At the beginning of the year, what started as an epidemic quickly turned into a full-fledged global economic and health crisis. The ripple effects of COVID-19 can be seen clearly across the world and Malaysia is no exception. With over 66,000 confirmed coronavirus cases at the time of writing, the country has been in lockdown mode for a good part of the year and this has disrupted business and life in many ways. The Malaysian economy contracted by more than 17% in the second quarter of 2020 from a 0.7% growth in the first quarter.
From big businesses to startups and SMEs, every organisation has suffered some form of disruption amidst this crisis. As such, the Malaysia Digital Economy Corporation (MDEC), took swift actions earlier this year and announced a partnership with seven crowdfunding operators to help entrepreneurs and startup founders through this challenging time.
Turning to equity crowdfunding for support and growth
The pandemic has affected different kinds of businesses differently — some could pivot and adapt, allowing them to flourish while others succumbed to losses and were forced to layoff staff or worse, shut down.
For many startups, there was one key thing that they needed to survive and scale — cash flow. Getting funding was key to not only their survivability, but also their growth plans. However, with the pandemic raging and business not being “normal”, it wasn’t surprising that getting funding would be a challenge for many.
Simon Ulrich, CEO at ReGov Technologies, a fast-growing Malaysia based AI & Enterprise Blockchain focused venture, shared, “Many VCs we spoke to are careful about investing in new opportunities at this moment. Instead, they have redeployed resources to support their existing portfolio.”
With typical VCs being less than receptive, and normal routes for fundraising posing strong challenges, many startups saw their fundraising avenues severely limited. Fortunately, this was where MDEC stepped up by promoting alternative financing to MSMEs in partnership with crowdfunding platforms as well as offering them some financial relief.
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“MDEC helped us connect with the equity crowdfunding platforms. In addition, by far the most impactful initiative was the co-investment scheme Malaysia Co-Investment Fund (MyCIF) and we cannot give enough credit to its organisers. Initiatives such as this are exactly what the startup ecosystem needs. It was perfectly timed and was executed with speed and minimal bureaucracy,” added ReGov Technologies’ Simon Ulrich.
ReGov Technologies was not the only one that benefited. Wilson Beh, co-founder of Policy Street, the largest ECF issuer in Malaysia with the largest ECF investment raised, shared, “MDEC has been promoting ECF and P2P funding platforms and I believe that the concerted effort put in by MDEC has led to an increase in public awareness towards ECF and P2P investment. We are utmost thankful to the government initiative of establishing the MyCIF.”
Yeong Ning, Founder and CEO of Pentaip, a Financial Artificial Intelligence (AI) company also shared the same sentiment. “The partnership with MDEC has proven beneficial to us in various ways. They not only provided us with practical guidance and advice on our pitching but also recommended us an affordable working place for our business networking. Most importantly, MDEC helped us to promote Pentaip to the public and potential investors including VCs during the fundraising campaign.”
Success stories amidst the pandemic
With the right support and collaborations between MDEC and the crowdfunding platforms, many startups saw success despite the economic crisis brought about by the pandemic.
ReGov Technologies managed to expand on an international scale thanks to MDEC’s support through the ECF campaign. As a result, they managed to build and strengthen their customer base in Malaysia and expanded to Australia and the US.
“MDEC organised events where we could learn more about ECF and also explore if we were ready to utilise such platforms for fundraising. This allowed us to participate in activities intended to connect startups with investors,” Mr. Ulrich shared.
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Success wasn’t only seen by ReGov Technologies though, PolicyStreet was the first company to receive a RM1 million co-investment from MyCIF following the revision of the co-investment ratio in April this year. They plan on utilising the capital for strategic business development, licensing applications and technology development to exponentiate business growth.
That’s not all, after the investment round was concluded, Policy Street was invited by MDEC to be part of a national digital financial inclusion initiative, called the eBerkat programme, as official InsurTech partners.
As for Pentaip, they not only expanded as a team but also gained publicity during the fundraising journey. “The campaign helped us establish partnerships and allowed us to push our products to be market-ready. We managed to build partnerships in the areas of KYC/AML, Custody, Financial, Technology, and Infrastructure.”
What’s next?
ReGov Technologies is heading into 2021 on track to massively increase revenue and profitability further. Mr Ulrich said, “We are considering raising another round of funding with the aim of bringing in strong capital partners who can help us grow even faster as compared to an organic growth strategy.”
He also shared a word of caution and said that even though ECF was a highly recommended platform, one should not assume that it is easier to obtain investments on it compared to an angel or VC.
“The due diligence process is rigorous, and in our case, we were challenged by over a hundred investors that kept us on our “A” game throughout the fundraiser,” he said.
Mr Ulrich added, “I would like to encourage my fellow entrepreneurs to stay strong and be focused, in spite of the current situation. Sound business models will produce real traction and will demonstrate the very tenacity investors are looking for.”
In line with the experience this year, Policy Street continues to closely monitor unit economics to build a sustainable and impactful business. Pentaip also plans on focussing on growth and eventually scaling to a global level.
“The MDEC team has been relentlessly exploring alternative financing avenues and making these options known to businesses that are struggling to stay afloat during these trying times. I am pleased to see that our efforts have started to bear fruit. To date, our efforts have attracted more than 500 startups, totalling up to USD243 Million in funds requested. And as of September 2020, we have successfully raised close to 25% of this request,” said Gopi Ganesalingam, Vice President of MDEC’s Global Growth Acceleration Division.
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MDEC continues to support Malaysian startups and SMEs to help them write success stories even during trying times when most businesses are struggling to survive.
This effort is crucial in helping maintain a robust startup ecosystem for Malaysia despite the pandemic, and to ensure that the country continues in its journey to be the Heart of Digital ASEAN.
“Despite the challenges faced during a global pandemic, the Equity Crowdfunding (ECF) ecosystem has done well to support companies to raise their much-needed capital growth. This was possible with the support of business-friendly ECF policies and initiatives by the Government and its agencies. We’ve been working very closely with MDEC throughout the whole year of 2020 to identify investible companies for the investment community. The work that we do has resulted in various success in 2020, which we are more than happy to continue in 2021 and beyond,” shared Sam Shafie, CEO and Co-Founder of pitchIN.
Currently, seven startups supported under this program have gone live and pre-live for crowdfunding on the pitchIN platform. These include XTS Technologies, Bridzia, EduReviews, EVULX International, Maslaha Tech, Kravve, and Calms Technologies.
If you are a startup owner in Malaysia looking to grow and scale in the current climate, check out MDEC’s alternative funding initiative to realise your goals. You can also find out more about their other funding initiatives here.
Malaysia is poised to achieve its bold aspirations towards Malaysia 5.0 and becoming the ‘Heart of Digital ASEAN’. MDEC is driving this transformation by empowering Malaysians with digital skills, enabling digitally-powered businesses, and driving digital investments.
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This article is produced by the e27 team, sponsored by the Malaysia Digital Economy Corporation (MDEC)
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