Hi, I am Joachim Sebastian, founder of Kratos Motorsports Sdn Bhd. I have been approached by fellow entrepreneurs on our crowdfunding efforts so I would like to map out our journey to achieving our minimum funding target on pitchIN.my.
Why crowdfunding and pitchIN?
With equity funding we intended to secure growth funding without the need to concurrently lose operational expenditure due to loan/debt repayments. Our 1st year and 2nd year will be all about marketing expenditure and cost control. If you take a loan, it is a repayment requirement on a monthly basis that will take away from operational expenditure.
We chose pitchIN because they had a very positive vibe around them plus the best track record in the industry. Working with Sam Shafie, Kash, Shenola and Hon further proved this notion right.
The Early Strategy
With equity funding, you build a community of investors and supporters while raising capital. We planned to have most of our investors being motorcyclists themselves, so not only do we get the required funding, we are building a community that will support the success and growth of the company because they themselves partake of the company’s offering. Using the crowdfunding mechanism, we also intended to spread the word about what we do in the market.
To differentiate ourselves from fellow fundraisers, we discussed among the founders and agreed to take on a personal guarantee to offer to buy back any shares created during the crowdfunding exercise at 40% after 5 years on top of invested amount leading to a guaranteed 8% Return on Investment per annum.
This was a cause for concern for some investors as it is highly irregular within the market to offer this and raise through crowdfunding. I personally decided to go for this as the anchor partner for the deal and ensured that the reason behind why we did this was clear ;
- We have built this business with solid fundamentals. Our brand is known, and our strategy tested.
- We have 3 years audited results and since the new partners took over, we have achieved 46% growth and maintained profitability in 2018 and look to possible reach a forecast of 34% growth this year again.
- We have done 1 & 2 above with only partner effort without any staff and we forecast great growth potential once we begin expansion.
- 5 years is a safe duration for long term debt planning.
We also plan for Series A funding round within 2 years and this will increase the value of shares beyond 40% of its original value. When this happens, I believe our investors would rather keep the shares rather than sell them back to us for a mere 40% return thus reducing the total liability. Very likely the early investors will have an opportunity to sell when we raise our series A itself!
Before you get accepted onto any crowdfunding platform, the first step is to have a conversation with a person within the investment team. This is your pitch to pitch. Once this is done, the investment team member who met with you will present it to the approval committee within the organisation and they will decide whether the case has merits or not. After this you will undergo due diligence where company documents, a background check, and your financials are evaluated. Being a private limited company with 3 years of audited results helped us significantly in this.
During due diligence, we were guided by Shenola, Investment Manager of pitchIN in developing our investor deck. Her guidance was crucial to us making it this far, so remember ; work with the investment team. They only want success for you.
The investment deck is a precise instrument and the first point of contact any investor would make with your offer. Here are a few pointers :
- Cover the essential info : Introduction, Plan, Track Record, Finances, Ask and Offer
- Keep it simple yet sufficiently detailed
- Keep it below 25 slides
- Listen to your investment managers’ input
Before we commenced with our pre-live status, we finalised our investment offer and it was a hybrid of reward and return. We arrived at a final valuation of MYR4.5 mil post money during due diligence and we will issue 10% of our shares for a total investment of MYR 450,000.
Fig 1 : OUR INVESTMENT AND REWARD OFFER :
As above, you can see that we planned to incentivize fellow motorcyclists to invest in our company by giving away vouchers, and exclusive merchandise and a lifetime discount on all parts sold by us.
The pre live session is the period before your crowdfunding offer goes live. Each platform may have unique requirements to go “live” but pitchIN requires between 70% to 90% of your minimum amount before you can go LIVE. The difference between Pre-Live and Live is that when you are live, you will have a timer and the total amount visible on the investment page of pitchIN.my. Live offers are also featured prominently on the front page of the site.
Fig 2 : Prelive versus Live on pitchIN.my
The journey to go from pre-LIVE to LIVE was something that truly requires planning, perseverance and grit. At first, we assumed many things about how this would go and truly underestimated the holistic effort needed to reach our target. We got our minimum investment by leaving no stone unturned :
- We made an investment pitch video
- We printed investment brochures
- We pitched at 4 pitchIN organised events
- We organised our own pitching session
- We marketed on facebook
- We reached out to friends and family
- We posted weekly on personal and company social media pages
- We consulted regularly with the pitchIN team for guidance and strategy ( Sam and Shenola were crucial to our journey in this )
How much did we spend?
Here is a breakdown of what we spent money on :
- logistics cost for 4 pitching sessions around the country — MYR 1,700
- Own investor event — MYR 1,300 for rental and food
- Facebook ads on boosted posts — MYR 3,240
- Once video shoot :-MYR 2,000
- Printing of Brochures — MYR 70
- Onboarding fees from pitchIN — MYR 1,588
This leads to a total expenditure of MYR 9,898.
What does pitchIN make out of all this ?
PitchIN charges companies a flat fee of 7% for funds successfully raised on the platform. This fee includes the due diligence process, an escrow account to receive the funds, the setting up of a nominee structure and first year administration of this nominee service as well as access to our legal document templates.
For the support, collaboration and mentorship they provide, I consider 7% worth the value many times over.
We made wrong assumptions about our market. When we tried to raise from fellow bikers, it turned out that crowdfunding is not something that they are comfortable with. Our approach to raise from them can be considered a failure. We learnt that it is easier to pitch a motorcycle business to people familiar with pitchIN than to pitch crowdfunding to people familiar with our business.
The duration, time and effort required for crowdfunding is something you should not underestimate. We had great plans and a structured approach to generate investment leads. More than 70% of our activities failed including our own investor event. Perseverance, grit and support is essential at these times. Sam and Shenola both reached out to me when we went through this and that helped greatly.
Allocate a budget for the crowdfunding process. As you can see, we spent almost MYR 10,000 before even going live. I did not plan for this expense and it was painful to allocate resources for this.
Key Learning points
Friends, Family and Customers will be your key supporters — Target them first and if you cannot convince them to invest, you really need to relook at your model.
Constant communication with the market — Keep talking about your fundraising but keep it engaging. No one likes to be spammed. There is an art to advocacy and dissemination of information. You will be surprised at who is listening.
Work together with pitchIN — Having a good working relationship with your investment manager is essential. They have access to many investors. It is up to you to convince them that you are worth it.
Keep pushing and never give up — Crowdfunding has its ups and downs. You will need to stay strong and persevere. Success can be 400 investors giving you MYR2000 ringgit each or 2 investors giving you MYR200,000 each. Keep at it.
Truly believing in what you do — As the founder, you need to truly believe in your own business and put your best foot forward at all times. If you don’t believe in your business, why should others invest in it?
Have a plan — When you pitch, there will be a goal that you are trying to achieve. What is important is not the goal itself, but your thought process and understanding of how to achieve that goal. Communicate this each time to your potential investors.
Ensure operational stability — When you are crowdfunding, your time and effort will be very focused on this. Before commencement make sure that business operations can be managed and delegate non-essential tasks.
I do hope that my sharing will give you and understanding of our crowdfunding process. Please note that each crowdfunding entity does it differently and has a different cost structure.
Currently, Kratos Motorsports is live on pitchIN.my and has achieved our minimum target. This does not mean that we have successfully crowdfunded as the process is not complete.
You can look through our investment deck and structure at the following link : https://equity.pitchin.my/businesses/kratos-motorsports-sdn-bhd
I will be glad to answer any questions you may have there.
Joachim Sebastian — Founder
#crowdfunding #pitchIN #kratosmotorsports