Un-Networked State
Balaji Srinivasan’s startup dream decamps from Malaysia; therein lies a truth.
A minor drama has unfolded over the past week that says something about tech startup culture, sovereign risk, and the limits of hype.
Network School, a startup hub located in Malaysia’s Johor state, about an hour’s drive from Singapore, has been shuttered by the authorities. Almost simultaneously, the founder of Network School, Balaji Srinivasan, popped up in Kazakhstan to announce a new campus was being set up with the blessing of Kazakhstan’s government.
The circumstances around Malaysia’s turfing out Network School are murky. But so are the high-falutin’ ideas of Srinivasan’s that form the backstop to the “school”.
Srinivasan is one of those Silicon Valley figures we know simply by his first name. He has, very briefly, served as CTO to Coinbase, is a former general partner at a16z, and is now an investor and a podcaster with pretensions to grand thinking.
Balaji speaks at rapid velocity and throws out one buzzword or idea after another. I used to follow him on Twitter/X because, occasionally, one of his aphorisms would land well. But mostly it was gibberish. He wrote a book called “The Network State” which I read...or, honestly, tried to read. It’s a smorgasbord of bullshit. Balaji has creative ideas, but he failed to write these into cohesive argument; every time he wanted to make a point, instead of actually doing the work of writing through his thoughts and positions, he’d instead link passages to other articles or white papers (usually hosted on various crypto media platforms): a lazy way to convince people of his sagacity.
Anyway, a lot of people bought the hype.
The idea behind Network State is that online communities can form protean states. Through shared values, crowdsourcing a global network of physical locations, and aligning technocrats, these network states could eventually, one day, negotiating from strength, create their own sovereign spaces and win diplomatic recognition.
Forest City
OK, fast forward to 2024. A company owned by Balaji opens Network School (N.S.) in Forest City, one of those mega Chinese real-estate projects that became known mostly for ghost towers. But it was close to Singapore, the local sultan was happy to associate his state with innovation, and the landlords were eager to find renters. The first ‘node’ of Network School was born.
From what I can see from tweets, founders who set up shop there liked it. Network School charges a fee for membership, accommodation, food, and access to the gym – around US$1,500 per person a month. That’s a good deal for Singapore proximity and a friendly environment of fellow tech founders, if too pricey for most Malaysian entrepreneurs.
But N.S. was never well defined. It’s not a Y-Combinator-style accelerator. It’s not an incubator, taking stakes. It’s billed as a community. There’s nothing special or different about that; ‘tech communities’ and startup groups exist everywhere. The only thing notable about NS was the Balaji hype, which some members took to heart, or at least to social media.
Moreover, N.S. didn’t have some privileged deal with Malaysia’s federal government. Malaysia has its own startup programs. It has been a (second-tier) regional tech hub for sixty years. Today there are plenty of startups buzzing around Kuala Lumpur; K.L. is where Grab got its start, for instance.
The money N.S. invested in Forest City project – RM100 million ($25 million), Balaji says – was for its own ends and had no relationship to Malaysia’s own startup efforts. This was always about attracting foreign founders, not locals; and the program was heavily promoted as Singapore-adjacent without mentioning Malaysia itself, as if the host country was just an abstraction and some paperwork.
Trouble struck this month. It leaves no one looking good.
The crisis
On July 11, an anonymous figure named MP4P took to Instagram to accuse N.S. of harboring illegal immigrants. MP4P stands for Malaysian Protest For Palestine, and they said N.S. had allowed in Israeli citizens, in breach of Malaysian law (Malaysia does not recognize the state of Israel). On July 14, the Home Office opened and investigation; on the 15th, immigration officers raided N.S. to look through everyone’s paperwork, and found nothing technically amiss, but it did ascertain a number of N.S. members were Israelis with dual nationality, who had entered under their other passport – which is allowed by Malaysian law. Intentionally or not, MP4P revealed this loophole, causing embarrassment to the state and federal government.
Balaji’s “Network State” theories had no practical impact on Network School: there was no plot to seize an apartment block and declare independence. N.S. was just a startup business. But Balaji’s rhetoric, and the promotion of NS by some of these dual citizens, made the authorities squrim.
Balaji tried to fight fire with fire, and on July 16 he posted on X a plea to Malaysia’s prime minister, Anwar Ibrahim, to intervene.
“I mean,” Balaji wrote, “we aren’t talking about a credible accuser, but just someone screaming inconsistently at the top of their lungs on social media for traffic, an all-too-common phenomenon these days.”
Indeed, Mr. Srinivasan.
Kicked out
The tactic backfired, sounding to many Malaysians like a demand for a meeting and a federal agreement with N.S., as well as a threat to embarrass the country if the federal government didn’t intervene in what is a local state’s administrative affair.
N.S. was then served with some very questionable bureaucratic objections by the Johor government.
On the 20th, the Johor city council ordered the immediate closure of N.S. in Forest City. It cited some faults in signage and paperwork around some of the co-working units: very minor, technical infractions that should have merited only a warning letter or a fine.
All of N.S.’s members have left; the Malaysian government is now chasing its own tail trying to deport the dual-nationality Israelis; and the U.S. State Department condemned K.L.
This being Southeast Asia, I wonder if there’s more to this story. Someone didn’t pay off someone else? That’s just speculation, but it wouldn’t have been the first time something like that transpired. There may have also been some naivety on N.S.’s behalf regarding the political dynamics between Malaysian sultan-ruled states and the federal government.
Malaysia, um, er
Balaji was right about one thing: this is a terrible look for Malaysia. It’s true that NS was marginal to Malaysia’s own digital ambitions and history. It was just a foreign co-workspace with grandiose marketing.
But Balaji is a famous Silicon Valley name (even if he left the U.S. years ago). N.S. didn’t break immigration laws, although it exploited lacunae in a manner that was obtuse. Malaysia, with its Singapore connectivity, low costs, and own tech ambitions, did seem like a great place to establish a startup hub. The Israelis present were there legally under other nationalities; and anyway, is it the job of a co-working space to investigate the possibility of a member possessing other passports? Seems like a ridiculous ask.
The Johor government’s murky use of red tape without any serious due process, after making a big song and dance about how it prizes innovation blah blah blah, is something the rest of the world will remember. And the federal powers, whatever their feelings, didn’t lift a finger to resolve this situation sensibly. What’s the point of creating special economic zones and digital initiatives, meant to attract lots of foreign capital and talent, if the country’s just going to behave this way?
Un-Networked
The bigger lesson, though, is for Balaji and the tech community. The world is not creating conditions for a ‘network state’, and cross-border activities are increasingly difficult. Stablecoins and moving value globally is genuine progress, but as has been consistently demonstrated, such models are more sustainable when they pick regulatory jurisdictions in which to operate.
More deeply, though, are the intangibles. Culture, religion, and backdoor politics drove the decisions regarding N.S. This wasn’t about tech or innovation or creating economic opportunities. This was Malaysia’s knee-jerk response to nativism. Sadly, it’s part of the global trend, not least from the United States.
In such an environment, businesses, even startup hubs, need to consider these risks, which are hard to grasp because they’re about things like culture, religion, and anti-immigration feeling, not about anything a CFO or a founder could measure.
Some of Balaji’s supporters said on X that this affair proves his idea about the need for a network state. To me, it proves the opposite: that this network-state business is a crackpot idea. Sovereign states are keen to assert themselves, and local passions are easily stirred.
Let’s Go, Atalau
In the wake of Malaysia kicking out Network School, Balaji arrived in Kazakhstan to sign a deal in which the federal government welcomes the opening of a new branch. Balaji said, “Our new campus will become a haven for global techno-optimism, with expedited visas, streamlined re-domiciliation, and active recruitment of talent.”
Well, good for Kazakhstan, especially if this attracts foreign tech talent looking for a cheap place to work. But if the main selling point of Forrest City was proximity to Singapore, it’s going to be hard to replicate that in Central Asia. The new campus won’t even be in Astana; it’s slated to go to a new city called Atalau, founded in 2024, slated to be a crypto-friendly techno-hub special economic zone. Okay then.
Balaji is spinning this as the next frontier of innovation, but my read is that founders need proximity to Silicon Valley, New York, London, Dubai, Hong Kong, Singapore...established capital markets and tech zones with powerful network effects, money, visibility, and prospective clients. Terrance Philips and I wrote PLANET VC, about the history of venture capital beyond Silicon Valley, and it’s pretty clear from global experience that connections to US or Chinese markets are vital for VC and entrepreneurs to gain traction.
And, while I haven’t been there so I don’t know first-hand, I’d be curious about Kazakhstan’s track record around rule of law, commercial disputes, and those push-comes-to-shove moments that matter in the long run to developing a meaningful innovation cluster.
Forest City was, if you squinted, a reasonable bet for a founders’ community. I don’t see how upping sticks and moving to Atalau is a win. Founders and investors, fintechs and financial innovators, it’s one thing to get excited about your project or company, but it’s another to mistake techno-utopian marketing for anything real. Because reality can hurt.