One of the most stressful steps in spearheading a business is financing, regardless the nature of your business, be it an online or brick-and-mortar landscape.
Prudent financial planning is the rule of thumb for startups, with many succumbing to the temptation to splash out on unnecessary perks or prestigious office locations in the early stages. Startups are constantly vying for funding capital, so entrepreneurs need to understand their options well and choose wisely.
Fund It Yourself
The less nerve-racking way would be to use your own savings, perhaps supplemented with funds from family. While this is workable for small businesses that don’t require a lot of inventory or overhead, paying out of your own pocket is unlikely a sustainable approach when you reach the expansion stage.
Nonetheless, getting funding from relatives and friends might be a good way to start out as these small loans have less restrictive payment terms, and are unlikely to come with additional interest burdens. If you can get by on personal funds in the beginning and still perform well enough, it makes for a compelling option when you need to apply for credit later.
Some may also resort to relying on credit cards, which present a form of more easily obtainable credit. However, such an approach is unsustainable in the long run, and should only be exercised in the direst situation.
Bank on Loans and Credit Guarantees
A more traditional route would be to get a loan from a bank for either startup capital or for the purpose of business expansion, or purchase of business assets.
The issue with getting these loans is the requisite of a guarantor and collateral. The government does offer a Working Capital Guarantee Scheme (for viable companies with shareholder equity below RM20 million) as well as an Industry Restructuring Financing Guarantee Scheme (for investment in high value-added activities), both of which have government guarantees of 80% of the financing limit.
Harness The Power of The Crowd
A popular alternative method of funding is the Crowdfunding approach. Pioneered by the likes of Kickstarter and Indiegogo, it allows members of the public to become project backers by pledging money to new ventures.
While successful projects often find their targets fulfilled quickly, there is no guarantee a project will be funded in the first place, not including the inherent risks involved should the funds collected be insufficient to fulfil a pledge.
Soar On New Wings
An angel investor is usually a private individual or group investing their funds into a venture to help them take their first steps. The investor will usually be given private equity as part of the arrangement.
There are a number of ways to get in touch with angel investors in Malaysia. The Malaysian Business Angel Network not only governs angel investors and angel clubs, they also organize pitch and networking sessions for entrepreneurs to get in touch with potential angels.
Online platforms such as Angel Investment Network connect investors with entrepreneurs while, Capital has been helping entrepreneurs with growth capital to turn their vision into reality since 2006.
Angel investors, for the most part, contribute in the beginning stages of a business, and may or may not get hands-on with the business. On a whole though, angel investors might not provide as much funding as compared to a venture capital fund.
Source for Venture Capital
Venture Capital (VC) firms use capital raised from a group of investors, which is placed in a fund and then used to purchase equity in another company.
The advantage of getting venture capital funds is that a VC will usually have access to more funds than angel investors. However, there are more caveats and strings attached with VC funding, where VCs will usually require a seat on the company board and business decisions will need their input and approval.
For entrepreneurs who wish to have singular control over the company’s direction, the requirements of VC funding might chafe at their vision. However, in the interest of accelerated growth, some compromises must be made to fit in with current business realities.
Malaysia Venture Capital Management Berhad was formed by the Malaysia government in 2001 with the focus to fund ICT startups. In addition to funding, the organization also provides guidance, advise and leverages on investors’ networks to help small businesses flourish. Navis Capital Partners invests in a wide range of industries, from food processing to FMCG, professional and consultancy services.
Depending on the needs and vision for your business, there are many avenues to obtain funding in Malaysia. Select the best fit and sell them your idea!
Also Read: How To Get A Bank Loan in Malaysia
Stay abreast with practical tips and information, subscribe to TheBizJuice.