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The Pitch Deck: Institutional funding as an alternative to VCs

11 Sep 2023, 12:00 am

Most start-ups have to raise funds at some, sometimes multiple, points in their lives to fund growth plans, increase revenues, hire staff and expand abroad. Often, the life cycle of funding follows a linear progression from the founders funding their business together with their family and friends, followed by angel investors, who are individual investors that are not family or friends, who may provide larger amounts of funding, sometimes up to RM1 million, though mostly in the tens or hundreds of thousands, mostly for commercialisation of the products or services. Some start-ups may also obtain government grants for both prototype development and commercialisation if they have unique or innovative businesses.

If the business grows successfully, the next round of funding is usually either through an equity crowdfunding (ECF) platform, peer-to-peer (P2P) lending or venture capital investors. Bank funding is mostly closed to start-ups as they rarely have profits at the early stages and are thus considered too risky for banks. Both ECF and P2P are very successful in Malaysia. According to the Securities Commission Annual Report 2022, just in 2022 alone, start-ups raised RM100 million via ECF while P2P loans disbursed came up to RM1.6 billion. It must be noted that both ECF and P2P are not just for start-ups but also for small and medium enterprises.

As the companies continue to grow and show promise of scale in terms of revenue and market growth, venture capital is the next option, especially if the funding requirement exceeds RM1 million. However, for every 100 companies that pitch to venture capitalists (VCs), only one or two receive funding, so this funding source can be rather challenging and is only an option for the best companies with the best potential for high growth. VCs can provide large amounts of funding and many successful start-ups have raised tens or hundreds of millions over a few years. Recent examples include Aerodyne, which has raised US$60 million; Carsome, US$607 million; and Soft Space, US$37.5 million (data from Crunchbase).

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