Mosti’s Cradle Fund sees overcrowding in applicants as 70% are AI

KUALA LUMPUR (Oct 6): Artificial intelligence (AI)-related startups now account for about 60% to 70% of the estimated 1,000 applications received by Cradle Fund each year, but investors are becoming more selective as the space grows increasingly crowded.

Cradle Fund group chief executive officer Norman Matthieu Vanhaecke said the government agency has seen a sharp increase in startups positioning themselves as AI-driven, AI-enabled or AI-native.

“The market is getting really, really crowded. So it's kind of tough for venture capitalists later on, and even for us as well, to really decide where to park, for us, especially taxpayers money into,” he said during a panel session at the Alliance Bank BizSmart Business Conference.

"At the end of the day, for us, the return has to come back to the country and the people. So it's tough for us. So you have to really differentiate," he added.

This has made it more difficult for investors and Cradle Fund, which manages taxpayer funds, to determine which AI businesses have sufficient potential to warrant funding, he said.

Cradle Fund was created by the Ministry of Science, Technology and Innovation (Mosti) in 2023. It provides grants, equity investment, commercialisation support, and mentorship to tech entrepreneurs.

Startups need to differentiate themselves by developing niche solutions that can serve not only the Malaysian market but also regional and international markets, Vanhaecke said.

At the same conference, Sunway iLabs — the innovation arm of Sunway Bhd (KL:SUNWAY) — chief operations officer Karen Lau said investors also need to distinguish between companies that genuinely have AI capabilities and those that are simply using AI as part of their positioning.

Investors are looking at the defensibility of the technology, including whether a startup is merely building a layer on top of existing frontier models or has technology that can be integrated deeply into customers’ business processes, she said.

Meanwhile, fellow panellist 1337 Ventures CEO and founding partner Bikesh Lakhmichand said the firm looks for founders with expertise in a specific industry, such as healthcare, fashion or marketing, rather than startups built around generic AI applications.

“What we are funding is your expertise in the sector, not so much AI,” he said, adding that startups need to demonstrate how their technology addresses specific workflows.

Lakhmichand said generic AI applications could face greater competition as foundation models continue to develop.

The panel also highlighted a broader shift in how investors assess startups, with traction, market potential and the ability to scale becoming more important than simply positioning a company as an AI business.

The session was focused on What It Really Takes for Scaling, Funding, and Strategic Exits?, and was moderated by Redwood Global Capital managing partner Lennise Ng.

Read also: SMEs urged to improve search visibility as consumers shift to AI-generated searches Alliance Bank spotlights Malaysian MSMEs at BizSmart conference