“Should you accept an investment offer from a non-accredited angel investor in Malaysia?” “Do you need to get accredited as an angel investor?” “What if the angel who invested in my startup wasn’t an accredited investor? Will I get into trouble?”
No, there is no law requiring an investor to get accredited before he or she can invest as an angel in Malaysia. But receiving capital from an accredited angel as opposed to a non-accredited angel is generally a better decision from an ESG (especially on the “G” side) corporate governance standpoint. Here’s a simple reason why.
An accredited angel is someone that has satisfied the “hygiene” test. To get accredited, he had to pass through a background check. He must submit his personal details, details of his source of income/ fund, latest tax filings. He may also need to fulfil other KYC checks done as needed the accrediting officers at the Malaysian Business Angels Network (MBAN), the sole entity in charge for accrediting angel investors in Malaysia and representing angels group in the country.
If your angel is an MBAN member, you should be comforted that he’s good for the money. He had taken the time to get himself registered as angel. He has disposable cash and ready to deploy if the asset matches his risk appetite.
As a founder, deciding who gets to invest in your business is one of the crucial decisions that you need to make as a founder. In my experience as a startup lawyer, I’ve had founders approaching me telling me about a certain so and so investor bringing cold hard cash inside a briefcase to insisting on taking the cash first and settling the paperwork afterwards. It may sound flattering and convincing at first, but this is usually a red flag on the type of investor you may want to avoid in your cap table.
There are “smart money” and “dumb money” out there.
Wealthy people may decide not to get accredited for various reasons. As a founder, you may have to assess the risks and opportunites of having an unknown investor in your company. You may need to do ‘”hygiene’ test” and do a basic background check such as asking for the investor’s investment portfolio and interviewing other investees that he or she had invested in previously.
Institutional investors (I define this as financial people that invests people’s money on a daily basis like companies and venture capitals) usually conduct due diligence not just on your business’ risks, but also the people backing your business. This includes everyone from your families and friends that gave you the initial funding to whoever that ended up in the cap table of your company.