Startups to IPO: Funding Roadmap

IPO Public Listing

Capital raising has always been a challenging task for entrepreneurs, more so when it comes from venture and angel funds, who unlike banks do not judge your business funding on the physical and liquid asset one owns. As the start-up ecosystem fosters and more ventures emerge, the mortality rate of companies that could not sustain has also risen.

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10 Things you should know about the Singapore startup landscape

With Singapore Week of Innovation and TeCHnology (SWITCH) just around the corner, there is a significant interest directed at Singapore these days.

Of course, there has always been interest in Singapore’s tech and startup scene, especially when the city-state became the only Southeast Asian country to rank in Startup Genome’s Top 20 Startup Ecosystems in World report in 2015.

But if you’re only just discovering Singapore’s tech and startup scene, here’s ten things you should know about it.

1. A steadily growing entrepreneurial activity

Over the last five years, Singapore’s startup landscape has grown tremendously. According to Jonathan Lim, Director of Startup and Global Innovation Alliance of Enterprise Singapore, the number of tech startups has grown from 3,400 in 2012 to 4,000 in 2017.

While Singapore has been a significant hub for startups since the late 90’s, this 17 per cent boost in a span of five years is a significant number that can be attributed to a conducive business environment, ample government support, and a strong entrepreneurial community.

“Singapore has a very positive outlook when it comes to trying new things and finding innovative ways to solve different problems,” said Yuki Shimahara, CEO of LPixel, a startup specialising in developing AI for Life Science research.

2. Highest amount of startup funding in the region

In 2017, startup investments in Singapore reached US$7.3 billion, making up 45 per cent of all deals in the region. This is not a one-off; Singapore has been steadily growing to this number, with venture funding alone growing from US$136 million to US$1.37 billion in just a span of five years (2012 to 2017).

3. Singapore starts them young

The median age of entrepreneurs in Singapore is 28 years old – the youngest globally. By comparison, the world median is 40 years old. As an example, let’s take a look at Structo.

Structo is a startup that develops high-speed, industrial-grade additive manufacturing 3D printing systems using its proprietary Liquid Crystal Mask Stereolithography, with a niche in dental applications. It was founded in 2014 by four National University of Singapore graduates, and have managed to draw in investments about US$720 thousand investment from SEEDS Capital and Wavemaker in 2016 and an over-subscribed round of US$2.9 million investments from various investors.

Also read: National University of Singapore to spend US$18M to launch 250 deep-tech startups

4. It’s the home of unicorns

Singapore has seen the birth of five unicorns – Grab, Lazada, Razer, Sea, and Trax currently valued at a collective US$12 billion. Being headquartered in Singapore gave them access to the talent, funding, and connections that they needed as startups.

Singapore’s startup landscape has provided these companies with the support they needed to grow big – something that young companies like LPixel are banking on. “Overall, I think Singapore is an excellent place for new startups like us, to offer new values and solutions,” said Shimahara.

5. A launchpad to ASEAN

Market-wise, Singapore is small. This is not a hindrance, however, as it only pushes startups to create strong relations with neighbouring countries.

“Our aim is to develop Singapore as a reference test market for startups that want to access the region and we have made concerted efforts to strengthen our connections to those key markets like Indonesia, Malaysia and Thailand,” said Lim.

This is a claim that has a lot of history backing it; going back to the previously mentioned five unicorns, all of which operated regionally while headquartered in Singapore.

6. Tangible government support

Enterprise Singapore, part of the Singapore Government, has been actively working with different partners to develop Singapore’s startup landscape.

It works with partners such as private VCs and accelerators, Institutes of Higher Learning and public agencies to put in place a wide range of programmes that meet the needs of startups under Startup SG.

Startup SG represents the shared interests of the startup community and showcases Singapore as a leading startup hub. It is the brand for all local support initiatives and provides stakeholders with a platform to connect globally.

This support could mean mentorship, funding and investments, and incubations, which are all critical to the growth of startups.

SLINGSHOT@SWITCH powered by Startup SG, for example, was launched in 2017 to showcase the best global startups in deep tech. This year, the startup competition returns as one of the key events at SWITCH 2018.

“Winners of SLINGSHOT will have a chance to tap on Singapore’s network of startups, VCs, accelerators and corporate partners to expand not only in Singapore, but within Asia, given our strategic location in this region,” said Lim.

Also read: SWITCH has 9 partner events, here is why you should go

7. Ample opportunities for partnerships

While Singapore is geographically small, it packs a punch when it comes to conduciveness of starting a business – something that entrepreneurs all over the world are aware of. In the 2017 Startup Genome report, they estimated about 463 entrepreneurs moved into the country for the purpose of starting a business. The global average is 300.

This means more entrepreneurs, more businesses, and more opportunities for partnerships locally and internationally.

Government support also plays a significant role in these partnerships, such as with the experience of LPixel. “We got in touch with some medical institutions through the government’s network. We are actually in the middle of exploring joint research opportunities with some of them,” Shimahara said. “This process would not have gone smoothly without the support from the government.”

8. It’s a gateway to the going global

Singapore is ranked 3rd globally on the ability of startup leaders to connect and form relationships with entrepreneurs in other countries. The strong startup community in Singapore allows founders to build relationships and partnerships not only locally but also internationally.

Singapore is home to many international tech and startup conferences, after all. And while there is a strong local support for these conferences, there is also an equally strong international interest in them, resulting in potential million-dollar partnerships in the works.

“We want Singapore to be a vibrant and self-sustaining global startup hub that is deeply connected with other startup ecosystems, especially those in ASEAN,” said Lim.

9. Deep tech thrives here

There is an increasing number of deals and VC investment amounts in deep tech. As showcased in SLINGSHOT, the Singapore government focusses on attracting and building more startups in deep tech sectors like medtech, cleantech, fintech, and future mobility, among others.

These are also in line with the global trends – increased focus on Industry 4.0, increasing emphasis on healthcare due to an ageing population, as well as rapid urbanisation and digitalisation, particularly in Asia.

One such example is MiRXES, a spin off from A*STAR’s Bioprocessing Technology Institute. The startup has developed an alternative non-invasive solution to accurately diagnose cancer through blood tests, at an earlier stage and with a higher degree of accuracy. MiRXES has raised about US$2.9 million in Series A.

10. Singapore is one of the best countries for women entrepreneurs
In a study conducted by Mastercard, Singapore ranked 5th best market globally for having strong supporting conditions and opportunities for women to thrive as entrepreneurs. Women made up 27.5 per cent of total business owners in Singapore; one of the higher proportions in the total markets studied.

And while the numbers may seem paltry, the conditions on the ground are not. There is a growing, vibrant community of women entrepreneurs in Singapore that aims to inspire women to create the next big thing.

Whether you’re a homegrown Singapore local, or an international entrepreneur searching for a friendly place to plant your startup roots, Singapore is one of the best places to consider.

“Startups play a key role in contributing to Singapore’s economy, especially in creating innovative solutions to support the growth of our companies,” said Lim. “We have managed to build a vibrant startup ecosystem over the years through our good business environment, investment in R&D and strong MNC presence.”

Key differences between a strategic plan and a business plan.

You’ll want to create a Business Plan when you are looking to:

  • Start a new company
  • Organize their thoughts
  • Judge the viability of your business idea
  • Identify your general business strategy
  • Understand potential financial results
  • Present to bank or investor for financing

And you’ll want to create a Strategic Plan in order to:

  • Grow an existing business
  • Identify the best opportunities for growth
  • Determine and prioritize your financial and HR needs
  • Effectively communicate your plan to your team
  • Provide a detailed and focused game plan

As you can imagine, strategic plans are reserved for entrepreneurs who are serious about growing their companies.
And strategic plans are the single biggest factor that separates average entrepreneurs from super-successful entrepreneurs.

Strategic Plan

A great strategic plan, the kind that works big time, is one that eliminates all “strategy execution gaps” so that achieving the desired results is straightforward. It usually 13 sections:

  1. Executive Summary
  2. Elevator Pitch
  3. Company Mission Statement
  4. SWOT Analysis
  5. Goals
  6. Key Performance Indicators (KPIs)
  7. Target Customers
  8. Industry Analysis
  9. Competitive Analysis & Advantage
  10. Marketing Plan
  11. Team
  12. Operations Plan
  13. Financial Projections

5 Key Sections

Elevator Pitch.

As you may know, an elevator pitch is a brief description of your company that you could tell to a stranger in the time that it takes for you to ride an elevator from the ground to the top floor of a building. This is an important part of a strategic plan because if both your employees and your customers can’t concisely explain your business to others, then you’ll lose out on tons of new customers. If you think about it, for all great companies, like Fedex, or eBay, or Google, pretty much anyone can quickly and easily explain what they do to someone else.

SWOT Analysis.

As you may know, SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Identifying your strengths, weaknesses, opportunities and threats is a critical exercise in growing your company. Clearly, you want to make sure you identify the best opportunities available to grow your company, and choose to go after the ones that best leverage your company’s strengths. Doing so, dramatically increases your success. Likewise you need to make sure you identify weaknesses you need to improve, and minimize the impact of or remove potential threats.

Key Performance Indicators or KPIs.

Setting KPIs and viewing them frequently in what we call a “financial dashboard” is one of the hallmarks of successful companies. So what are KPIs? KPIs are the metrics that judge your business’ performance based on the success you would like to achieve. While setting KPIs allows you to identify and measure the performance metrics that your company needs to achieve, which puts you in a much better position to achieve them.

Operations Plan.

This is another area where most entrepreneurs and companies break down. Because even if you come up with good ideas and opportunities for growth, if you don’t have an action plan for executing on them, they’ll never materialize. Your operations plan should transform your opportunities into reality by mapping out the timeline and game plan for completing all projects. Among other things, the operations plan identifies the smaller projects that comprise the big opportunities, and details how these projects will be completed.

Financial Projections.

Your Financial Projections show the revenues, profits and expenses that will result from executing on your strategic plan. They show what the results of going after different opportunities will be, to make sure you choose the right ones. They show you the financial resources that are required to execute on your strategic plan. And they allow you to judge and improve your performance as you embark on your plan.

So there you have it.those are key tips about some of the strategic plan sections that allow companies like yours to dramatically grow.

by growthink.com/

Equity Financing Stages for Startups

It is rarely possible for startups to raise sufficient capital to kick-start their operations, launch products and break even. Although a ‘one-time investment’ strategy is theoretically possible, it is hard to cite examples of any successful startup that has gone this route. Moreover, most angel investors and venture capitalists prefer to fund startups in steps. This practice helps investors assess the value of the company and minimize the startup risk. Therefore, entrepreneurs should articulate their investment requirements, while keeping in mind how investors like to fund startups.

Venture capitalists and angel investors categorize startups into stages based on a number of startup parameters including who makes up the management team, the value proposition, the risk, customers’ profiles and engagement, revenue, etc. and provide equity finance accordingly. Most startups are categorized into the following stages:

Early Stage

Seed round
First round
Expansion Stage

Second round
Third round
Bridge loan
Liquidation Stage

Merger & Acquisition round
Initial Public Offering (IPO)
Leveraged buyouts

Early Stage

Early stage refers to the initial days of a startup. The company starts off with a business idea, experiments with, and articulates its economic viability. The company establishes its proof-of-concept by demonstrating the technology and getting potential customers on board. This can be done in several ways. If the business idea is product based, the company would demonstrate a prototype of the technology to real world customers and get them on board. If the business idea is web based, the company would set up a website, track the internet traffic and get user feedback. In either case, the company is testing the market and establishing the viability of the business idea

This phase is very important for a startup. It is crucial for a company to prove its concept and establish its business case. Some companies can get through this phase without the need for investment. However, other companies need investment to complete this phase. For example, an online company hardly needs an investment to prove the concept. However, a pharmaceutical company would need investment. Companies that need investment to establish their proof require seed investment or seed round investment. This round has the highest risk in terms of Return of Investment (ROI). Most investors shy away from investing in this round and would like to see the company pass this stage without the need for investment.

Once the company establishes its proof of concept, it prepares a roster of potential customers who are willing to positively talk to venture capitalists. The individual customers should be ready to say, “Hey VC, if you fund this company and help it launch a product, we will engage with the company and take the relationship to the next stage. The technology interests us because.. ” A customer reaction like this is the Holy Grail for an early stage company seeking venture capital.

Companies that have passed the proof of concept stage, have an established team and a list of potential customer references need money to start their operations and launch a product. Such companies need their first round investment. First round investments are comparatively less risky than seed round investments.
Early stage investment is the most risky stage compared to all other financing stages. The majority of startups fail in this stage. The key to surviving this stage is the ability to bootstrap the operation. (Refer to the “Go-To-Market Strategy” article on our website for some strategies.)

Expansion Stage

After the first round of investment, most companies launch their products or services and get a few paying customers. However, these companies need further investment to expand their product line, operations and marketing efforts. This phase is called the expansion stage because during this stage most companies have to expand their operations and invest in expensive marketing efforts.

Second round investment is meant for companies that have a production-quality product along with a few paying customers. However, they need more money to improve their products and attract more customers. It is very important for companies to get positive paying customer references at this stage. The customers who are using the products should be able to say, “Yes, I have been using the alpha version, but I need more features. I am more than willing to pay $x for further capabilities.” Apart from this, the company should also have more business opportunities on the horizon.

After the second round investments, companies can launch any number of expansion stage rounds. Note that the company has to dilute its equity for every expansion round. Given this situation, it is better that companies attain break-even at the earliest. The sooner companies break even, the better it is for all the investors so that they can take their money out.

At times, companies that are in their expansion stages can opt for bridge-financing instead of equity-financing. Bridge-financing refers to short-term interest only financing. Companies typically need this for restructuring boards, especially if certain early investors want to reduce or liquidate their positions, or when the former management’s stockholdings change and management is buying out former positions to relieve a potential oversupply of stock before becoming public.

Liquidation stage

Companies need money to liquidate their stock so that some investors can cash in their stocks. Companies liquidate stock either through going public, Merger & Acquisition route or through a leveraged buyout. Most of the investment money is required to engage investment bankers and other legal services for the transactions. Leveraged buyouts enable an operating management group to acquire parts of the business (which may be at any stage of development) from either a private or public company. The acquisition may be through the purchase of select assets or stock.

Most companies fail during the first funding stage. Entrepreneurs should really analyze their business case and try to minimize their risk before investors come in. As companies progress from the seed round to the expansion stage, the risk decreases and raising money becomes easier.

by www.go4funding.com

Start-ups and deals, Malaysian style

A LOT has been written about getting investors interested in start-ups. However, very little has been written about how start-ups can and should negotiate with potential investors in Malaysia.
A few people recently asked me for tips on how they could save themselves from common issues or complications, and I thought maybe I should just share my thoughts with Digital News Asia readers.

Given that I do have some experience making a living in my previous life fumbling around with term and Excel sheets, I thought I could share a few pointers about dealing with the ‘wheeler dealer’ types in Kuala Lumpur.

While investors are important when companies need to move forward with their growth and expansion plans, the process and experience of settling on investor terms can more often than not be painful.

Not to worry though, with some of these pointers I am sure you would be up sparring ‘pre-emption rights’ with investors sooner than you can say “kontrek”!

Here are some areas you may want to consider if you’re looking to raise any sort of equity financing:

1. There is no such thing as ‘standard’ terms.

This excuse, given by potential investment managers or lawyers, is a pet peeve of mine. A contract by any design is never ‘standard’ — more so if it’s an equity investment agreement.

Every investment deal is and should be different (we are not taking up a mobile phone contract here), so if someone tells you a particular clause is standard, you should cheekily ask them if you could be the exception.

Also take note that term sheets you rip off from websites from the United States may not have terms which are applicable in Malaysia.

2. As a founder try not to agree to any liability clauses that are personal in nature.

One cannot be faulted for claiming investor terms in Malaysia seem to have been adopted from a template drafted by Shakespeare’s Shylock.

More often than not there are ‘puts’ or ‘terms’ made to founders to personally buy the investors’ shares back at a price when things don’t work out.

Personal guarantees are also another common one. I have yet to see one where they ask for your first-born though – but you never know.

Whatever they are, one may want to try to avoid these sorts of exposure unless they have to do with punitive terms pertaining to negligent or fraudulent actions by the founders.

3. Don’t be too excited when someone expresses an intention to put in money or acquire you.

In Malaysia, it’s common to get approached by people who seemingly have money or a ‘listed’ company which intends to acquire your company.

More than often than not, these are a passing fancy for those ‘interested parties,’ or browsers who are just snooping about. Since everyone is some sort of deal-maker (beware the Mr 20%s who are brokers), you may be coerced into doing corporate deals that don’t make sense and end up distracting you from your true objective in building your business – that is to make money.

Don’t bother about selling your company unless you’re very clear about the opportunity and if real cash upfront is on the table.

Never, ever do equity swap deals where the acquirer is dangling promises to go public. You could grow old holding on to worthless equity.

4. Please make sure the ‘investors’ have committed capital or have existing invested companies.

Talk is cheap and it’s quite easy to say you are from Fund X and represent a billion-dollar fund, (By the way, I have the hell notes to prove it too).

Entrepreneurs should do the extra homework or ask questions that would indicate if these investors have invested in real companies – saves you a ton of time talking to phonies.

5. Don’t get your uncle who is the ‘loyar burok’ to act on your behalf.

[‘Loyar burok’ is a derogatory Malaysian term denoting someone with possibly some legal knowledge, but no real professional qualification – ED]

Doing venture capital type or private equity deals require a specific legal skill set – selling equity to investors is not the same as selling your condo!

Familiarity with common early stage investment instruments and terms and business implications is usually required. Unfortunately, these skills are as common as a dugong (the sea cow) and getting someone who is not experienced can do more damage than good.

Try to get someone who has experience acting for both investor and investee.

by Chu Tzu Ming, a co-director and mentor at Founder Institute Kuala Lumpur www.digitalnewsasia.com

It’s hard to raise money in Malaysia

‘We couldn’t raise even a single dollar in Malaysia or Singapore,’ says Catcha’s Patrick Grove
Can’t depend on govt-backed VCs, private sector needs to step up, says Mavcap chief

THE start-up space is recognized as amongst the most vibrant sectors in the country’s technology ecosystem, with even the Government launching initiatives to boost and support it, yet it is still very hard for entrepreneurs to raise money in Malaysia, especially from private sector funds and investors.

Which is what forced Catcha Group chairman and chief executive officer Patrick Grove (pic, second from left) to look to Australia in 2007 to raise funds for his then-nascent online property classifieds portal, iProperty, he told participants at yesterday’s (Feb 20) DNA-TeAM Disrupt session, themed “Follow the Money.”

“The fact of the matter is, we tried to raise money from local investors, but nobody was interested. We couldn’t raise even a single dollar in Malaysia or Singapore,” he said. “So I got on a plane to Australia.”

“We were trying to raise money for a model that was already proven in multiple, mature markets, that of online property classifieds, yet people here told us it was not going to work,” said Grove.

“They would tell me, ‘Why would people go online, they already have the newspapers.’ I would tell them, yes, but I’m raising money to take on the newspapers. And they would say, ‘oh, it won’t work because they already have the newspapers.’ It would go on this way, such a circular argument,” he added. The iProperty Group was listed on the Australian Securities Exchange (ASX) in 2007.

And despite his track record, “it was same thing with iCar – we raised RM30 million in Australia because we couldn’t raise any money locally,” Grove said. iCar Asia also listed on ASX late last year. Catcha Media was listed on the Bursa Malaysia exchange in 2010.The Catcha Group has seven other privately-held companies.

“Australia doesn’t necessarily have a strong tech start-up culture, but it does have a very strong betting culture, and I don’t mean gambling, but a culture that is prepared to invest in high-risk ventures,” he said.

His fellow panelists largely concurred, with Amit Anand, founder and managing partner of Singapore venture capital firm Jungle Ventures, saying it was the same difficult situation raising money down south, although he added that “there was a huge uptake last year in the number of seed investments in Singapore.”

The other panelists were iconic technopreneur and angel investor Khailee Ng and Jamaludin Bujang, chief executive officer of Malaysia Venture Capital Management Bhd (Mavcap), the Malaysian Government’s venture capital (VC) arm. The session was moderated by Digital News Asia (DNA) founder and chief executive officer Karamjit Singh. Amit participated via videoconference.

Govt funds drying up

Mavcap’s Jamaludin said that the Government was very aware that start-up companies need to raise funds and that there was very little support from private institutions, but warned of budget cuts.

While Mavcap itself has an RM500 million allocation under the 10th Malaysian Plan, the national development plan that runs from 2010-2015, “there has been a move in the last seven years to reduce such government-backed funds.”

“According to the MVCA (Malaysian Venture Capital and Private Equity Association), which tracks such numbers, the amount of funds being managed by VCs and private firms in Malaysia was close to RM6 billion in 2010, but this went down to RM5.2 billion in 2011 as some funds closed.

“We expect it to remain flat this year,” he said, adding that the amount of equity funds being managed was too skewed towards the government side.

“About 50% to 60% of the funds being managed come from the Government,” said Jamaludin. “And while there are about 30 active VC funds being managed, more than half of the funds released in 2011 came from five or six government-backed VC funds.”

“There should be more participation from the private sector side,” he added.

He did say that Mavcap will be putting away half of its RM500 million allocation in a special program where it will work with private VC funds on dollar-for-dollar basis, where Mavcap will provide half of the investment to match the private VC.

“We hope that this mean twice the amount of funds can be released,” he said.

Who needs the Valley?

As with many discussions on start-ups and entrepreneurs, the panel discussion also shifted to Silicon Valley, from where Khailee had just returned after a nearly four-month stint as a mentor and entrepreneur-in-residence to the 500 Startups initiative, which provides early-stage companies with up to US$250,000 in funding and runs an accelerator program as well as events.

Compared with the start-up scene in Malaysia or even the rest of South-East Asia, “there are some things there that are obviously different, and some things that are obviously the same,” he told the audience.

“The differences include the kinds of markets they tackle and the level of sophistication they bring to the table, right off the bat.

“But what I found most interesting were the things that were similar,” he added. “Even if they may speak better, their team has more experience and some of their investors have multiple exits, new start-ups there face the same kind of problems that a new start-up in Malaysia would go through.

“This became quite apparent to me in my three-and-a-half months there with 500 Startups, with 60% of its Batch 5 start-ups coming from international markets,” he said. “Silicon Valley is very much a global platform, not just an American one.”

Khailee said the other similarities were the target customers, adding that what would appeal to a consumer in the United States would pretty much appeal to a consumer anywhere else in the world

“Because of this, internationalization has never been easier,” he added. “It’s very hard to think of a company that has found local success that could not replicate its model elsewhere.”

He acknowledged that there may be a handful, “but they are the exceptions now, when previously, they used to be the rule.”

Jungle Ventures’ Amit however disagreed with Khailee’s take on the “ease of internationalization.”

“I think it’s a mistake to think that if you’re an Internet company, you can succeed anywhere in the world. For instance, commerce is a very hyper-local business. Don’t follow the herd, find out what works for you,” he said.

Khailee acknowledged that perspective. “True, you shouldn’t take generalizations as gospel truth, but I do believe that these options were not available before.”

He also noted that there are other aspects of this internationalization which make Silicon Valley an attractive avenue for start-ups to explore, with one being the high valuations.

“US companies – pre-execution, pre-team, pre-revenue – can expect US$1 million from the get-go,” he said. “If you have a team and you have a product, you can get US$3 million from the get-go; and if there is a buzz around your company, you can raise US$5 million easily,” he said.

Khailee said that it used to be that US investors would expect a non-US company to at least have an office based in the United States and a US customer before they would even listen to you.

“But that is changing,” he said. “500 Startups has invested in 450 companies in the past two years, of which 150 are international companies and not even based in the United States at all.

“There are also investment groups and angels who are more comfortable investing outside the Valley – it’s still rare, but it’s getting there.

“If I was to start a new company today, what I would do is prove my traction here, in the domestic or regional market, go over there and get cheap money, dilute myself less, and be king of the world,” he laughed.

Catcha’s Grove agreed with Khailee’s take on internationalization and globalization.

“That’s one of the beautiful things about globalization – yes, you can have your business here and your team here, but you don’t have to raise your money here,” he said. “Look at all those companies from China which are raising money on Nasdaq.”

But it cuts both ways. Ganesh Kumah Bangah, the Group CEO of MOL Global, who was in the audience, said that neither should start-ups keep looking to Silicon Valley.

“The Valley is no longer the magical place that you need to be in to be a successful start-up. It may have been 30 years ago, but no longer,” he said.

“The only difference between the Valley and Malaysia or Singapore for that matter, is that it has more of everything — more money, more angels, companies have more shareholders, there are more VCs, more exits, and the cost is more,” he said.

Ganesh also chided local entrepreneurs for paying too much attention to media reports on start-ups raising funds without considering the stakes they were giving away, or that much of that came in the form of preferred or preference shares, where dividends are paid before common stock dividends are paid out.

“Even in the United States, if you’re looking to raise US$1 million or even US$3 million, you don’t go to VCs; you got friends and family first,” he said.

“Get US$100,000 from 10 people, and you have a million. Use that to build your business, then you go to a VC,” he added.

by A. Asohan, http://www.digitalnewsasia.com/

Funding Your Start-Up Business

There are numerous costs involved in starting a business and one of the entrepreneur’s early challenges is in raising capital. If you plan on becoming a successful entrepreneur, you’ll need to be smart in raising the money and investing it wisely in your business. We highlight several sources of capital for start-ups.

For the aspiring entrepreneur, coming up with the capital required to start a business isn’t easy, especially with a mortgage and car loan to pay and a family to support. Despite the challenges, true entrepreneurs often find their way around to raise the funds needed to realize their dreams. There are several ways of raising capital, the most common being own savings. But before you go around sourcing for funds, you’ll first need to ascertain how much you need, when you need it and what you are going to do with it. Listed below are several methods of sourcing for capital.

BOOTSTRAPPING

The most convenient method of raising funds is through your own means, which is also known as bootstrapping. Sources of funds include your savings, investments such as shares, unit trusts and property, your life insurance, etc. Apart from this, you can also obtain funds via personal loans, overdrafts and credit cards. Beware of credit cards though, as the interest rates are very high.

BORROWING FROM FAMILY & FRIENDS

Although borrowing from your family and close friends is considered informal, it is advisable to draw up a formal agreement on the terms and conditions of the loan, such as interest rate, tenure of loan and repayment schedule, to avoid any unnecessary disputes in the future.

FUNDING BY INVESTORS

This involves raising funds by selling a part of your business to individuals or companies or venture capitalists (VCs) who see potential in your intended business. To seek funding from investors, you’ll need to prepare a business plan to be presented. Your business plan must include the following details:
• Executive Summary – highlighting the main points to capture the reader’s attention
• Market Research – details of the market, competitors and potential customers
• Marketing Plan – how you will sell your products or services to your target market
• Financial Information – including profit/loss and cash flow forecasts

BANK LOANS

Banks lend money to existing businesses but for a start-up, it may be very difficult to get a bank loan without a track record. Just as venture capitalists, banks also require a sound business plan and must be convinced of the viability of your business before they agree to lend you money. Banks normally need collateral, which is something of value to hold against the loan. It’s important to establish a good working relationship with your banker.

As a start-up, one of the banks you can approach is the SME Bank, which is a development financial institution and a wholly-owned subsidiary of Bank Pembangunan Malaysia Berhad. SME Bank’s mission is to facilitate the development and promotion of enterprising, committed and innovative SMEs across industries and phases of business growth. SME Bank offers the SME Start-Up, which is targeted at new businesses and start-ups that have a prototype and are ready to commercialize their products or services. The bank may be able to assist even those who do not have sufficient collateral or track record. To support greater entrepreneurship in Malaysia, the SME Start-Up has been designed for all new businesses across SME classifications and industries including ICT and agro-based activities and is specially targeted towards businesses with market-viable products or services ready for domestic and/or international commercialization.

Apart from SME Bank, corporations such as the Malaysian Industrial Development Finance Berhad (MIDF) also offer loans to start-up SMEs. You are advised to enquire with the many Government agencies and commercial banks to find out more about the loans available to new businesses.

GOVERNMENT GRANTS A HELPING HAND

One of the Government’s overall strategies of supporting local SMEs is in facilitating easier access to financing. The Government, through various ministries and agencies, provides financial assistance such as loans and grants to support the development of SMEs.

MATCHING GRANT FOR A BUSINESS START-UPS

This scheme is offered by the Small and Medium Industries Development Corporation (SMIDEC) and provides assistance for business start-ups in the manufacturing and service industries (excluding insurance and financial services). Assistance is given in the form of a matching grant where 50% of the approved project cost is borne by the Government and the remainder by the applicant. For enterprises in the manufacturing sector, incorporated under the Registration of Business Ordinance 1956, assistance is given up to 80% of the approved cost. The maximum grant allocated per application is RM100,000.

Need help to get funded? contact: team@capital.com.my

10 Ways To Generate Your Own Startup Capital

One of the biggest challenges for entrepreneurs of all ages is getting ahold of startup capital. But for young and first-time entrepreneurs in particular that task can be even more formidable. Banks and investors typically like to see that you’ve started successful businesses in the past or that you’ve worked in your chosen industry. Fortunately for this group, you can rely on yourself — you are, after all, your best source for capital. Here are 10 ways to use your own best asset: You.

Income. If you have a job, keep it, or consider just reducing your hours. It will be tough to startup while you’re still working, but that constant, stable source of cash could help sustain you and your startup until it starts generating enough money on its own.

Savings. Before you startup, save as much as possible. This personal nest egg is your best source for start-up capital, as it can help further your business plans without asking others for money.

Downsize. If your personal expenses such as rent and car payments are too high, you may not have enough left to start your business. To keep your costs down, continue living in student mode — where cereal and ramen noodles are daily staples — even if your income has moved up. You may need to consider more drastic measures: Moving back in with mom and dad, for instance, is a common strategy among startup entrepreneurs.

Grants. A number of organizations have grant opportunities to serve as seed money for startups. Federal, state and sometimes city grants are also available to those looking to start up.
Related: A Definitive Guide to Government Grants

Credit. While you should avoid crazy spending sprees, your credit cards may be a valuable resource while you’re getting started. Look for cards with no annual fee and a low interest rate on balances.

Start selling. Your product or service may not be ready for primetime, but what about a local sales event? Maybe you can participate in an area flea market or even sell items in advance of an official launch. Call it a beta launch and tap users for feedback too.

Crowdfunding. Raising money from individual investors through crowdfunding networks like Kickstarter and Indiegogo will likely get overhauled soon, after the JOBS Act goes into effect. But it’s still a worthy option for cash-strapped startups.

Liquidation sale. Gather up anything of value that you can live without. Ask family and friends to contribute unneeded stuff too, and hold a garage sale or sell those items on eBay. If you have some furniture and larger items to sell, you may be surprised at how much you can earn.

Rent party. During the depression, people would throw parties for neighbors and friends with food, drinks and music. Everyone would pay an admission fee and the money would be used to pay the rent. How about throwing your own “rent party” but for start-up cash instead?

Street performances. OK, so maybe you’re not up for this one, but I’ve given you nine other decent ideas. Now it’s your turn to come up with something that will work for you.
What other capital generating tips would you add to this list? Leave a comment and let us know.

By Matthew Toren
Matthew Toren is an Award Winning Author, Serial Entrepreneur, and Investor. He Co-Founded YoungEntrepreneur.com along with his brother Adam. Matthew is co-author of the newly released book:Small Business, Big Vision: “Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right” and also co-author of Kidpreneurs.