Angel investment networks have not just become trendy and highly lucrative, they have become a major source of growth, innovation, and jobs for the national economy.
For startup founders, these angel networks became an indispensable part of their existence. How do these angel networks operate? How do they provide funds? How can startup founders approach these angel investors in Malaysia?
Angel investors or business angels are commonly wealthy individuals who provide capital for startups. The injection of money can help with turning an idea into an actual company and lay the foundation for the company to offer its products or services.
Not only do these individuals provide capital, most often they also invest their knowledge and expertise to support startup’s growth.
Support outside of providing capital is one of the aspects that sets angel investors apart from other more traditional investors. Other investors tend to limit their involvement in providing capital in return for a share in the startup.
Angel investors or networks commonly have a much closer relationship with the startups they have invested in. They monitor the startup and it’s progress attentively and provide advice when needed. These angel investors become a sort of mentor or guide for the startups.
As angel investors are mostly individuals who have held executive positions at large corporations or have successfully ran their own companies, gaining mentors through angel investors can be just as valuable as the invested capital for novice entrepreneurs.
Why startups require angel investors
Fast-growing small firms often need aid overcoming funding gaps to sustain their growth. Angel investors can help resolve this issue. Furthermore, angel investors can support startups by sharing contacts and networks to secure additional capital. The fact that angel investors mostly invest locally is an added positive to the local market as a whole.
Business angels usually fill in the gap between family and friends, and larger more formal entities such as VC’s. Some of these angels purely seek profit while others seek more meaningful investments.
For instance, some angels will only invest in startups that are active in specific industries or serve a certain cause. These industries could range anywhere from sustainable agriculture to education and tech startups. Since angel investors are very often individuals that have held executive positions at large corporations
Another reason startups would seek out angel investment networks would be for the fact that angel investors can provide debt-free financing.
In the case of a bank, even when they agree to provide a startup with funds, they will likely restrict the quantity you are allowed to borrow, as the bank will be much more risk-averse than the average angel investor. Contrarily angel investors will not shy away from investing larger sums if they feel the startup has a lot of potential.
Unlike loans and different forms of credit financing, angel investor funding is usually a much cheaper option when looking for seed-stage capital.
Startups are not tied to monthly payments on the capital plus the interest, instead, with angel funding, a portion of the company profits will be given to the investor relative to the investment made. The share of ownership for the angel investor usually starts at about 10%, however, the share could increase with consecutive funding in the startup.
Furthermore, unlike a loan, invested capital does not have to be paid back in the event of a business failure.
Angel investor networks in Malaysia
There are many angel investors in Malaysia open to funding startups at any given time. There are also many ‘dormant’ investors who have the capital but find it difficult to look for suitable startups to invest in. In such cases, angel investment networks provide the solution by linking startups to so-called dormant investors. Naturally, non-dormant investors are also involved in these business angel networks.
Angel Investor networks in Malaysia invest varying amounts as compared to Venture Capital – and recently groups of angel investors have been putting down investments as large as early-stage VC investment sizes. Angel Investor networks in Malaysia could invest anywhere between RM50k to RM2m or more, where early-stage VC investments could start at RM500k to RM1m.
Angel investment networks
Business angels are more often joining forces to form and participate in angel networks. In fact, the entire startup and angel investor ecosystem in Malaysia has gone through a considerable expansion in the last 10 years.
During the last 10 years, many business angels have gotten involved with business angel networks. The main reason for this is to get access to the best deals as this is much harder when working alone. Unless you already have a big name in the angel investor and VC industry, joining an angel group could be considered essential to gain success.
There are different reasons for these angel investment networks to form and operate, such as:
- Getting access to a continuous stream of offers and opportunities
- Lessen the risk in investments
- Broaden the range of investments
- Improve the ability to perform due diligence
- Ability to make more substantial and meaningful investments
- Gain more control over the potential success of startups
These angel networks can provide individual investors with more confidence which often leads to startups receiving better deals as well.
Most business angel networks tend to establish themselves within certain geographic regions. In the case of Malaysia, most of these networks would focus either exclusively on Malaysian startups or more broadly on ASEAN startups. Some of these groups focus will only invest in certain industries, mostly tech, while others have a wider range of industries they are willing to invest in.
Where to find angel investors in Malaysia
Malaysian angel investors often shy away from public appearance. Therefore they may be hard to find and approach by startups. Angel Investors in Malaysia are usually found in angel Investment Groups or Networks. Finding the right business angel network can be very valuable for both startups and investors.
An example of an angel investment network is Nexea. Nexea ensures that both the startups and investors are a good fit before the introduction takes place.
At Nexea startups receive advice and knowledge on what and how investors think prior to making the introduction. This will help startups in preparing their presentations for potential investors. Furthermore, it will also reduce the risk of a potential altercation taking place where the deal would not go through.
Generally, finding angel investors in Malaysia can be done in various ways, for example:
- By networking
- Personally introducing oneself
- Joining pitch night events
- Through local coworking spaces
- By finding and approaching accelerators
- Locally through Meetup events
- Angel investor associations
Malaysian Business Angel Network
Another place to look for angel investors in Malaysia would be the Malaysian Business Angel Network (MBAN). The Malaysian Business Angel Network is the official trade association and governing body for angel investors and angel investment networks in Malaysia. The main objective for the company is to support the angel investors and startup environment as a whole.
Finding the right angel investment networks for your fundraising needs
Angel investors as individuals can have a very wide range of unique characters and perspectives. Hence, finding a business angel network can be very valuable when it comes to gaining consistency and structure in investments. Furthermore, the fundraising procedure for startups can be more organized and simple.
Regardless, it is important to find the right angel investment network. The following should be considered when deciding which angel investment network to go with:
- Making sure the angels are willing to provide funds for startups in your local area
- Ensuring the angels are keen to invest in the industry your startup operates in
- Find out the angel’s level of experience and how flexible they will be with your demands
- Ensure whether they are willing to become the lead investors
- Whether the angel network also participates in subsequent funding rounds
- Research the angel network’s history and search their track record for successful exits
- The requirements of the angel network regarding due diligence and proof of concept
- The amount of capital the angel network is ready to invest
Overall, angel investors have had a very positive impact on many entrepreneurs and the startup ecosystem in general. Today there are more angel investment networks than ever before, leading to more opportunities, less risk and more impactful investments.
Startup founders could not have lived in a better time when it comes to variety and options of business angel networks to approach.