More restrictive digital regulations in Malaysia could reduce venture capital (VC) funding by 26% from 2026 to 2035 (around RM 792 million/year less on average), according to findings from a newly released Oxford Economics study, commissioned by Digital Prosperity Asia (DPA).
Additionally, transitioning to more enabling regulations would increase VC funding by 6% (around RM 198 million/year more on average) over the same period.
Henry Worthington, managing director, Economic Consulting at Oxford Economics, said: “Startups face immediate pressures as they navigate compliance across a broad range of digital regulations. Meeting these requirements often demands specialised talent and changes to operating models, diverting resources from innovation and growth. Investors also consider a startup’s ability to meet regulatory obligations when making investment decisions. The implication is not that safeguards should be weakened, but that regulatory design, proportionality, and predictability will be critical to sustaining Malaysia’s startup momentum.”
Tackling restrictive digital regulations
The study found that the majority (88%) of startups in Malaysia report operational constraints from digital regulations and cite this as a cause of increased compliance costs (81%).
It also found that restrictive digital regulations have increased workforce/ management costs (87%) and human capital costs (74%)
Moreover, 63% of startups say digital regulations increase market uncertainty, while 73% of VCs say digital regulations heighten uncertainty about returns on their investments.
Koh Liang Wei from the DPA secretariat said: “For SMEs and startups, clear, coherent and consultative regulation is not just a policy preference. It shapes whether limited resources go into compliance or into hiring, product development and regional expansion. DPA looks forward to supporting constructive dialogue between policymakers and the startup ecosystem to ensure regulations safeguard trust while enabling growth.”