In the lead up to our Elevate Programme,Capital Markets Malaysia (CMM) hostedthree webinars over the course of threedays with our partners MATRADE, MDECand Endeavor Malaysia to share insightswith participants from the mid-tier andSME segments of the economy on thevarious fundraising options available tothem through Malaysia’s capital market.The discussions centred around raisingfinancing via peer-to-peer lending (P2P),equity crowdfunding (ECF), venturecapital (VC) funding and private equity(PE) investment. These platforms areequipped for mid-tier companies (MTCs)to raise financing across various stages oftheir capital lifecycle.

Alternative Fundraising Optionsthrough the Capital Market

Our panellists

Here are our quick takes from thewebinars

Defining the fundraising options

Equity crowdfunding (ECF) platformsallow companies from various stages oftheir setup to raise funding from thepublic/crowd which includes individuals,companies and VCs to co-invest.

In contrast with ECF, Peer to PeerLending (P2P) platforms provide MTCswith debt financing which helpscompanies of all stages and of differentsegments access to funding for workingcapital financing purposes. Typically, P2P

platforms would offer 3 different productsnamely Term Financing, Micro Financingand Purchase Oder/Invoice financing.Given the short term range of financing, theaverage financing amount would beRM200,000 with investors beingpredominantly retail investors as well as ofsome high net worth investors andinstitutions as well. Venture Capitalists(VCs) are institutional investors that aresetup in a way where capital raised frominvestors are pooled together to invest ingrowth companies across all sectors thatthey deem investable. VCs are focused onearly stage growth companies andcompanies that fall under C-typeinvestments or the Series A and Series B of

AUGUST 2020 CAPITAL MARKETS MALAYSIA NEWSLETTER

The Bulletin

Sam Shafie

Co-Founderof PitchIn

Wong Kah Meng

CEO of FundingSocieties Malaysia

BikeshLakhmichandFounder of

1337 Ventures

Raja HamzahAbidin

Managing Partner ofRHL Ventures

Nik Ibrahim NikMohamed Din

Investment Directorof Ekuinas

Kristine Ng

CEO ofFundaztic

where companies are usually alreadyrunning and are seeking working capitalfunding. P2P platforms focus more on theuse of the funds rather than the stage of acompany’s lifecycle.

PE: PE investors are mid to long-terminvestors that would invest in growth tomature stages companies and have apredefined or a limited horizon in whichthey invest by which the idea is to createvalue for the investee company after theinvestment period.

What is the difference between VC and PE?

Investments made by VCs have typicallyhigher risk profiles compared to PEs asthey come in at an earlier stage. On anindividual investment basis, the returnexpectations are much higher for VC. ForPE, if you make 10 investments in a fund,you are really not looking to make muchlosses in a single investment.

PE funds are very driven by risk-adjustedreturns and value creation for the companyafter the investment period. Although thereis no fundraising limit, PEs try not toconcentrate their capital in a particularfund or a single investment which is usuallynot more than 30% in a single investment.

What is the advantage of bringing a VC onand do companies lose control?

There are different types of investorsnamely, growth investors and buyoutinvestors. VCs are a minority investor thatgives growth capital to help fund growthinitiatives of the company whether it isregional or global growth. Generally, VCstake 10-30% of the equity of the companyand also obtain a seat on the board whichleaves a majority ownership of thecompany to the founder. As a boardmember, VCs are able to have visibility intoyour business which allows VCs to provide

the capital lifecycle category. In exchangefor a minority equity in the investeecompany, VCs will provide capital, growthinvestments, and professional advice at astrategic level. VCs general ticket sizesare RM500,000 to RM10 million. Oncecompanies reach a certain scale and candigest a ticket as big as RM100 million,then starts the investment from PEinvestors.

Private Equity (PE) investors are equityinvestors that predominantly invests inprivate companies. PE funds can bebroken down into two broader marketsbeing Buyout funds and Growth Equity.Buyout funds are investments made byinvestors that take a majority stake, takecontrol over a company and try to createvalue over a period of time. Growth equityare investments where investors willprovide growth capital by injecting capitalinto the business to help thesecompanies grow with value creation.

What are the key differentiations frombanks?

ECF: For companies that are at an earlystage of less than 2 years old, it may beunlikely that they will succeed in obtaininga bank loan as these companies may nothave the audited financial statementsrequired by the banks whereas ECFplatforms are focused on investing earlystages companies. ECF leverages on theword alternative as your base ofcustomers that supports you are also ableto invest in your company through ECFplatforms. ECF platforms will also assistcompanies in obtaining investors andprovide support in making a company’sprofile even more investable. Companiesalso have the opportunity to tap into thewisdom of the ‘crowd’ as they are able toobtain feedback and suggestions fromexperienced investors.

VC: Given that VCs attain 10-30% of theequity shareholding of the investeecompany, VCs provide professionalbusiness advice at a strategic level andalso exposes the investee company to theVC’s network base. These are supportfunctions that are not part and parcel ofobtaining a bank loan.

P2P: P2P can be seen as complimentaryto the banking system as it acts as abridge to debt financing. The maindifference is the overall spectrum of theloan range, risk appetite and terms of thecredit evaluation. Banks focus on largertickets (RM500,000 that has a longertenure of 3-7 years) whereas P2Pplatforms focus on smaller financingamounts (average RM100,000 –200,000 per SMEs) with shorter termfinancing (average of 6 months’ tenure).P2P serves creditworthy companies thatmay not be profitable enough for banks toserve, without the need for collaterals nora past 3-years track record.

When should a company approach ECF,VC or P2P?

ECF: The expansion permits companieswith capital up to RM10 million to raisefunds via ECF of the investment limit thuscompanies from the spread of an earlystage to Series A can approach ECFplatforms.

VC: Similarly, VCs invest in earlier stagesof the business but VCs are seen as smartcapital that can take your business to thenext level and a long term partner.Alongside their investments, VCs also siton the board of the company and providesupport in terms of professional adviceand guidance over the strategic decisionsmade by the management of the investeecompany.

P2P: P2P is a debt financing platform

a viable end goal/objective. Companiesmust also have figured out their businessplan as it shows that you have thenecessary knowledge of the business.Companies must also manage theirresources to consistently work with theplatforms to attract investors and bewilling to be transparent to allow theplatforms to help you.

thorough background screening and alsospeak to existing investors to furtherunderstand their point of view of thebusiness. A VC also values a companywith a management team that applies acollaborative approach, dynamic and isopen to be transparent about thebusiness.

PE: If a company is still being run by thefounder, a PE would be looking for astrong founder. However, if a companyhas been institutionalized and thefounder is distant, PEs look at a strongmanagement team that has an idea onhow to create value in the business andhow to operate the business veryeffectively apart from a very compellinggrowth story. Additionally, PEs also lookfor businesses that have very soundbusiness fundamentals or soundbusiness economics (in terms of macroand microeconomics) and that couldpotentially be market leaders.

Exit Strategies

ECF: Traditionally, the companies wouldusually, after a certain number of years,opt to buy out the investors themselveswith a 10-15% upside. ECF platformswould usually advise investors to hold outtheir investments for the possibility ofhigher multiples. The usual exit strategyobserved is buyouts from incominginvestors or acquisitions on trade sales asbigger investors typically look at movingpieces for trade sales. The introduction ofthe secondary market within the ECF

market would also facilitate the exits as theSC allows for companies that aresuccessful on the platform for a minimumperiod of 6 months to trade their shares onthe secondary market.

P2P: It could be anything from 3 months to3 years. There isn’t much of an exitstrategy apart from the repayment of thedebt financing and the satisfaction of allterms and conditions stated in the signedterm sheet imposed on the investeecompany.

VC: VCs structure their funds as a 7-yearhorizon and would generally come into thebusiness as a long term capital; first 3years being the investment period and thenext 4 years being the harvesting period.The usual exit strategies of VCs are two foldwith the first being an IPO through thecapital markets or second being a tradesale for the company or trade sales interms of secondary transition of shares.VCs would usually grow out the time andmake a strategic trade sale to an investorintending to buy the whole business bybuying all the investors’ returns or by IPO.

PE: within the PE space, there has been amixture of exit strategies as a partial exitthrough IPO has also been previouslyobserved. Predominantly, PEs would havea trade sale to a strategic investor who isan individual well established in theindustry or back to the founder themselves.The exit strategies are also dependent onwhether the founder of the companychooses to exit or not.

While these alternative fundraising optionsexist, many companies still fundraisethrough the traditional route. Mid-tiercompanies seeking to take theirbusinesses to the next level should checkout our ELEVATE Progamme designed to dojust that!Visit www.capitalmarketsmalaysia.com fordetails.

sound strategic professional advice andobtain voting rights on certain resolutionmatters that are critical to the business.The investee company also benefits fromthe VC’s expertise and network exposurewhich helps create an avenue for thebusiness to grow.

What makes a company more investableor fundraising-ready?

ECF: When it comes to ECF, companiesneed to prepare not just documentationbut also a great story of its inception anda viable end goal/objective. Companiesmust also have figured out their businessplan as it shows that you have thenecessary knowledge of the business.Companies must also manage theirresources to consistently work with theplatforms to attract investors and bewilling to be transparent to allow theplatforms to help you.

P2P: From a P2P perspective, there’s lessof a story as companies are more on ananonymous basis as the process is morefocused on the nature of financinginvolved. The underwriting and duediligence is made by the platform itselfupon which the decision is made, thenthe information is made available on theplatform for funding. The platform looksat a company’s track record (a 6 months’track record is sufficient), the businessmodel and nature of financing.Additionally, the turnaround time forapplications is 5 or 6 times faster thanwhat a bank would be able to provide.

VC: VCs would look at a variety ofmatrices. The expertise, drive, andhunger of the founder is based on theVC’s judgement call. In order for keydecision making, VCs would have done a

ECF: When it comes to ECF, companiesneed to prepare not just documentationbut also a great story of its inception and

#news #capitalmarkets #Malaysia

21 July 2020 - P2P financing platform operator, Fundaztic, isthe first of the Registered Market Operators to launch asecondary market, offering their over 20,000 members theopportunity to trade their existing notes with one another.The trading value of the notes on the secondary market willbe based on the remaining principal of the notes selected fortrading (“selling”) and the remaining principal of the Notesselected for “selling” or “transfer of rights” must be aminimum of RM5,000.

Launch of Malaysia’s First Peer-to-Peer Financing Secondary Market

22 July 2020 - An enhanced IPO framework for the MainMarket of Bursa Malaysia has been introduced by the SC,effective from Jan 1, 2021. The new framework aims topromote greater shared responsibility among keystakeholders involved in the submission of an IPO for listingon the Main Market, will be applicable for reverse takeover(RTO) submissions and includes the introduction of amandatory pre-submission holistic consultation between theSC and key stakeholders, including the applicant, principaladvisors, lawyers, reporting accountants and valuers.

New IPO framework forMain Market listings

July 14 2020 - Greenpro Capital Corp., a multinationalconglomerate with a portfolio of businesses, has entered intoan agreement to acquire a 15% equity interest of Ata Plus.Greenpro has also announced a relocation of itsheadquarters to Kuala Lumpur in line with its businessdevelopment plans in the Islamic finance space through itspartnership with Ata Plus, as well as expansion strategies inthe ASEAN Region.

Greenpro Announces 15%Acquisition of ECF OperatorAta Plus and KL Relocation23 July 2020 - The SC is seeking feedback on the regulatory

framework for digital asset wallet providers, which willcomplement the existing frameworks for Digital AssetExchange (DAX) and Initial Exchange Offering (IEO).Interested parties may contact the SC for an engagement ontheir current business operations, and/or to provide anyfeedback on the framework for digital asset wallet providersnot later than 14 August 2020.

SC Seeks Feedback onRegulatory Framework forDigital Asset Wallet Providers

29 July 2020 - Telco operator U Mobile announced apartnership with Funding Societies to offer businessfinancing solutions for Malaysian SMEs, as well as smalloffice/home office (SOHO) customers via its digital paymentacceptance solution GoBiz. Customers of U Mobile andGobiz will be able to access Funding Societies’ P2P financingplatform which offers flexibility in loans ranging fromRM3,000 to RM1 million. They said the entire process canbe done digitally through GoBiz’s website and existingcustomers of U Mobile or GoBiz will not need to providecollateral or retention sum.

17 July 2020 - The world’s largest cryptocurrency exchangeplatform, has been added to the SC’s Investor Alert List foroperating a recognised market without authorisation fromthe SC. The SC also noted that Binance’s peer-to-peer (P2P)platform had in March added support for users to buy certaincryptocurrencies including Bitcoin, USD Tether and Ethereumusing Malaysian ringgit.

Binance added to SC’sInvestor Alert List

U Mobile Offers Funding Societies’P2P Financing Solution toSMEs Via GoBiz

23 July 2020 – The Report proposes nine strategic keypriority areas to drive financial inclusion in Malaysia throughIslamic fintech. Recommendations include, among others,the setting up of a national Islamic fintech taskforce,introduction of Islamic fintech-specific incentives,development of hybrid models of Islamic digital socialfinance and the channelling of funds to support early-stageand growth stage Islamic fintech companies.

MDEC and IFN launch IslamicFintech & Digital FinancialInclusion Report

30 July 2020 - Singaporean fintech provider Hashstacs haspartnered with Bursa Malaysia on a blockchain project forthe Labuan bonds marketplace. Project Harbour will centreon the use of distributed ledger technology as a register tofacilitate the growth of Malaysia’s offshore market, Labuan,in collaboration with the Labuan Financial Exchange (LFX), awholly-owned subsidiary of Bursa Malaysia. Bursa Malaysia,alongside the SC, LOFSA, CIMB Investment Bank, MaybankInvestment Bank and China Construction Bank (Labuanbranch), will use Hashstacs’ Trident Platform to issue,service, trade and clear bonds.

Bursa Malaysia experimentswith blockchain for bond market

A Focus on Financial Sector Participants

The MSFI will support capacity development for financial sectorintermediaries through workshops and training courses tofoster greater understanding of financing solutions through thelens of environmental, social and governance factors, whichtake into account not only financial considerations but alsoimpacts on the environment and society.

The Initiative will also provide a digital platform for collaborationand the sharing of knowledge and expertise on new financingtrends, products and services that prioritise sustainability, andsocietal wellbeing whilst ensuring good governance practices.

"The reality of the effects of climate change has made itimperative for us globally to shift towards more sustainable andresponsible practices. The MSFI aims to support efforts ofMalaysia’s financial sector to further develop multiple financingavenues to fund businesses and projects that are aligned to thesustainability agenda such as the United Nations SustainableDevelopment Goals.”

Datuk Zainal Izlan Zainal Abidin,Chairman, Capital Markets Malaysia

Initiative to spur growth of Malaysia’s Sustainableand Responsible Financing Ecosystem

On 23 July 2020, CMM launched the Malaysian Sustainable Finance Initiative (MSFI) to facilitate capacitybuilding, knowledge and thought leadership on sustainable financing in Malaysia.

Impetus behind MSFI

In early 2019, the SC convened and chaired the government-commissioned Malaysian Green Financing Taskforce (MGFT).The Taskforce included representation from the Ministry ofFinance and the central bank, as well as from the variousfinancial sector stakeholder groups, the Malaysian Green

Technology Corporation (Greentech Malaysia) and theSustainable Energy Development Authority (SEDA). CapitalMarkets Malaysia served as the Secretariat for the MGFT. Oneof the 21 recommendations put forth by the Taskforce was tobuild a centralised green financing centre of excellence tosupport and strengthen the capabilities of the financial sectorparticipants in this space.

Funding and Support

The MSFI is funded by the Capital Market Development Fundand the UK Government’s Prosperity Fund ASEAN Low CarbonEnergy Programme.

“As the host of the United Nations Climate Change Conferenceof Parties (COP26) in partnership with Italy next year, the UK isgalvanising global efforts to tackle climate change bycollaborating with partner countries like Malaysia. The capitalmarket plays an important role in building a green andsustainable financial eco-system in Malaysia, and I amdelighted that we are supporting this through the UKGovernment’s Prosperity Fund ASEAN Low Carbon EnergyProgramme.”

H.E. Charles Hay, British High Commissioner to Malaysia

The Initiative will be led by a Steering Committee chaired by theSC and includes members representing stakeholder groupswithin the financial sector involved with financing green orsustainable projects as well as the British High CommissionKuala Lumpur.

For further details on the MSFI, visit www.msfi.com.my

• Company is incorporated in Malaysia

• Business operation of the company is based in Malaysia

• The majority shareholding (50 percent +1) must beMalaysian

• Company is able to generate income to service the approvedworking capital facility

• Financially viable Company that has been adverselyimpacted by COVID-19

• The minimum financing facility amount is set at RM20million per transaction.

• The maximum guarantee coverage amount of RM400million or 80 percent of the financing facility will be also beapplied to a group of companies.

The facility is available through all Financial Institutions until 31December 2020 or until the fund is fully utilised. Eligibleapplicants that fulfill the criteria above can submit theirfinancing application through their preferred FinancialInstitutions. It should be noted that all applicants will also besubjected to credit evaluation by Danajamin before obtaining theapproval for the guarantee.

Danajamin Nasional Berhad (Danajamin), the country’s firstFinancial Guarantee Insurer, continues to reinforce its role asan economic catalyst by providing corporates access tofinancing through the Danajamin PRIHATIN Guarantee Scheme(DPGS). To ensure that the Malaysian economy continues tothrive amidst the pandemic, the Government announced theDPGS, a guarantee scheme worth RM50 billion which covers upto 80 percent of the loan amount for financing working capitalrequirements.

The guarantee scheme is expected to support medium to largelocal businesses by providing an avenue to recuperate andwithstand the economic impact of COVID-19. The DPGS isaimed to provide immediate and targeted working capitalsupport to companies that are adversely impacted by theCOVID-19 outbreak to sustain their business operations andsafeguard jobs. Companies affected by the Movement ControlOrder (MCO) are also eligible to apply for the DPGS given thatthe MCO was introduced by the Government to contain theoutbreak of COVID-19.

To be eligible for DPGS, corporates and businesses must fulfillthe criteria listed below prior to application:

Industry Brief:Danajamin PRIHATIN Guarantee Scheme

Following Danajamin’s briefing to Financial Institutions on 8May 2020, Financial Institutions have been informed that theycan proceed to accept applications for the DPGS.

Since Danajamin does not provide any financing or creditfacilities, eligible companies (EC) are required to apply forworking capital financing from any participating eligiblefinancial institution (“EFI”). The EFI will then evaluate the EC’sfunding needs and approve the working capital financing.

Next, EFIs will submit the applications for admission toDanajamin and Syarikat Jaminan Pembiayaan PerniagaanBerhad (SJPP) a wholly-owned company of Minister of FinanceIncorporated. Danajamin will conduct its own credit evaluationprocess for those that meet the DPGS criteria and will theninform EFIs and SJPP on the outcome of the application.

Once all processes are completed, the Government of Malaysiawill provide the guarantee to the EFI. Danajamin is theadministrator and manager of DPGS on behalf of SJPP.

For companies who do not meet the DPGS eligibility critieria butalso require financing and a financial guarantee, they may applyfor Danajamin’s business-as-usual products. Companies whoare looking to raise less than RM20 million may refer to BankNegara Malaysia’s Special Relief Fund, Credit GuaranteeCorporation and Syarikat Jaminan Pembiayaan Perniagaan.

For more information on Danajamin and its services, pleasevisit www.danajamin.com

EC apply for working capital financingfrom any participating EFIs1

1Danajamin does not provide any financing or credit facilities

EFI evaluates funding need andapproves working capital financing1

FIs will submit its application foradmission into DPGS to SJPP andDanajamin. Danajamin will evaluatethose that meet the Scheme criteriafor guarantee approval

Danajamin will inform EFI and SJPP ofapproval of gurantee

GOM provides gurantee (to EFI) whichare administered and managed byDanajamin

EligibleCompanies

Eligible FinancialInstitutions

Governmentof Malaysia

Administratorof DPGs

Administratorfor SJPP

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