WORKSHOP 2: Financing Options for Start

WORKSHOP 2:
Financing Options
for Start-up Businesses
Dato Norhalim Yunus (halim@mtdc.com.my)
Chief Executive Officer
Malaysian Technology Development Corp Sdn Bhd
Malaysia
About MTDC
A Commercialisation Mandate
• Set up by the government in 1992 to spearhead the
development of technology businesses in Malaysia.
• Initial roles (started with the 7th Malaysia Plan):
– concentrate on the promotion & commercialisation of
local research
– invests in new ventures & new technologies.
• Role evolved & expanded into an Integrated VC Solutions
Provider – managing grants, VC funds, technology centres &
nurturing technology companies.
Expansion of Role
• Under the 10th Malaysia Plan, MTDC’s role further
expanded to:
– create an effective ecosystem for commercialisation of
homegrown technologies
– groom new generation of Technopreneurs through
comprehensive nurturing services – from lab/ideas to
market.
– Symbiosis GE Programme:
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train graduates with entrepreneurship skill
match with technologies from local Universities & RIs
provide funding (if eligible)
mentoring & coaching program for CEOs
develop the companies for growth.
MTDC’s Achievements
• Managed & co-managed over RM2 Billion (US$650
million) in funds – consisting of grants, venture capital
& loans.
• Established technology centres in five Malaysia’s
leading universities & research institute.
• Assisted over 500 companies, which has:
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Created more than 4000 new jobs.
Generated sales of over RM1.5 billion (US$400 million).
More than 400 new patents created.
Attracted more than RM500 million (US$156 million) in
private investments.
Funding Prologue…
An “entrepreneur” is just a fancy term for
“business owner”
• Regardless of sector or size, starting a business,
expanding sales, production and profits, you must
have enough funds to do all these activities.
Elements of a Business
Entrepreneur
Product
and/or
Ideas/Skills/Technol
ogy
Services
Funding
Infrastructure
Value
Proposition
Go to
Market
Something Borrowed,
Something Owned
Whether you need $10 or $10 million, conventionally
there are only two kinds of money:
– Debt, which is borrowed, and
– Equity, which is traded for ownership of the
company.
• The first step to raising the right kind of money is to
decide between debt and equity. Usually, the choice
depends on personal preference.
Something Borrowed
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For the controlling type
Prefers to pay interest, than give up ownership
Have assets to use as collateral
Proof of ability to repay loan
Sources:
• Friends, Family & Fools
• Banks
• Credit Unions
Something Owned
• Reduced ownership, but potentially improves
creditworthiness.
• Control & flexibility reduced
• No “penalty” for failures, but success will be shared
Sources:
• Fools
• Angel investors
• Venture capitalists
Choosing the Best Equity Partner
Think of it as a marriage
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Have to right chemistry & compatibility?
Who they are & what’s important to them?
Are they close by & easy to communicate?
How will they help you grow & prosper?
Do they the domain experience?
Have good track record & necessary resources?
Some Questions to Ask Yourself
• What do I want to get from this relationship & what kind of partner am I
looking for?
• Do I just want the money or am I looking for my VC to open doors for me?
• Does the firm have relationships that matter to me in my market & can
they give examples of where they’ve leveraged those relationships for
their portfolio companies?
• Are they strictly investors or do they have executive and/or
entrepreneurial experience – in other words, have they walked the path
I’m walking?
• Will they serve as a solid sounding board for me & will they give me the
right counsel based on an agreed-upon vision/mission for the company?
• Do they understand & agree with my vision and the company’s mission?
Other Sources of Funds
• Grants: typically non-repayable funds provided by
the government or institutions & given only to localowned companies.
• Crowdfunding: collective effort of individuals who
network and pool their money.
Grants are
Comes with
various flavours
& are different
from country to
country.
MTDC Grants
Manages 2 grant schemes:
• Commercialisation of R&D Fund (CRDF): for the funding
of commercialisation activities of locally developed
technologies undertaken by Malaysian owned company.
• Technology Acquisition Fund (TAF): established to
facilitate eligible Malaysian companies in the acquisition
of foreign technologies for immediate incorporation into
the company's manufacturing activity.
Crowdfunding
more the Merrier,
Crowdfunding Definition
Crowdfunding is a compound word i.e. made up of
two words:
• Crowd – a group of individuals, of unspecified
number, who have voluntarily made the decision to
participate without order from outside influence.
• Funding – funds are generally considered to be
money & funding is the receipt of money.
Benefits of Crowdfunding
• Gives sense of traction – the number of backers
attained.
• Easier & less painful – loans & equity process can be
a nightmare.
• Grow loyal customer base – if they believe in you
first time, they will stick with you.
• Crowdsource for comments, ideas & feedback.
• Attract potential investor’s interest.
Four Crowdfunding Models
• Funds for Reward – the crowd gives money to
receive rewards (giftbacks, perks).
• Funds for Debt – the crowd loans money which is
repaid (with or without interest).
• Funds for Donation – the crowd donates money
(may receive a tax benefit).
• Funds for Equity – the crowd invests money and
receives a portion of equity.
Crowdfunding Projects
– not just for small projects
First skyscraper built by common people
• The 66-story BD Bacatá in Bogota, Columbia
will be the city’s tallest building when
completed.
• Fundraising drive is being done primarily
though a crowdfunding campaign, allowing the
organisers to utilise the local community’s
interest in owning a percentage of the project.
Rebuild Joplin Mosque
• In 2011, Joplin, Missouri, was struck by heavy thunderstorms &
tornados. The Joplin Mosque was hit especially hard because,
after the tornadoes, the
building suffered severe
fire damage & burned
to the ground.
• Following these events,
a local independent
group initiated the
Rebuild the Joplin
Mosque campaign on
the platform IndieGoGo.
Malaysian Crowdfunding
• Sponsorship of the FIFA Soccer
World Cup.
• Malaysian soccer fans came
together & bought the rights to
telecast all live matches on free TV
and advertisement free to all
Malaysians.
Sharia-Friendly CrowdFunding
• Based on the principals of shared risks & rewards –
where social justice is key & wealth is shared
• Crowdfund investing can deliver the shared riskreward profile.
• Communities can come together to pool resources,
launch a business & share in the risk and enjoy the
potential.
• Can promote peace & prosperity through
entrepreneurship.
Sharia-friendly CrowdFunding sites
Shekra.com
• Based in Egypt & first Shariacompliant crowd online
funding service.
• Aimed at smaller projects
needing between US$50k and
$300k.
• The idea is to bridge the
funding gap & to bring creative
people and investors in order
Sharia-friendly CrowdFunding sites
Yomken.com
• Crowdsourcing & crowdfunding platform
that offers micro- and small entrepreneurs
(MSE) and nongovernmental organizations
all over the Arab world a space to post welldefined challenges they faced.
• Potential solutions are posted by problem
solvers, capitalising on the “wisdom of the
crowd.”
• A group of volunteer experts review the
proposed solutions to choose the best one
for implementation.
Sharia-friendly CrowdFunding sites
Halalfunder.com
• UK-based site welcomes any
projects or ideas from
anyone that are inclusive and
Muslim friendly.
• It doesn’t have to be ideas
and projects that are
specifically aimed only at
Muslims as long as its
Muslim friendly.
Sharia-friendly CrowdFunding sites
UmmahHub.com
• Crowdfunding
platform for Muslim
projects & is based in
Canada.
• Provides an arena for
organizations,
charities,
start-ups,
and projects
to gain exposure on the wonderful work they
are doing and rally support from their community.
Before Fund Raising, Remember!
• Do your homework – create a funding map of who
is giving what & what looks “sexy” to them.
• Know your audience – put yourself in their shoes.
• Raising money takes time & effort – start when you
don’t need the money & not when you’re already
desperate.
• Know the value created – at every stage of the
company’s development what value you’re creating.
Also….
• Raising money,
reducing risk & creating
value is a continuous &
never-ending cycle
When Successful,
Maximise the Funds
• Use the funds efficiently & effectively – stretch to
the last dime.
• Pay for things only when absolutely necessary – why
rent when you can work from home, or use virtual
office.
• Don’t buy – borrow, rent or lease, if possible.
• Do everything yourself – hire only the right people,
at the right stage of development.
Funding
is NOT
the Silver Bullet
Other
important
factors to
consider
Why do you need a Mentor?
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Fill the your skills gap
Reducing mistakes & unnecessary wastes
Extra support & a shoulder to cry on
Additional resource to tap into – mentor’s neworks,
circle of friends, etc
• A good sounding board for ideas – a second opinion
from an experienced person is always a good thing
Characteristics a Good Mentor
• Someone who knows the field.
• Have an established, good, quality network.
• Willing to show you the ropes – share skills,
knowledge & expertise.
• Provides guidance & constructive feedback.
• Passionate & interested in seeing you becoming a
successful entrepreneur.
Last Words
“If you don’t know who is the fool
is on the deal, it’s you!”
– Journalist & entrepreneur Michael Wolff
quoting anonymous bankers in
Burn Rate: How I Survived the Gold Rush Years on the Internet