Recent years have been good years for Malaysia’s startup community as entrepreneurship is being more positively embraced. Just over the few years, the number of homegrown, homebrewed startups has increased exponentially. Now, here comes the figures! Based on MaGIC’s web database as of August 2016, e-commerce related startups occupies 21.5% of total startups in Malaysia; service and consulting is 19.1% and social enterprise forms 17.8% of the sector. What’s even better? Funding in Malaysia startup rose from $9.5m in 2013 to 47.9m in 2015!
All successful startups start from humble, but deep-rooted basis that allows them to grow extensively. To build a strong basis, you need to keep in mind some of the most fundamental parts of a startup that makes it “fundable” before you even start your journey into startup world. If you are an aspiring entrepreneur, this article is for you!
Stages- Where are you now?
There are 3 main stages in a startup, which is Pre-seed stage, Seed stage and Post Seed stage. Before making a decision on which funding channel your startup should utilize, it is crucial to first determine the stage that the startup is currently in as companies usually have different needs at different stages. The goal of the pre-seed is to demonstrate that your product fulfills a market need. In contrast, the seed round is raised for the purpose of proving product-market fit. (Swanson, 2016). By the end of the pre-seed fundraising round, your startup is expected to have in place 5 important elements including a functioning product, a relevantly skilled team, market, distribution, and traction. Seed stage is when your business needs funding, private or public, to carry out a solution and business model development, to prove that your new product or service is functional before attempting to sell to your target customers (Zwilling, 2015).
Basic elements of a startup
To extend on the 5 important elements, these are the basic forms of the important elements that you should have if you are at seed-funding stage:
- Incorporation. Filing your startup with the state, be it as a Sole Proprietorship, Partnership, LLC, C-Corp, or S-Corp. Outlining ownership stakes and having legal protection from personal liability, at the funding stage, is essential.
- Pitch Deck. Presentation of your business plan, using Powerpoint, Prezi or even Business Model Canvas and Lean Canvas. Anything to convey the full manifesto of your startup’s idea.
- Online Bios. Publicizing biographies and resumes of you and your management team in online platforms, such as LinkedIn. Note that the investors are looking for capable people who can execute ideas, and not the other way round.
- Website. (Optional) It depends on the nature of your startup.
- Business Collateral. Logos, business cards, color schemes, and other images for your business so that people can envision your products.
- Financial Documents. Budget plan, Revenue Projections, Operational Expenses, and Cash Flow Projections.
How to make your startup more “fundable”?
We all know, getting the dream cheque from investors ain’t easy.
Often, early startup owners are easily distracted by reading venture capital blogs, but really, successful startups always keep their eyes aligned on building the basics of a “fundable” startup. We will share with you in this article, some of the essential characteristics of a startup that appeal to the investors. All of these characteristics are, however, more useful when the 5 important elements we mentioned before are solid enough.
First and foremost, a viable and inclusive business plan is necessary. A product description of your startup is good, but not sufficient to get you the six/seven figures infusion into your startup. A sufficient business plan should include clear ideas on your targeted customer segments, channels of publicity, revenue stream, key partners, and value propositions.
Painkiller vs Vitamin
In terms of value propositions, it is crucial that you don’t market your product as a “vitamin” but a “painkiller”. This is a regular jargon used between investors. A “vitamin” is an idea or product that is nice to have but no need to have, they are often just add-on features or functionalities and not platform, while on the other hand, a painkiller solves a “pain”- a problem in daily life, it is often a product or service that offers real, bottom-line value to a business: it is needed, not just wanted.
Investors love “painkillers”, especially the addictive painkillers! That is because they know “painkillers” have strong market appeal. Even if your idea is not a “painkiller” initially, it is perfectly fine. Twitter, when launched in 2007, was never thought to be one either, but to the very least, you need to show how you are going to market it so that it becomes “essential”- yes, that is the key word.
Importance of benchmarking in business plan
Furthermore, although many people think it is important to accomplish some big achievements before getting funds (such as certain millions of sales), it is not necessarily so. Reasons are often investors are not investing on already-solid startups but the potentiality of startups to grow and give them the maximum yield of marginal profit. Hence, it is crucial for the business plan to include realistic milestones and to achieve some of it in the process (small ones are good to go). You can’t measure results unless you have a yardstick. Accomplished milestones show investors your capability as a startup to grow while written milestones act as a reassuring check and balance for the investors to have an idea on how your startup will progress.
Financial Track Records
Maintain a positive credit score
You need to have a good credit score and financial records. Just as a good credit score demonstrates trustworthiness, a bad credit score can make investors question whether you are the best steward of their money. Take steps to maintain a good credit score, such as paying off debt, paying all loans on time, and keeping credit card balances low or non-existent. Also, pay bills and taxes on time, avoid non-sufficient funds charges in your bank account, and don’t overextend your credit. The reasons are, first, it leaves a better impression on the investors of your financial prudence and it also strengthens your reputation with financial institutions so that they are more likely to issue you a loan; second, disciplined financial habits also get your business to profitability sooner.
Catered Financial Records
Do your research and know what your investors or funders are looking for. Generally, a traditional financial institution funding your startup would want to see a more organized balance sheet, distinctively lining revenue and cost. Contrastingly, angel investors, venture capitalists or other seed investors focus more on profitability ratio such as gross profit margin, net profit margin and Return on Capital Employed (R.O.C.E). After all, they are more concerned with the Return On Investment (ROI) above all things.
Read more on accounting ratios at, Financial Ratios before making an Investment.
At the end, there is no a fixed answer or formula to follow for you to increase the “fundability” of your dream startup, but the tips above will give you a very good idea on where you can begin. Look critically at the core of your startup from the investors’ point of view and work inward to make it “fundable”!
Last but not least…
Thanks for reaching so far in the article! But, this is not the end, after noting how to make your startups more “fundable”, now it is time to explore the available channels to get your fund to roll off your business to the next level.
Get more information on the Funding Channels in our continuation article, part 2!
Written By: Goh Xie Loong, Chiaw Yee, Lee Bi Jun and Marlena