JUST as it takes a village to raise a child, it also takes many different players in an ecosystem to raise a successful startup.
And one of the most valuable players in the startup ecosystem are those who have walked the path of an entrepreneur and succeeded in their own right. These players have a wealth of experience and expertise as well as capital to plough back into other budding startups.
Most times, they invest in the capacity of an angel investor.
By definition, an angel investor is an affluent individual who is willing to invest in a company at its earlier stages in exchange for an ownership stake, often in the form of preferred stock or convertible debt.
They typically fill the gap in startup financing between seed funding, likely provided by friends and family, and formal venture capital funding in later stages once the startup has gained some traction.
Angel investors are usually entrepreneurs themselves and have successfully cashed out of their ventures with deep pockets to spare.
Over the years, scores of entrepreneurs, who have tasted hard-earned success, have increasingly been giving back to the ecosystem by reinvesting their time, money and knowhow into other startups.
Unlike other sources of funding such as government grants and venture capital funds, the angel investors’ involvement in startups is vital given their experience in building successful companies.
This would enable new startups to tap into their network and expertise, giving them a higher chance at succeeding.
As some entrepreneurs note, “one entrepreneur betting on another is a great validation of the idea.”
Some Malaysian entrepreneurs who have made their mark in the startup scene have sowed back into the ecosystem. They include the likes of Azrul Rahim, founder of application launcher for PalmOS, Facer, and Mark Chang, founder of JobStreet. com, who recently expressed interest in backing entrepreneurs from underprivileged backgrounds.
Notably, like every investment, there are risks involved when investing in early stage startups.
To recap, startups are experimental by nature and therefore are meant to fail several times before they succeed. As such, it is important that angels understand that a high percentage of the startups they invest in may likely fail.
However, as with other types of investment, angel investors should have a portfolio of high growth startups to invest in. And in that basket of startups, a gem or two will return a big reward.
Take Berjaya Group’s Tan Sri Vincent Tan, for example, who is known to make quite a few bets with budding companies.
While not all of them have been known to be successful investments, Tan certainly uncovered a jewel in MOL, which he bought for US$3.2mil (RM10.5mil) in early 2000s and listed on the Nasdaq this year. He reportedly pocketed a cool US$200mil from the listing exercise.
The government is also increasingly encouraging more early-stage private investment in startups with the introduction of the Angel Tax Incentive, which is administered by a unit within Cradle Fund Sdn Bhd.
Angels who are eligible for the incentive are high net worth individuals with total wealth of more than RM3mil or high income earners with gross annual income of more than RM180,000.
Angel investing is indeed becoming more visible and formalised with the formation of networks that connect entrepreneurs and angels.
Most recently, local entrepreneur-turn-investor Khailee Ng, who co-founded GroupsMore and SAYS. com, was made managing partner at 500Startups. Through the fund, Ng has invested in multiple companies across the region.
The local startup scene can indeed benefit with the involvement of more angel investors. Entrepreneurs who have achieved their milestones should think of investing in the future and giving back to younger entrepreneurs.
Entrepreneurs who have been there understand the satisfaction of nurturing another venture.
So if you have succeeded with your company, perhaps it is time to consider investing back into the ecosystem by sharing your expertise and resources as angel investors.
Malaysia has more successful tech startups than many people realise
Investor interest: MyTeksi has managed to raise a total of US$90mil in funding over the past 12 months.
Much has been said about this being the best time to launch and grow startups due to the availability of funding, infrastructure and an accommodating environment.
Additionally, mergers and acquisitions suggest that there is much value to be derived from startups. Foreign corporate moves include the US$966mil (RM3.1bil) price tag that Google paid to acquire navigation app Waze and the US$22bil takeover of messaging app Whatsapp by Facebook.
No doubt, many budding entrepreneurs aspire to follow in the footsteps of these successful startups. In a globalised market, the success of startups is not limited to those with connections to or within the vicinity of Silicon Valley.
With the right experimentation and innovation, a startup can succeed even in a risk-averse culture. It is not impossible for startups to grow rapidly and achieve high revenues in a short time.
But budding local entrepreneurs often lament that there are few local heroes to look up to in order to benchmark the ability of the local startup scene in producing successful ventures.
Although they are few and far between and are generally below the radar, there are some local gems that have scaled up very quickly, attaining regional success in just a few years, and have caught the eye of internationalinvestors.
One such company is MyTeksi Sdn Bhd. The Internet-based taxi booking service provider, which was launched in 2012, has already established a strong presence in Singapore, the Philippines, Thailand, Vietnam and Indonesia under the brand GrabTaxi.
The MyTeksi app has reportedly been downloaded onto over 2.1 million mobile devices with more than 400,000 active monthly users in six countries and more than 25,000 taxi drivers registered with the network.
Most notably, the company has managed to raise a total of US$90mil in funding over the past 12 months, counting US-based Tiger Global Management, GGV Capital and Vertex Venture Holdings as some of its investors.
One of the key reasons for MyTeksi’s success, says co-founder Anthony Tan, is its focus on solving a real social problem. In this case, providing an efficient and safe platform to match taxi drivers and passengers.
Another homegrown startup that is shaking up its field is banking solutions company Juris Technologies Sdn Bhd.
When the company was founded in 1997, co-founder and CEO See Wai Hun said its main agenda was to market a data mining system. But See quickly realised that no one was interested in data mining because people were reeling from the shock of the financial crisis.
Thankfully, she was equally quick at spotting an opportunity to create software for bad debt recovery which would help financial institutions manage their workflow with their litigation team.
Juris was set up with the help of an angel investor but See noted that the company eventually bought back its shares within a few years of incorporation. The team has grown from 10 people when it started to a staff strength of 80 today.
Its product range has also expanded from just a component of the debt recovery software to software for debt collection systems, loan origination systems, credit scoring systems, conveyancing and loan documentation systems.
To-date, 11 banks, 900 lawyers, 200 collection agencies and 100 property valuers are using its systems and See is expecting revenue to hit a high of RM30mil this year.
Most recently, Juris joined the ranks of Endeavor Global Inc’s global network of high-impact entrepreneurs, being the second Malaysian company to do so.
The achievement gives Juris access to global investor network and partnerships that will enable the company to scale up for regional expansion.
Malaysia has seen other startups, including the likes of iMoney, Softspace, FashionValet, Piktochart and TextbookAsia, take flight and achieve success in various fields.
Local entrepreneurs can take heart that some of the action does take place on our home ground. It is possible to nurture the local startup ecosystem to provide startups with a good platform to thrive and contribute significantly to the growth of the country.
With the right combination of policy, infrastructure, funding facility and mentoring, the local startup industry could unlock another key growth driver in our economy.
By Joy Lee
Related post:
Brewing a startup - part 1
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