So you think you’ve got a brilliant and revolutionary idea on your hands. And maybe you’d like to leverage on your idea to launch a new startup.
One problem though – Where do you get the funds?
As with everything else in life, money makes the world go round. A majority of startups fail even before they begin due to a lack of funding. Though, we aren’t dismissing any other factors which could lead to their downfall.
This is indeed a problem especially when it comes to our local entrepreneur scene. And it’s not from a lack of support from the government either. Various government aide programmes have been introduced, as well as efforts put in from the private sector.
The Malaysian Global Innovation and Creativity Centre (MaGIC) being one of the more recent attempts to get our local startups on their feet.
Unfortunately, the problem still persists. Turning an idea into a business and running it isn’t going to be cheap. Even more so, securing those funds is going to be even tougher.
But fret not as this article aims to enlighten you on the funding life cycle and how to acquire sufficient funds. Particularly, we’ll be looking into acquiring seed funding for your next startup.
Funding Life Cycle
The funding life cycle of each startup will vary from business to business. It also depends on various factors including information and industry.
Generally, your startup will run on money from your own pocket in the beginning. Eventually, your goal is to progress and scale up your operations in order to attract potential venture capitalists (VC) to invest in your business.
The stages of the funding life cycle include the concept stage, seed stage, early stage, growth stage, and mezzanine stage.
Also known as the ideation stage, your goal is to figure out what your product is, your target consumers, and your execution plan. Basically, you’ll need to come up with an initial business plan in this stage.
Since you’re still in at the beginning of your journey, you won’t require funding here. You’ll only need to invest a lot of your time, creativity, and research to formulate a working business idea.
Here is where your idea starts coming into fruition (no pun intended). At this point, you’ll need to look for some funds to get your business off the ground. The funds garnered from this stage is generally called a seed fund.
Also known as seed money, this fund is a form of capital investment from an investor to a startup company. In exchange, the company usually offers an equity stake to the investor. Seed funds are normally invested very early on, and are meant to help the business take off.
Seed funds can come in the form of government grants, crowdfunding, angel funding, and self-funding.
For instance, the Ministry of Industrial and Entrepreneur Development (MIED) of Sarawak offers three main grants targeted at young adults. These are the GERAK grant, the USTEV grant, and Cent@Cube retail grant.
The GERAK grant is set up for fresh graduates, while the USTEV grant is for young technical entrepreneurs. Last but not least, Cent@Cube is a startup incubator that focuses on young adults who are planning to turn their operations into a startup.
These grants are all aimed at young Sarawakian adults between the ages of 18 to 35. So if I were you, I wouldn’t hesitate any further. After all, the clock’s ticking.
For crowdfunding, there are a ton of options available out there. Locally, MaGIC has a platform called Actyvate. This platform allows Malaysians to crowdfund their business ideas while gaining precious exposure at the same time. MaGIC will even add on RM2.00 for every RM1.00 that the business idea raises.
Beyond Malaysia, popular online crowdfunding platforms such as Kickstarter, Indiegogo, GoFundMe, and so on are great options as well. However, we’d only recommend seeking out these crowdfunding platforms if you have absolute confidence that your product will be well-received.
There is one main difference in angel investors compared to VCs. Angel investors tend to be more proactive and involved in a business, whereas most VCs only prioritise the end result. In short, angel investors are more interested in helping the startup grow and establish itself.
In the world of angel investments, it’s all about networking. Literally anyone can be your angel investor, the only criteria being if he/she has the money to invest in your startup. So if you’re looking for a potential investor, we’d suggest getting out there and start connecting with people.
Self-funding is pretty self-explanatory in that you’re running your business off your own money. While it’s a viable option, it only works in the very early stages of your startup. Otherwise, it’ll also work to a point if you have very deep pockets.
Alternatively, friends and family are also a common source of funds. Just remember to pay them back, yeah?
At this stage, you should’ve already accumulated a small fund to run your business on a small scale. Also, this is still in the beginning phase of your venture so any profits reaped would probably be put back into the business.
Similar to the seed stage, government grants are still very much on the table at this point. But if all else fails, you could also opt for self-funding via soft loans.
For local, Sarawakian only soft loans, MIED and the Sarawak Economic Development Corporation (SEDC) have one called the Skim Pinjaman Industri Kecil Dan Sederhana (SPIKS). Under this scheme, suitable startups will be given a soft loan of RM20,000 to RM250,000 at a rate of 4% per annum. And the loan repayment period is set at 3 to 7 years.
If you’re not keen on this scheme, there are also other soft loans open to all Malaysians from both the public and private sectors.
Once you’ve properly built up your business within the first few months, you should be able to get to this stage where sustainable profit becomes attainable. It’s also at this stage that the “sharks” start to smell blood in the water.
We’re of course referring to VCs. You need to understand that funding is always necessary no matter where you’re at in your business’ funding life cycle. And VC funding will come in very, very large amounts which will help your business progress further.
Though do expect to impart an equity stake in your company in exchange for the monetary gain. You’ll also be expected to ramp up business growth over time.
Congratulations! Now you can finally enjoy the fruits of your labour. You’ve proven that your idea can be a successful business.
Right now, you’d probably notice a plateau in your sales growth. This could be due to your business reaching the pinnacle of your market’s demand.
The only way to go now is down right? We think not.
There is always a way to improve your business. And scaling up your business is one of them. To do this, funding is definitely essential.
At this point, VCs will be the ones to provide you with most of the funds you need right now. But if you’re unable to secure VC funding, going public with an initial public offering (IPO) is also an option if your company is successful enough.
In particular, we’d recommend trying to get listed locally on the LEAP market board. You’ll be able to raise your company’s profile and credibility with a listed company status, and in turn, attract the attention of potential VCs.
Whatever your approach is, you should be fully aware of what’s best for your business, and act accordingly. It’s also important to make sure you’ve explored all other options before you make your decision.
We hope that this article has shed some light on the funding lifecycle and various ways you can raise funds for your business.
Most importantly, don’t feel down when you get rejected, because you WILL get rejected a lot of the time. Just remember that the only thing holding you back is your resourcefulness and creativity, so don’t ever give up!