Entrepreneurs looking at raising funds for their start-ups often find themselves overwhelmed and unsure as to how to go about it.  We have created a simple guide, as to the avenues available for start-up fundraising in Malaysia, based on first, knowing the types of investors there are out there.  We also take you through the key factors you need to consider so as to help you make an informed decision on which approach to fundraising best suits you.


Start-up Fundraising in Malaysia: Cheat Sheet to Knowing Your Investors


Family & Friends Angel Investors Licensed Equity Crowd Funding

Venture Capital   (Micro VCs / VCs)

Funding Amounts / Ticket sizes

Depends. No legal limit.

However, note that the maximum number of shareholders allowed in a Sdn Bhd is 50.

Depends. No legal limit.

However, note that the maximum number of shareholders allowed in a Sdn Bhd is 50.

Maximum RM 3 million per campaign.

Investors’ shares will be held by a nominee or a trustee, thus counting as 1 investor/shareholder in the start-up only.

Depends. No legal limit.
Managing Expectations / Risk Appetite Moderate to high.

Founders should take extra care to manage expectations on return, inevitable dilution, possible loss of capital, and what exactly is a “loss making unicorn”. Don’t forget it is their own hard-earned money invested in YOU, the person.

Low to moderate.

These high net worth and sophisticated investors expect financial returns but are usually well aware of the risks.


Due to the small ticket sizes and personal wish to participate or support a recognized brand.


Investing is their business. They know the game.

Strategic contribution from Investor Low. Moderate to High.

Angel investors who are serial entrepreneurs or established in their industry could share their network, personal experiences and invaluable insights.


A benefit of fundraising via ECF platforms will be the potential for publicity during the campaign that the other methods may not offer. These public investors may also be customers or raving fans.

Low to Moderate.

This really depends on the modus operandi of the VC itself. Founders should check with the VC’s other portfolio investee companies on their post-funding experiences.

Control Low. Otherwise, resist any requests for board seats at all costs. Low. Angels may occasionally request for a board seat, but such a demand should be approached with caution. Low. Moderate to high.

Common for VC’s to require a nominated director, but be aware of overly zealous terms and veto rights, especially in the Board Reserved Matters list.

Reporting / disclosure obligations Low.

However, annual disclosures and occasional updates will help in investor relations and potentially damaging ‘minority oppression’ allegations.

Moderate to High.

Depending on how closely involved the angels are in your actual business, they may require lots of attention and information.


The licensed ECF Platforms do require due diligence to be conducted prior to the campaign launch, which are typically not too extensive.

After funding, depending on your information rights clause, annual financial statements, annual general meetings and regular investor relations news blasts are to be expected.

Moderate to High.

In addition to having an investor director on your board, the ‘information rights clause’ in your shareholders’ agreement may confer addition disclosure obligations to the VC which are not available to others.

Complexity of Fundraising Terms Low.

Usually on Ordinary Shares are issued at this stage.


Keep it simple, complicated terms and preference shares may raise a red flag unless there are specific reasons to justify such terms.


Usually on Ordinary Shares are issued at this stage. However, there are instances where start-ups who wish to make the ECF round more ‘attractive’ to the masses, have issued preference shares. Best to tread carefully.

Moderate to high complexity.

Depending on the VC (and which country it is from), the terms of early round VC funding could get overly and unnecessarily complicated.

While there is invariably a steep learning curve expected of founders in their first VC funding, think of how much more complex it will be for your subsequent rounds, when understanding the implications of multiple anti-dilution rights, liquidation preferences, participation rights, conversion ratios etc.

Fundraising Process & Time Fast. 0 to 2 months

With simple terms and smaller (but numerous) ticket sizes, usually no due diligence or even a need for a pitch deck.

However, some additional time and costs may be required to consider / set up a special purpose vehicle if there are multiple individual investors envisaged, to avoid ‘overcrowding’ the members’ register.

A shareholders’ agreement is certainly recommended but not uncommon for such investments to be based on ‘trust’.

Fast. 0 to 2 months

Possibly some level of pitching, key disclosures and due diligence may be required by the angel investor before an investment is made.

A shareholders’ agreement at this stage is highly recommended  where a group of angel investors are involved.

Fast. 0 to 2 months.

Depending on the campaign window agreed with the licensed ECF platform, typically between 0 to 6 months. The Securities Commission allows an eligible issuer a maximum fundraising window of 12 months.

The licensed ECF platform will require a degree of mandatory disclosures and due diligence on the issuer, and also for a proper Shareholders’ Agreement, subscription agreement, Nominee / Trust agreement, issuer agreement and other ancillary documents to be signed.

The terms of the Shareholders’ Agreement may need to be customized to suit the issuers’ requirements.

Fast to Moderate. 0 to 6 months.

This can vary quite a lot depending on the VC. Typically, a VC will require a degree of due diligence by its own team or its appointed lawyers.

Negotiations on the Term Sheet itself could take weeks,  even a couple of months. The drafting and negotiations on the definitive documents may introduce complexity and issues that were not ironed out in the Term Sheet stage.

Founders should be extra careful to have sufficient cash runway during this period before the VC funds come in, other wise founders will find themselves accepting terms they might regret.

Be aware that ‘signing’ on the definitive agreements DO NOT mean that you will get the investment funds right away. Conditions precedents may take weeks or even months to be met, before the funds are disbursed.

Costs Low.

Costs of issuing new shares and a Shareholders’ Agreement.


Costs of issuing new shares and a Shareholders’ Agreement.

Low. Fixed and variable charges.

In addition to costs of issuing new shares and a Shareholders’ Agreement, the licensed ECF platform operators typically charge a fixed administrative fee and a percentage (about 7%) of the amount raised.

Further, the start-up should be prepared to pay an annual management fee for the nominee / trustee on an ongoing basis in respect of the crowdfunding shares post-fundraising.


Engaging a legal advisor who is familiar with start-up / VC fundraising and preference shares to advise and negotiate for you is strongly recommended, to avoid pitfalls of onerous terms and blind spots early on.

VCs often also provide for a fixed amount of their legal costs to be paid by the start-up. However, there should not be any ongoing costs / fees after the fundraising is done.


This article was written by Shawn Ho. Shawn leads the corporate practice group of Donovan & Ho, which has been recognised as a recommended firm for Corporate, Mergers & Acquisitions by the Legal 500 Asia Pacific 2018.  IFLR1000 has also ranked us a Notable Firm 2019.

Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses,  Malaysian start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds.  Feel free to contact us if you have any queries.


#LegalFlix Video: Issuing Ordinary Shares
Asia ADR Week 2019

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