Fundraising Steps and Process That Founders Must Know

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Introduction

Fundraising can be a game-changer for founders looking to scale their business. However, navigating the process is no small feat, especially when dealing with investor expectations, legal requirements, and operational preparedness. To successfully raise funds, founders must follow a structured process to ensure every step is completed effectively.

In this guide, we’ll walk you through the key fundraising steps and process, covering everything from internal preparation to share registration and fund disbursement. Whether you’re raising funds in Malaysia or globally, these steps will provide a roadmap to success.

Overview of the Fundraising Process

The fundraising process can be broken down into several critical steps:

1. Internal Preparation

2. Engagement and Scouting Investors

3. Letter of Intent (LOI)

4. Due Diligence

5. Execution of Agreements

6. Closing

7. Share Registration

8. Fund Disbursement

Let’s dive into each step in detail.

Step 1: Internal Preparation

Before approaching investors, founders must ensure their business is ready for scrutiny. Proper preparation creates a solid foundation for fundraising success.

Key Elements of Internal Preparation

• Operational Readiness: Ensure the business operations are efficient and scalable to handle growth after fundraising.

• Information Organisation: Compile all critical business information, including financial statements, operational reports, and key performance indicators (KPIs).

• Legal Documentation: Review the company’s constitution, ensure compliance with relevant laws, and resolve any existing disputes.

• Pitch Deck: Create a compelling pitch deck that clearly outlines your business model, growth potential, and investment opportunity.

• Financials: Ensure accurate and transparent financial records, including profit and loss statements, cash flow, and projections.

Example:

A startup in Malaysia prepared a detailed pitch deck showcasing its innovative product and a 3-year growth plan, which helped secure RM2 million from angel investors.

Step 2: Engagement and Scouting Investors

Finding the right investors is critical for securing the funds you need.

How to Engage and Scout Investors

• Identify Potential Investors: Target investors who align with your industry, business stage, and funding requirements. These could include venture capitalists (VCs), angel investors, or private equity firms.

• Network: Attend investor events, join startup accelerator programs, or leverage connections to reach potential investors.

• Customise Outreach: Tailor your pitch to each investor’s interests and investment criteria.

Tip: In Malaysia, platforms like pitchIN and Malaysian Venture Capital and Private Equity Association (MVCA) can connect founders with local investors.

Step 3: Letter of Intent (LOI)

An LOI is a non-binding agreement that outlines the investor’s interest and key terms of the potential investment.

What Should Be Included in an LOI?

• Investment amount and valuation.

• Proposed shareholding structure.

• Milestones or conditions for funding.

• Confidentiality clauses.

The LOI sets the groundwork for formal agreements and ensures both parties are aligned on key terms before proceeding.

Step 4: Due Diligence

Due diligence is a thorough review of your business by investors to verify its viability and risks.

What Does Due Diligence Cover?

1. Financial Due Diligence: Audit of financial statements, cash flow, and revenue models.

2. Legal Due Diligence: Examination of contracts, intellectual property (IP), and compliance with laws.

3. Operational Due Diligence: Review of business operations, supply chain, and scalability.

Tip: Hiring a corporate lawyer ensures your legal documents are in order and can expedite the due diligence process.

Step 5: Execution of Agreements

Once due diligence is complete, founders and investors formalise the investment through legally binding agreements.

Common Agreements in Fundraising

• Subscription Agreement: Outlines the terms under which shares are issued to investors.

• Shareholders’ Agreement: Defines the rights and obligations of shareholders, including governance terms and exit clauses.

Pro Tip: Ensure your company’s constitution is aligned with these agreements to avoid conflicts.

Step 6: Closing

Closing marks the finalisation of the fundraising process. All legal and financial conditions are fulfilled, and funds are prepared for disbursement.

Key Activities During Closing

• Signing of all legal agreements.

• Payment of stamp duties for executed agreements.

• Transfer of funds to an escrow account, if applicable.

Step 7: Share Registration

After closing, the company must update its shareholding structure to reflect the new investors.

Requirements for Share Registration

• Update the Register of Members at the Companies Commission of Malaysia (SSM).

• Issue share certificates to investors.

• File relevant updates with SSM, such as the Return of Allotment of Shares (Form 24).

Proper registration ensures compliance and legal recognition of the new shareholders.

Step 8: Fund Disbursement

The final step is the disbursement of funds, which signals the completion of the fundraising process.

Fund Disbursement Process

• Release funds from escrow to the company’s account.

• Allocate funds as per the investment agreement, ensuring transparency and alignment with the agreed business plan.

Tip: Establish clear reporting mechanisms to update investors on fund usage.

FAQs About Fundraising Steps and Process

1. Do I need a lawyer for the fundraising process?

Yes. A lawyer ensures legal compliance, drafts agreements, and protects your interests throughout the process.

2. How long does the fundraising process take?

It can take anywhere from 3 to 9 months, depending on the complexity of the deal and due diligence requirements.

3. Can I change my company constitution during fundraising?

Yes. Amendments may be needed to accommodate specific investor rights or share structures, such as preference shares.

4. What happens if I don’t register shares with SSM?

Failure to register shares can lead to penalties and disputes over ownership rights.

Internal Links

• Explore our Corporate Legal Services

• Learn About Equity Fundraising vs Financing

External Links

• Companies Commission of Malaysia (SSM)

• Securities Commission Malaysia Guidelines

Conclusion: Be Prepared for Fundraising Success

Fundraising is a complex but rewarding journey for founders. By following these steps—starting with strong internal preparation and ending with fund disbursement—you can navigate the process with confidence and attract the right investors.

Need expert legal guidance for your fundraising journey? Contact ASCO LAW today to ensure a smooth and compliant process from start to finish.

https://app.ascolaw.co/contact-us?lead=d&offline=Online&office=KL&lang=en_us&link=

Related guides

• Raising Capital in Malaysia