To understand the concept of equity crowdfunding, let us quickly go over what crowdfunding is. Crowdfunding is one of the methods to raise capital for a project or venture from a large number of people who each contribute a relatively small amount, typically via the internet.
Visit out insights page to learn more about crowdfunding.
Equity Crowdfunding is a method for Startups and Small & Medium Enterprises (SMEs) or Businesses to raise funds via the general public, a.k.a. Retail Investors. Retail Investors develop operational strategies for the company using their extensive experience in operational management. He designs and implements training processes to ensure a high level of efficiency in the workshops for deals on ECF platforms to Invest in businesses in exchange for Equity.
These businesses are generally high risk, high return investment alternative to other Investment instruments like Stocks, Bonds, Mutual Funds or Trust Funds, or even Fixed Deposits. Startups generally have a 25% yearly average return, however, it also comes with a high risk of >90% mortality rate.
Of course, the 25% return is after even the failures of those startups, as the successful Startups are able to provide more than 5X or if you are lucky, more than 30X returns on your investment.
Startup Investment is a numbers and skills game - the numbers being you have to invest in enough Startups (we generally assume >20) and the skills being able to spot the right Startups to invest in.
The Steps to participate in Equity Crowdfunding for Investors is shown above.
Some equity crowdfunding platforms also charge other fees to cover costs such as due diligence before approving Startups to be able to list on the platform for fundraising. This is to ensure the quality of deals on their platforms.
The Track Record of Equity Crowdfunding in Malaysia in a year:
All the 6 ECF platforms raised Rm10M in a year of operations, helping the above 14 Startups to get funding. This is a great start for the ECF industry - something that we are very pleased to support. So how can we compare them? Do have a look below.
The answer, as always, is that it depends. Some platforms have their specialities and niches, or strengths;
If you were to look at all of them, they all have their strengths and track records. It is up to Startup Founders to decide how they would like to benefit from raising funds from an ECF platform. We encourage Startups to talk to all the ECF operators to learn about what intangibles they can provide other than just the money.
Sometimes, they offer connections to the right Investors, or even extra media coverage, or other forms of help.
Where else can startups find investments or funding (i.e. alternatives to equity crowdfunding in Malaysia)?
Note that although there are alternatives, they can be combined as well, depending on a Startups Fund Raising Strategy.
After it was introduced, 50 SME’s were funded with a collective amount of close to MYR 49 million. Close to 60% of all the investors who contributed to this amount are retail investors. This shows clearly that the general public is interested in this way of investing.
The biggest group of investors of equity crowdfunding in Malaysia is between 35-45-year old. They tend to be the people who have enough income to put some aside for investment. Also, they are in the generation where they still are to some extent familiar and comfortable with technology.
After 2017, we saw a decrease in the performance of this industry. The total amount that was raised dropped from 24 million to 15 million and the number of campaigns dropped from 22 to 14. PitchIN owned a 75% market share as they were the most active ones.
If we take a look at the cases carried out o PitchIN’s platform, we can highlight some of the most successful campaigns. Commerce.Asian Fundaztic and QEOS LED are good examples. They all clocked in at MYR 3 million. In the case of Fundaztic, it only took 38 minutes to close the round.
PitchIN continues to dominate the market. Currently, more than half of the funds are still raised through their platform.
Ata Plus is moving up since 2017. They made huge improvement regarding their market share. Together with crowdplus.asia they are lining up behind PitchIN.
Meanwhile, players like Eureeca have not seen any activity. Fundnel being the newest entrant have not had any campaigns at the time that the data was compiled.
Below is a video providing insights into Equity Crowdfunding by Securities Commission Malaysia.
The other players like Eureeca and Fundnel are showing no activity. Until now, Fundnel did not manage to obtain any market share.
Equity crowdfunding is raising capital from the crowd through the sale of securities (shares, convertible note, debt, revenue share, and more) in a private company (that is not listed on stock exchanges).
The key difference between a crowdfunding site like Kickstarter and equity crowdfunding is what is being sold. With Kickstarter campaigns, entrepreneurs raise capital through the presale of their product, often at a discount, or through tiers of various perks to attract their fans and potential customers.
According to FinTech Malaysia, below is the analysis of the total capital raised through equity crowdfunding in Malaysia.
With equity crowdfunding, companies sell securities, whether in the form of equity in the company, debt, revenue share, convertible note, and more. Equity crowdfunding gives investors skin in the game.
Companies with high scalability potential are suited to both VC funding and crowdfunding options. Such companies have highly innovative business models and typically work within the software, fintech, biotech, MedTech and gaming industries.
The reason for this is that both funding options allow them to raise capital quickly to achieve fast growth, and avoid the risk of being swallowed up or beaten by competitors with deeper pockets and more endurance.