Being the earliest adopter of equity crowd-funding (ECF) in the ASEAN market, we understand that in Malaysia itself, ECF is a new item in town. While in more mature markets like the UK, equity crowd funding is growing at a preternatural pace and becoming mainstream, most VCs and angel investors in the Malaysian market are now only just beginning to show greater interest in casting a line into the waters of private equity investing and diversifying their holdings.
Let's look at some of the facts about ECF that you must know, both as an investor and issuer (startup or SME) wishing to explore a new, innovative and regulated means of fundraising beyond approaching traditional banks and institutions for loans.
1. The Oldest Equity crowd-funding Market In The World is the UK. How old is ECF then? Well, about 6 years—but it's already come of age!
As mentioned, the UK holds the record for having tried and tested equity crowd funding activities and ripened the market, with spectacularly successful results and yes, some expected blow-outs! Equity crowd-fundingECF in the UK began in 2011 (not too long ago, actually!) and has grown by leaps and bounds at an annual growth rate of 410%.
While in the first two years, angels and VCs approached the subject with some measure of cautiousness and indifference, it was only in 2013 that more investors started taking much more notice of ECF and jumping on the crowd-wagon. 43.3% of UK angels invested in businesses by way of ECF in 2014, and since then, it's been cruise mode all the way with several companies raising into the millions and two exits. 30% of seed investment in the UK was sourced through equity crowdfunding platforms in 2014. That figure is estimated to be 50% in 2015.
2015 was the year that saw the first ECF exit, when E-Car Club, the electric car sharing business, which raised £100,000 from 63 investors in 2013, was sold to Europcar in August. Following which, an independent lightweight and incredibly passionate business called Camden Town Brewery was snapped up by beer giant Anheuser-Busch InBev in December, after having raised £2.75m in April. Here are some of the 15 biggest equity crowd funding rounds of 2015 worth checking out, proving ECF may very well be the next pillar of innovation financing.
2. Malaysia set the pace for equity crowd funding by becoming the first country in the Asia Pacific region to legislate and standardize ECF activities.
July 2015 marked a new milestone in the history of Malaysian SME financing. ECF laws were enabled when the Malaysian passed the Capital Markets and Services Bill 2015, which authorized a maximum raise of RM3 million in a year for SMEs and RM5 million for larger companies. Six companies so far are pre-approved by the Securities Commission to carry out crowd funding in Malaysia, paving the way in South East Asia for smaller companies to reap bigger opportunities.
Equity crowd-funding will supplement a host of available sources of funding, including private investors, angel investors, venture capital funds and bank loans. Malaysian SMEs and startups will not only have improved access to financing, but investors both big and small (sophisticated and retail) will have an avenue to invest in fast-growing innovative companies in exchange for a stake in the company.
3. The World Bank estimated that crowdfunding would reach $90 billion by 2020.
Although ECF is still nascent in Malaysia, there are over 600 crowd funding platforms worldwide with total funds raised reaching US$5 billion at the end of 2013 alone. China and East Asia are expected to lead the way soon and account for much of the estimated growth of ECF as it begins to gain a stronger foothold across the region.
4. Equity crowdfunding is more than just 'moolah', it's 'value' for any company onboard the platform.
Fundraising your company on an equity crowd-funding platform is more about seeking value than just cash. You're talking about harnessing the network effects of a wider support base. Equity crowdfunding platforms have a role to play by collecting useful information about investors and sharing it with investee companies (with the investor's consent, of course) to leverage opportunities. For instance, one of the shareholders may be distributing similar products in South East Asian markets, which may also be the investee's target growth markets as well. This is win-win pertinent information for all.
Along with expertise, crowd money comes with public exposure during the campaign period and a larger network of supporters (shareholders) endorsing the company. Most companies see a jump in revenue after a successful ECF offer. No more snail mail and dealing with bureaucratic legal departments and complex amounts of financial information. Equity crowd-funding is conducted online, where information is conveyed electronically about new products, new customers and new opportunities. This information will be continuously placed in front of the right investors, and keep shareholders continually informed in order to keep motivating the crowd.
5. Equity crowdfunding is also known as 'democratic finance', bypassing the traditional banking institutions to connect investors and borrowers.
Funds are pooled from the crowd using the compounding effect of social media and the Internet, which gives ECF a real social dimension to it. Crowdfunding calls for human connections, and is more about building and benefitting the community and economy as a whole, as more and more innovative small businesses thrive and hold up the backbone of Malaysia's economy.
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