In-depth Information About Investment In Startup Businesses In Malaysia
Investment in startup businesses in Malaysia is highly volatile, as the return on the investment depends entirely on the success for the venture’s operations. Therefore, angel investing is considered extremely high risk and requires more efforts than other types of investment. So, it is suitable for those investors who have big risk appetites and are seeking capital growth through their investments.
“Malaysia ranked at 24th in 2018 World Bank’s Ease of Doing Business, Malaysia is fast gaining traction as one of the favorite investment destinations to do business. Though the high ranking in the World Bank’s Ease of Doing Business signifies that starting a business in Malaysia is not that difficult, it could be a daunting task without proper guidance” reported Forbes.
It explains that if you don’t want to start a business in Malaysia, you can also invest in startup businesses in Malaysia, to get profitable returns without doing direct work.
Like many other countries, small businesses are mushrooming in Malaysia, more and more people are starting a small business in the country. From fashion business, e-commerce store to affiliate marketing, Malaysians are venturing the opportunities and possibilities of small businesses. Foreigners can also choose to start their small business in Malaysia as well. No matter you are a local entrepreneur or foreign investor, you can start a local business in Malaysia and you can also put your investments in startup businesses in Malaysia or play the role of angel investors and receive healthy returns against your investments.
However, through investments in other’s business has its own set of risks, investors are allowed to invest in multiple technology-based companies at the same time and this creates a diversified investment portfolio and knowledge exposure. Such businesses could succeed in numerous trades, such as communications, healthcare, conveyance, information technology, etc.
As resources to boost national angel investment from private sectors into early period companies in technology-based sectors, the Malaysian government has introduced a special tax exemption, since the 2013 Budget for angel investors which motivate angel investors to do investment in startup businesses in Malaysia. There are so many young entrepreneurs that have innovative thoughts and products, but they could not express their selves due to lack of money or capital. This tax incentive (as mentioned above) mainly aims at drawing investments to such businesses to promote them and express their competitiveness compared to the firms and it also boosts the local business sector of Malaysia. So, the investors who invest in startup businesses in Malaysia can benefit from tax savings through this tax incentive program.
According to forbes.com “Recently we are seeing more and more family offices and successful business owners getting into startup investment. Some have gone as far as creating their own VC arms under their listed companies, as well as creating accelerator programs and startup programs”.
“Some startup companies that have benefited from angel investment and also give the good returns to investors named as, iMoney.my, MilkADeal.com and Alibaba.com” reported forbes.com. As an angel investor, you can invest $25,000 to $100,000 or more in a single startup business. Here are what angel investors particularly care about:
- The excellence, desire, promise and integrity of the founders.
- The market opportunity being addressed and the potential of the company to become very big.
- A clearly thought out business plan.
- Interesting technology or intellectual property.
- An appropriate valuation with reasonable terms.
- The feasibility of raising an extra series of financing.
- Early adopters or customers.
The four crucial points that angel investors should like to see initially from an entrepreneur:
- A clear view of an articulated elevator pitch for the business.
- An executive summary or pitch deck.
- A working model of the proposed product or service.
- Early customers or adopters of product or service in which he is investing.
The key factors in defining the suitable valuation in a seed round of funding:
- Experience and the past success of the entrepreneur and his team.
- Market conditions of the economy.
- Nature of environment i.e. competitive or non-competitive.
- Market opportunity.
- Amount of investment that you are willing to invest and resulting dilution to the founders.
- The value adds expected to be brought by the investors.
The legal documents of a company which should be reviewed by the angel investors before investing in the particular firm,
- Character Certificate or Articles of Incorporation.
- Organizational Board Resolution.
- Confidentially and Invention Assignment Agreements for all employees and contractors of the company in which you are investing.
- Tax ID number.
- Federal and state securities law filings for any previously issued stock or options.
Stock option plans of entrepreneur for employees and directors.
- Indemnification Agreement for directors.
- Stock Vesting Agreements with founders.
For the angel round of financing following documents will likely be necessary,
Board and stockholder resolutions approving the financing of an angel investor.
- Securities law fillings.
- Subscription Agreement.
- Convertible note agreement, unless the stock is being issued of a company or startup business.
- Amendments to the charter documents, if necessary.
Following are the benefits that entrepreneur get by taking on an angel investor:
- Contacts to venture capitalists.
- Contacts to strategic partners.
- Advice and counselling from experienced partners.
- Credibility by being associated with an investor.
- Contacts to potential customers.
- Contacts to potential employees.
- Contacts with best lawyers, banks, accountants, and investment bankers of the country.
The entrepreneur also gains the knowledge of the marketplaces of his product and strategies of similar companies. As we see the above details, there are benefits for both investors and entrepreneurs in angel investment. Nowadays, in Malaysia, the small startups are growing rapidly at a fast pace, therefore, there is a vast opportunity for angel investors to put their investments in different startup businesses in Malaysia, and get healthy returns.