides technology ai those things shape the uh playing
14:31field too so for sure um if you look at where you're from the u.s has long been the hub for innovation
14:37home to the biggest tech companies the strongest r d funding magnet for global talent but we are now seeing
14:45um research funding cuts restrictions on visas on talent um policy shifts under the current administration
14:52from where you sit just give us a sense of how is this playing out on the ground and how is it
14:59affecting this startup world where you're at in the states you mean yeah well yes we're we're struggling
15:06with some of the same issues that the the the pendulum has swung in a certain direction right which and i
15:11work with a lot of universities i'm a mentor at stanford i went to stanford for graduate school and
15:16i mentor this startup incubators there and the university of michigan is another school i'm i'm
15:21leaving when i leave here i'm flying to ann arbor um to work with those schools and yes their funding is
15:26being cut too and it's a challenge for everybody and it's not just the big universities the ecosystem players
15:32the sort of ngo type level um organizations are all struggling because it's not only perhaps cuts but
15:41even uh unpredictable future on top of that so um we feel the pain i think as well and i guess my hope
15:48is that the pendulum will swing back at some point um and uh recognize the long-term value of all these
15:54programs do you think that this is just a temporary bump or could it really reshape u.s tech leadership in
16:01the long run that's a that's a good question um i think some of both i i think it is temporary like i said
16:08there's a swing of the pendulum or a breathing in and breathing out it's a natural flow ebb and flow
16:13and there are certainly parts of uh our government programs that perhaps got bloated and we're sort
16:19of now they're cutting everywhere maybe a little too drastically for some of our you know preference
16:24again my opinion um but um i think the tech leadership it's forcing everyone to be a bit more nimble in
16:30terms of the jurisdictions where they're working and i think that it requires um
16:34um perhaps an extra level of entrepreneurship these companies have gotten so big that they're
16:40used to operating like big companies right but i remember back when i was at stanford like yahoo was
16:45on the stanford servers it was yahoo.stanford.edu it was just a student project right and they've grown
16:51now to be so large that they're almost nation states and um i think it's kind of good for them
16:55sometimes to have to adapt and then think about to be more disciplined disciplined and and to think
17:01about all the people that work for them and the people they affect right um yeah there's a longer
17:05discussion there but there's a lot of impact i think this leads me to my next question where i
17:10was trying to get to is that have you seen founders change their strategy because of all these
17:14developments or even planning to move elsewhere because the changes that they are seeing in their
17:19yes certainly i work with a lot of immigrant entrepreneurs and i do a fair amount of work for
17:24um with non-us companies that want to enter the u.s capital market well consumer markets to sell but
17:31also to raise money the capital markets because we have such a large version of both right so yes i do
17:35see that and and absolutely we see people who are afraid to come to the united states just like they
17:41don't want the visa hassle right and immigrants there whose visas might be up and yet a study recently
17:48said that 22 percent of the fortune 500 were founded by immigrants in the united states and if you add
17:54their children to that it's 46 percent of the fortune 500 are founded or at least led today by immigrants
18:00so it's a real source of strength for the united states in the long run and i think we will come back
18:04to that recognition soon uh there's just been some uh adjusting of the criteria let's say um and i and i
18:12and i hope that we will get back to being a more welcoming place because the world has so much to offer
18:16us and all of us are immigrants in the states right if talent and capital are flowing differently right
18:21now because of what's happening the u.s do you see or maybe could asia southeast asia even malaysia
18:27emerge stronger as a result of that development yes i hope so that's a great way to put that thank you
18:33one of the opportunities i was at usm yesterday in georgetown or two days ago and we had a group of
18:39professors and faculty and alumni and one of the professors was pointing out and i thought it was a
18:43really good point that this may be an opportunity for malaysians to stop worrying about the rest of
18:50the world a little bit and focus on homegrown success stories this may be a chance to look inward
18:54and you know you you get lemons you try to make lemonade right so try to make something good out of
18:59this this is perhaps an opportunity to focus inward and really double down on innovation here that serves
19:04the local market that can um encourage the local ecosystem to to flourish on its own and perhaps
19:10emerge stronger okay i want to talk about uh funding a bit more because if you look at the funding
19:15structure uh compared to say silicon valley it's a lot of vc angel money in malaysia for instance uh
19:22it's the funding landscape is very different big injections often come from government-linked companies
19:27or rather than private vcs right so in your opinion do you see this as a strength in the ability to fill a
19:36gap um or could it be a weakness for us because it seems to crowd up private capital in those
19:44exciting areas yes well i i don't want to say anything bad i'm a guest here and i appreciate the
19:49hospitality but from your vantage point i think it's i think it's bad i think too much government
19:54dependence america is a free market country right but the private the private sector is what allows us
20:00to flourish the incentives that drive our markets are what allow success the competition breeds
20:07better companies and it attracts immigrants and allows the socioeconomic mobility that america's famous
20:13for right it is those private market incentives so the government certainly has a role to play
20:18especially at the early stages when things are uncertain you know grants and supporting non-profits
20:23that support this absolutely but i think more private capital would be a strong addition to the
20:29malaysian startup ecosystem for sure yeah because if you look at funding investors seem to concentrate
20:34on big players and with that most startups struggle to get yeah seed money the early stage of it so i just
20:41want to get your opinion about how do we navigate that what would you think or what would you like to
20:46see to help bring that startup ecosystem to the next level sure what people miss about this is that
20:55investors are actually very risk averse we're not venture capitalists might seem like the riskiest most
21:01aggressive investors but we still are investing capital for a return it's still a business so we're
21:07looking at opportunities and we want them to be less risky and that's why you're having trouble because a
21:11lot of the money here has been in more traditional businesses and in real estate absolutely and if you
21:15make money one way why would you throw it away another way and also the exit path is in the exit path
21:20is limited that's right and your market isn't perhaps big enough to support you know 15 different
21:24unicorn size companies right but i think there's an education effort and also a generational shift
21:30that comes when people start to allocate at least some percentage of their capital to even if you think
21:37of it as impact investing in a philanthropic way you know if you've got a zillion dollars how about
21:42five percent of it that goes towards these things and the trick is getting people to do that and then
21:47sharing the risk and then sharing the expertise so what i'd like to see from malaysia is what we
21:53have a lot of in the united states that we have big vc firms that raise hundreds of millions and
21:57billions of capital but we have a strong networks of angel groups and the angel groups are are just
22:01groups of people who've made enough money that they have they're not going to put all their money into
22:05startups because nine out of ten startups fail right it's risky stuff but you can allocate a percentage
22:11of your wealth and then you get together with your colleagues and you learn and discuss and have
22:15companies present and everybody learns together and that's how i learned to become an angel investor
22:20i was an entrepreneur for a long time but sitting in room with 30 or 40 colleagues who are all
22:24successful in their own fields week after week hearing hundreds of pitches and hearing different
22:29people's opinions that's real it's a public service and a community good and i think the malaysian
22:34government could play a role in that way in helping sponsor or even subsidize or at least create event
22:40series something that brings those kinds of people together on a regular basis so that the knowledge can be
22:45shared and and give each other the confidence that you're not crazy for wanting to support this
22:50and to recognize sorry again i get excited about this stuff but but to recognize that you are going
22:55to lose most of your money you really are and that's nobody wants to do that but failure is part of the
23:00equation for success and if nine of them fail one of them might be uber and then that pays for all
23:05the others and it's a very uncomfortable way to make money but it works so um a couple minutes live i do
23:13want to get your thoughts about industry uh specifically about funding right so it does feel for a lot of
23:20startups is that if you're not an ai if you're not in semiconductor yes um you're invisible to investors
23:26so do you think it's true or you know the other other ways to attract capital in areas or industries
23:32that may be less sexy to the investor yes it's a perennial problem and there's this been this flight
23:39towards ai that's hurt everybody in the states too and anyone who isn't just feels left out and it's it's
23:45not fair but it is it's a market adjustment right so what to do about that well on the impact side if
23:51you have a specific cause there are often founders sorry funds that invest in specific things so maybe
23:57women founders or immigrant founders or rural founders or you're solving specific types of
24:02problems climate tech or energy or sustainability there are different impact investors so the thing
24:09that i recommend the most this will be in my next book too in more detail but traditionally founders were
24:15probably like 80 percent focused on their product and solving the problem and then maybe 20 percent you
24:20know the classic 80 20 maybe 20 focused on research in terms of finding the right investors
24:27there are so many investors now the world is so big and especially since video conferencing has
24:31connected us all post covid i think it needs to be the other way around you need to find your
24:36solution and your problem and hopefully it makes money but that's really can only be about 20 of it
24:40you need to spend about 80 of the time making sure you're in the right room right because so much time
24:46is wasted if you and i start a company we could spend two three years finding the people that even
24:51understand what we're talking about right and you need to spend more time identifying those who are
24:56already interested in what you're doing because they'll give you the benefit of the doubt and my
25:01secret tip or not so secret i guess if i do it on television is the malaysian diaspora is there for
25:06you i'm sure every other ecosystem i talk to there are lots of people who have left who have done well
25:13and they're probably more likely to give you the benefit of the doubt that you're solving some problem that
25:19people in putra jaya you know no one else knows about this but they're from putra jaya you know and so they're
25:24like oh i'll hear about that and um that's a way to level up quickly and find investors who would
25:30sympathize with you just the same way that your mom might invest even though she doesn't understand it
25:34you find someone from your home country um with a similar background they'll get it faster and and
25:38you'll find money faster all right well thank you so much scott for sharing your valuable insights it's
25:42been a pleasure to have you on the show and hope to see you back here in malaysia maybe make some
25:47investments as well yeah that's right as you build your network here thank you so much scott great to have you
25:52thanks for having me
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