For most of you entrepreneurs, if you have access to capital, you can change the course of your business and brand; where it will take you. Any amount, be it big or small, can either scale your operation at an accelerated pace or focus the effort to better develop new solutions for the market. Understandably, money does not fall from the sky and, similarly, you need to be savvy on the type of scale-up capital and how you can be accessed.
In line with addressing the need of tech small and medium-sized enterprises’ (SMEs) for advisory on acceleration, we, Malaysia Digital Economy Corporation Sdn Bhd (MDEC), through our Global Acceleration and Innovation Network (GAIN) programme, provides assistance based on the needs and goals of individual GAIN companies, be it in the areas of visibility, market access, accessing capitals or mentorship. With capital accessibility,we aim to assist you with high growth companies to scale your business through the facilitation of funding platforms and funders and this includes mergers and acquisition (M&A) options if you intend to scale inorganically.
Now, get this. Beyond M&A, there are many other options in the market for your SME to raise the needed capital and this includes listing yourself on the Bursa Malaysia’s Leading Entrepreneur Accelerator Platform (LEAP) Market or approaching the investment community via private equity firms, angel investors, venture capitalist, and even conducting equity crowdfunding (ECF) campaigns. Whichever method you choose, always take note that due diligence by multiple parties is required before moving forward.
Hear us out. For GAIN company, Red Ideas Holdings Bhd, they have decided to scale their business by listing themselves on the LEAP Market. The company’s co-founder and executive director Ignatius Ho pointed out, “Aside from funding, listing on the LEAP Market adds credibility to our business. Since our main customers are property developers and managers, being listed shows how serious we are about our business.”
As the proprietors behind community service platform, ‘Graaab JaGaApp’, Red Ideas managed to deploy their solution onto over 130 residential and commercial properties. Ho explained, “The listing exercise enabled us to strengthen our internal controls and business processes while exposing us to corporate exercises such as corporate governance and due diligence. A big challenge to seeking funding is knowing the strength and experience of a LEAP sponsor. In our case, M&A Securities helped prepare us on how to present and pitch.” So how do you think you can go about this?
Accelerating growth. M&A Securities Sdn Bhd associate director Tan Cheow Han shared a story on how his company received the mandate in April 2017 to assist Red Ideas in being listed on the LEAP Market. “We work together on the initial assessment of potential listing candidates, share insights tech and business models, and validations, among others.”
As a licensed corporate finance adviser in Malaysia, M&A Securities has been working closely with MDEC on generating awareness and funnelling GAIN companies to the LEAP Market. Since their appointment as consultant, placement agent and continuing adviser for Red Ideas, approval for the company’s listing received the go-ahead as early as November 2017.
Imagine this; the goal for Red Ideas is to raise RM7 million by placing out shares that represent 20% of its capital which is equivalent to over 20 million shares in terms of operational shareholdings. Some of the RM4.15 million gained from the listing exercise has been earmarked for general working capital and comprised of marketing, advertising and promotions, salaries, hiring sales staff, and expansion of Red Idea’s ‘My Services’ mobile application. Now, won’t that be worth your while?
Tan has hinted if you want to list your SME on the LEAP Market to work harder and gain traction in your business throughout the funding process. “Entrepreneurs – be it start-ups or scale-ups – are supposed to grow and gain market traction fast within months. If during the process of preparing for the LEAP listing, your sales dropped or slowed, it will not reflect well on your growth potential and viability of your business.”
And when it comes to the typical utilisation of proceeds from initial public offerings (IPO), Tan shared that in most cases proceeds are used for capital expenditure, research and development, working capital, repayment of bank borrowings, and to pay for the listing expenses. “As for ‘listing status’, some typical reasons include gaining access to the equity market for future fundraising, increase credibility and visibility of the company, and ‘unlocking value’ of the company.” But of course, action speaks louder than words and your SME should always maintain a good track record in terms of conduct.
In regards to the not-to-dos when seeking external funding, Tan hopes that you will heed his warning: “Do not take actions or shortcuts that would jeopardise your integrity. Some actions, especially when it is against the law, can cause permanent damage and disqualify a person to become a director or promoter of a company.”
Exposure to funding. Meanwhile, another GAIN company – GHL Systems Bhd Group, their CEO, Danny Leong, has shared how funding for his organisation took on a different approach as he engaged other prospective leads. “In terms of funding for GHL Systems, we could borrow from the bank at any time or embark on any of the usual stock market activities. Working with GAIN has given us the recognition to further boost for our profile.”
In fact, let us share a little trivia for you. Did you know that being part of the programme has helped GHL accelerate in terms of market reach? And we are not talking just in doing business abroad, but also in familiarising themselves with new technologies or to seek funding partners for future collaborations. In April 2017 alone, UK-based emerging market investor Actis purchased a 44.4% stake in GHL Systems and get this; the previous funding partners for GHL Systems include private equity firm, Creador Sdn Bhd.
Leong highlighted, “With this level of recognition, we are able to turn things around and even fund new businesses quickly through other merger and acquisition activities. Our biggest take home from GAIN was the exposure for us and being able to connect with global players and partners who are unique and have their own niche offerings.”
GHL Systems has invested over US$3.3 mil (RM13.46 mil) to acquire a 31.16% stake in Vietnamese mobile point of sales services entity, MPOS Global and by having MPOS Global as a strategic partner in Vietnam, GHL Systems are not only able to establish their presence in foreign markets but also nurture growing startups. Leong reckons that, “It is healthy having Malaysian companies nurturing startups regionally as opposed to the reverse in the past.”
For you guys out there, take note that it is not the end of a journey once your SME has successfully secured funding from an investor; it is a case of when the hard work begins. Ho from Red Idea has a reminder for you, “For any SME seeking funding, they have to be honest and do the right thing. You have to manage expectations and never sugar coat anything but to deliver real business value. It is important to have a good team to execute any plans or promises made when funding is secured. The more that is given to you, the more that is expected from you.”
