However, in all fairness, valuation is a company’s prerogative and it’s up to potential investors to accept or reject the investment, says pitchIN’s Shafie, who recalls that sales conversion startup SalesCandy raised RM1.5 million (US$350,000) through his platform in October 2017 across 54 investors at a pre-money valuation of RM2 million (US$460,000). At that time, the startup was still in its infancy stage, without an actual product to show and was looking to raise about RM750,000 (US$172,500).
SalesCandy went on to raise a US$650,000 pre-Series A round last October. It then returned to pitchIN to raise another RM2 million (US$460,000) in late-2019.
Plug the gaps
“I’ve met with the co-founders of SalesCandy and was bought over by the team. They know the market and what they’re doing. So even without a product, investors believed in them. But of course, there will always be an argument around valuation,” adds Shafie.
Both Yarmohammadi and the retail investor quoted above are satisfied with the level of communication between companies and its investors. Like public companies, companies that have fundraised on ECF platforms are required to report to their shareholders on a biannual or quarterly basis.
In addition, ECF deal flows and deal quality have improved over the years, although it is still nowhere near what Yarmohammadi expects it to be. Despite that, he thinks ECF platforms are certainly making it easier for investors of any kind to discover new deals as well as help the companies find investors that they otherwise would miss out on. That said, there is always room for improvement. As with the current ECF industry in Malaysia.
Exits still don’t come easy
To date, Malaysia has seen only three exits—pitchIN, Ata Plus and Crowdo. Platform operators have been pushing SC Malaysia to release the regulatory framework for an ECF secondary platform.
Such a platform will provide a foreseeable exit horizon to investors as they will be free to sell their shares and realise their investments anytime they like. The SC did not respond to a list of detailed queries sent by us. The regulator directed us to a statement in regards to ECF it issued on 27 February 2020.
Currently, if a single shareholder would like to exit her stake in a company funded via ECF, she would have to submit an application to the platform operator, who will then offer her share to the company itself for a buy-back option, depending on the term sheet signed, before offering the share to other shareholders of the company.
We also realises that several companies that are fundraising on ECF platforms have lowered their minimum fundraising target even after their campaign has gone live. Shafie admits that some companies do so to achieve their funding target.
“Lowering the fundraising amount does not affect the investors that have invested before the target was adjusted. The shares that investors will receive are still the same,” clarifies Shafie.