Cultivating An Ecosystem For Start Ups

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Cultivating an ecosystem for start ups

KUCHING (June 24): Entrepreneurs are a dime a dozen in Malaysia, and this comes as no surprise when we think about the ecosystem that has been built to cultivate successful ventures.

From having a Malaysian Global Innovation and Creativity Centre (MaGIC) – which is carrying out operations as normal – to having plenty of government aide programmes as well as private sector efforts, the appeal is there.

You get to be your very own boss, set your own rules, do things your way and most importantly, get to watch your ideas and dreams come to life.

But the life of owing a start-up company is far from glamorous as a majority of start-ups fail. From a lack of funding to poor networking, there is a myriad of reasons why our local start-ups are just not making the cut.

So, to help out with your journey in making your business or idea a success, let’s talk about the major reasons why start-ups are failing.

Figure 1: Cultivating An Ecosystem For Start Ups.

If you’ve ever watched funding shows like Shark Tank, you’ll know that the number on reason why many new start-ups are struggling is due to a lack of funding.

Turning ideas into businesses and running those businesses isn’t going to come cheap and sadly for many of us, raising those funds is going to be tough especially with the rising cost of living.

Thankfully, those resourceful enough will find that there are plenty of sources out there catered specifically to start-ups in Malaysia and Sarawak.

Lets delve into the funding stages of a new start-up:

Start-up funding life cycle

THE funding and development stages of a start-up will vary significantly, depending on source of information used and what industry the start-up might be from.

It is generally accepted that funding from start-ups begins from grants and self-funding and eventually progress to attract venture capitalists (VCs) as the start-up grows and scales up its operations.

Concept stage

BEFORE you start dreaming about your own start-up, you will need to have an idea first. During the concept stage, you figure out what your idea or product is, what benefit is it going to bring to its consumers, how you will execute it, and determine your action plan.

This is the initial stage to your journey and there will be not funding behind it, just a lot of investment of your time, creativity and research to formulate a working business idea.

Seed stage

Moving onto the seed stage, this is where your idea starts coming to life. At this point, you will start to need some small funding and one of the most common places to get funding at this point is from friends and family.

Besides that, there are plenty of outlets for funding such as government grants, crowd-funding and self-funding, so don’t give up and be resourceful.

For crowdfunding in Malaysia, MaGIC has their very own platform, Actyvate, whereby Malaysians can crowdfund their business ideas and for every RM1 they raise, MaGIC will add on to the funds by RM2.

Locally, there are several grants and loans available for aspiring Sarawakians.

From the Ministry of Industrial and Entrepreneur Development (MIED), there are three main grants for fresh young adults – the GERAK grant for fresh graduates, the USTEV grant for technical entrepreneurs and the Cent@Cube retail grant.

All three grants are aimed at young Sarawakian adults between the ages of 18 and 35.

If you’re a fresh graduate from a skills course, STPM, diploma, and degree from any educational institution in Malaysia, the GERAK grant is your go-to grant.

But even if you’re a non-graduate, don’t despair because there is also a grant for young adults who are seeking to start a business in technical and vocational trades. The grant is meant to encourage more people to get into these fields as it remains to be a really important aspect of our daily lives.

And not forgetting aspiring retailers, MIED’s entrepreneur incubator – Cent@Cube – is also providing a grant for retailers who have already started small operations and are looking to make themselves a proper start-up business.

Besides just providing grants and working capital grants, GERAK, USTEV and CENT@CUBE’s retail grant are also part of larger support programmes for start-ups will and also provide support in terms of entrepreneurial advice and business registration processes.

Early stage

By now you’ve already accumulated some small funding and will be currently in the process of running your business at a small scale. These are the very first steps of your start-up so it’s likely that whatever profit you churn out will be pouted straight back into the business.

If you can demonstrate potential growth and profitability, angel investors might pay you a visit. Who are angel investors? Well, they could be anyone who are kind enough to give your business a little boost, they could be a rich relative or even a keen consumer of your business or product.

Government grants are also very much an option at this point as there are various grants out there just waiting for you to apply for.

But if all else fails, there is still the option of self-funding via soft loans.

For local soft loans only open to Sarawakians, there is currently one run by the MIED and SEDC called the IKS borrowing scheme (SPIKS). Under SPIKS, start-ups in the IT sector and manufacturing services will be able to borrow soft loans of RM10,000 to RM250,000 at one of the lowest government soft loans rates of 4 per cent at a tenure of 12 to 84 months.

Other soft loans open to all Malaysians from both public and private sectors are as follows:

While soft loans are a great way to get access to funding, some of the commercial soft loans carry higher interest rates so just make sure you’re getting the very best deal you can get for yourself.

Jared Lim, who is the founder of Finology Sdn Bhd and Loanstreet.com.my, a loan comparison website suggests that start-ups or entrepreneurs should be more cautious when picking a lender.

“The biggest thing I would say is to look for a lender that is a bit more understanding to your situation.

“Government owned banks like the Agro Bank who has more of a development focus might be a better bet as they tend to offer better products in the microfinance segment as compared to commercial banks.

“Next, I would suggest looking at your interest rates, of course lower is better so it would be wise to shop around.

“Then finally if you can compare the rates again with a personal loan to see whichever is cheaper as you can probably get a cheaper personal loan if you qualify for it rather than a microfinance package.

“I think the general rule of thumb is that personal loans will have lower interest rates, but that is not always going to be true as some banks might have cheaper alternatives as well.”

Growth stage

At this point, you should have gotten through the first few months and should be building up your business in terms of sales volume.

If you have managed to demonstrate that your business is sustainable with some profit to show for it, you might find yourself attracting some sharks – VCs.

VC funding will come in very large amounts for an equity stake in your company and with that money you’re expected to ramp up business growth.

VC funding can be very helpful for many start-ups but if you’re not up to selling an equity stake in your company just yet, there are still options of angel investors, soft loans and government grants open to you.

Figure 2: Lim (left) with Ashran at MaGIC HQ in Cyberjaya for the launch of GAP’s second cohort. 

Mezzanine stage

If you’ve managed to make it this far, then congratulations! You’ve definitely proven that your business has been successful and might be poised for further growth.

At this point, you’ll be noticing that your sales growth has been plateauing because maybe you’ve exhausted the local market or maybe you just can’t meet the capacity.

To fix that, you’ll be looking at scaling up your business and to do that, funding will definitely be needed.

VCs will be able to provide the most funding that you need right now and might even help you open door to more opportunities through their own network system, but if you’re against selling a stake to a VC or have trouble getting their attention then perhaps you could consider going public with an initial public offering (IPO).

Understandably, IPOs are generally associated with huge multi-million dollar companies but if you’re listing locally then Bursa Malaysia has a board targeted just for SMEs – the LEAP market board.

While it is often preferred to get funding from VCs, there are still many benefits to listing on the LEAP market such as raising your company’s profile and credibility with a listed company status, getting ahead start on graduating to the ACE and main market boards, having greater liquidity for its shareholders and investors to trade your shares, and having the performance of your company being reflected in share price and market capitalisation.

Besides that, the LEAP market is only open to sophisticated investors which are entities with net assets exceeding RM10 million or individuals whose net personal assets exceed RM3 million or gross annual income exceeding RM300,000.

It is no guarantee that they’ll help you out but it is always chance to schmooze with the big leagues. But before you embark on a plan to get yourself listed, it’s important to understand why VCs are usually preferred at this stage.

According to Benny Lee, an advisor to the Malaysian Association of Technical Analysts (MATA), the main issue that faces the LEAP market is its exorbitant listing fees.

“One of the issues with the LEAP market is that its listing fees are still quite high as auditor and lawyers’ fees will end up at around RM0.8 to RM1.0 million. If I want to raise RM2 million, half of that has already gone to the listing fee.

“So unless if it’s a bigger company, it’s not really worth it but the problem is that the LEAP market was created for small companies and start-ups to raise funds and the listing fees will deter them away,” he said.

While you have already experienced some success with your start-up, it is important to make sure you’ve explored all options open to you and getting yourself the best deal.

Building up entrepreneurial spirit

At this point, we’ve established that there are plenty of avenues for funding and even education for entrepreneurs.

However, these resources are not unique to Sarawak and Malaysia. In fact, they can be found in most countries around the world, but the fact stands that overall, on a global scale, the failure rate of start-ups is still extremely high.

So, what exactly sets a successful start-up from a failed one?

According to David Chew, who is the president of the Sarawak Entrepreneur Association (SEA) and the chief executive officer of FAME International College, one of the main reasons why entrepreneurs do not make it is due to their lack of entrepreneurial spirit.

Figure 2: BNM’s ‘Comparative table on Pembiayaan mikro product features (2017)’.

“Not enough funding is just one perspective of why start-ups fail but one of the main factors is the entrepreneurs themselves. The question is whether they have gone through the maximum extent and explored all the channels and possibilities out there to make their start-up work. No doubt the government, the banks or individual business men out there can help you or get you funding but finding this information and opportunities is something that you need to do for yourself, otherwise it is over,” he said to BizHive Weekly.

“The help is there, but if you don’t give me your hand, I cannot pull you up.”

Building off on that, SEA vice-president Eric Tan added that entrepreneurs should also be doing all they can and learning about their business, their positioning, their market, their development process, their business strategy, their competitors, their value to society and their vision and mission.

The reason being, if a start-up is to truly succeed and sustain itself then their founders need a deep passion and drive to make it work and strive for continual improvement and not just how to churn it into profits.

“To start a business, to attract partners, to attract investors, you need to have a passion for it otherwise you will fail.”

Finding a business partner

While having the right attitude, passion and drive helps you greatly in your journey for success, not everyone is capable of flying solo.

“Nobody is a superhero that can do anything and everything, so you need to find a partner that can help you.

“This goes back to yourself as a person – you need to know your strengths and weaknesses so you are able to find someone that complements you as an entrepreneur.

“Not only that, but you need to find someone that you can work together with. That kind of friendship is important because if you want to enter into a partnership with someone, it is not just about dollar and cents or equity, it is about working together and collaborating at an even higher level than your spouse,” Chew said.

“That is the kind of relationship needed between business partners and even more so needed is the trust because if you’re only thinking of using someone’s talent to achieve your objective then it’s not going to work out. It’s not a partnership,” he stressed.

Carrying that mentality of building trust and collaboration to networking, Chew believed that entrepreneurs should also be making friends without ulterior motives.

“When it comes to networking, do not make friends with just the intention of making money, just make friends first and then look at your network.

“You never know your next investor will be, it could be a friend of a friend so do not be selective in who you network with because in the end, these are all people you may end up working with one day so you want to have a sense of trust there.”

BEIC pushing for Sarawak

To help stimulate the local start-up scene, the MEID and Ministry of International Trade and e-Commerce (Mitec) alongside with various international and local companies and associations have jointly collaborated to launch the Borneo Entrepreneurship & Investment Convention (BEIC) 2018 that will be held in Kuching on July 19 from 9am to 6pm.

Speaking at a recent interview with the See Hua Group, Kenneth Ho who is the founder of BEAM, a networking platform for industry professional and an organiser of BEIC 2018, said, “Through this convention, entrepreneurs have the opportunity to know strategies and tips to attract and win customers or investors. Our main focus is to produce more professional Sarawakian entrepreneurs and have a strong business network.

“Frankly, with the right strategy and marketing skills, these entrepreneurs can succeed even in the less stable economy. We have to move along with the technology that we can apprehend now to penetrate all these business opportunities.

According to Chew, the convention will be focused on topics such as investment, overseas expansion, start-up using technology.

“The event will have a good networking mix as there will be speakers and attendants from various industries all around Malaysia. Who know your next investor might be there so don’t look at it as an expense but rather and investment for yourself.”

While the early bird special for BEIC tickets are now over, Chew alludes that there might be other ways of getting the specially priced tickets for keen entrepreneurs.

“Hey, if you really want it then I’ll tell you know that there is a way to get the early bird price now. But it’s up to you to find out how to get it, so let’s see you really have that entrepreneurial spirit in you.”

The need to continue learning

Finally, if do you see some success in your start-up, Tan stressed that it is deathly important that entrepreneurs do not get complacent and stop striving for improvement and continued learning.

“Once you become your own boss you still need to be willing to improve yourself, ego is an issue because once you have that you stop learning and you stop growing your value. Then you might end up having a bad relationship
with your customers and suppliers.

“Never stop learning, never stop improving and keep humble,” he said.

[Source: “Cultivating an ecosystem for start ups” published by BorneoPost Online]

Photo Credits: Bernama, Samuel Ong/The Star, BorneoPost Online

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