EQUITY crowdfunding may still be foreign to some people but by the end of the year, Malaysians will be able to see early fundraising and investment activities in growth-stage and small companies.
This comes after the Securities Commission Malaysia’s (SC) June 11 announcement that six equity crowdfunding (ECF) platforms have been allowed to operate in the country.
The six — Ata Plus, Eureeca, PitchIN, Crowdonomic and Propellar Crowd+ and Alix Global — will pave the way for the setting up of a new alternative fundraising channel for businesses.
The operators will act as a bridge between businesses looking for capital and accredited investors registered on their online platforms.
Some of the operators are expected to start running their platforms by year-end. But there remains some scepticism about the early phase.
Many believe that six platform operators are far too many for a market as small as Malaysia’s. Will these operators be fighting over the same handful of deals? Or will they be able to attract more regional interest and deals?
For some answers, #edGY speaks to the operators to find out more about their plans for Malaysia and equity crowdfunding in general.
Ata Plus
Ata Plus seeks to match shariah-compliant businesses with investors looking for sustainable business opportunities.
The agreements must also be shariah-compliant and there are limitations as to how much companies can raise subsequently, using interest-based financial instruments.
“Our philosophy is very much in line with the principles laid out in the Islamic gift economy,” explains Elain Lockman.
“We would very much like to build strong partnerships through cooperation and mutual consent. Investors should not only seek to maximise their returns but to also aid and build. They should moderate their expectations by taking a more long-term view of their investments. At the same time, the investee companies must practise transparency and integrity.”
Ata Plus will also encourage the growth of companies and investments that give more than financial returns. Elain says that social impact is becoming more important, thereby putting capitalism and the role of businesses under increasing scrutiny.
“We’ve already seen the Norwegian Sovereign Fund pull out of investments in oil and gas. There are now a considerable number of global funds that have the sole aim of investing in businesses that have a social impact.”
“We essentially live in an era of radical transparency. Companies will increasingly have to be good in all the ways they conduct themselves. Thus, the ‘how’ has become more important than the ‘what’. You could term this the ‘ethical economy’ but we see it as having always existed in the principles of the Islamic gift economy.”
Ata Plus aims to translate these principles into its Islamic ECF platform that matches conscientious investors with companies that contribute to society on a wider, more responsible manner.
Elain, however, cautions that investors have to actively manage their expectations and risks, apart from relying on the platform operator’s due diligence.
The plus side though is that ECF enables investors to access deals that they would never have obtained previously at a much earlier and potentially more valuable stage.
Eureeca
Eureeca is a Dubai-headquartered crowdfunding company with a presence in London and now, Kuala Lumpur.
Co-founder and CEO Chris Thomas says with the recent expansion to Malaysia, it is now operating in three highly promising regions in terms of entrepreneurship: the Middle East, Europe and Southeast Asia.
Through this three-region investment corridor, Thomas believes, Eureeca will be able to offer a truly globalised product for businesses and investors.
“Our experience and proven track record in working in a developing market [the Middle East] makes us a battle-tested platform. We think this emerging markets experience, combined with our now twice regulated product [Eureeca was regulated by the UK FCA in March], will translate well into the Malaysian market.”
Eureeca’s foothold in the Middle East means that there is a large network of wealthy, business-savvy investors who are constantly on the lookout for good deals.
“Our average investment ticket size of around US$4,500 [as at April] is demonstrative of that wealth. We offer a great opportunity for Malaysian businesses to raise capital locally and internationally, as well as build relationships with investors from other regions, which can facilitate future international expansion,” says Thomas.
On the education front, he shares that Eureeca will be hosting a series of webinars and “how to” guidebooks, and contributing to the media’s coverage of the industry.
He adds that it is important to understand that the equity crowdfunding model has not reinvented the wheel and it has essentially brought the offline private equity investment process online, making it far more efficient, transparent and accessible.
“For investors, equity crowdfunding has democratised the private equity investment process, thereby allowing pretty much anyone to get involved in this exciting, high-yield potential asset class,” explains Thomas.
“No longer is investing in this asset class limited to the wealthy few and financial institutions. The model also allows people to invest in businesses that they know and love, and to share in their success, which makes investing not only potentially lucrative but also fun.”
PitchIN
PitchIN is perhaps the most well-known of the local crowdfunding platforms that offer rewards. It will offer an equity option for potential investors.
Co-founder Sam Shafie says although they have not identified any companies to list on PitchIN, they aim to bring to the market companies that have potential to go all the way to the initial public offering stage.
“For startups, when they use an ECF platform to raise money, the number one thing they need to do in terms of mindset is think like a company going for IPO. They need to be very transparent and forthcoming, and engage with the investors from day one,” Sam explains.
He adds that while PitchIN will be eyeing growth-stage companies with a track record, they won’t say no to early-stage startups that share their vision.
Apart from local enterprises, PitchIN will also aim to bring in regional startups to set up offices in Malaysia. This will allow them to raise money from the public and investors not only in Malaysia but also in the region.
“We haven’t identified companies that we want to use. We’re doing our own filtering to pick the best companies. We are looking at early investors to come in before we release [the companies] to the public,” he adds.
Apart from bringing in the deals, Sam says investor education will be an important part of the platform operator’s mandate. This is given that Malaysia’s ECF framework allows retail investors to participate, which means that every Tom, Dick and Harry can be an investor.
“I dare say, 99% (of people) are not aware of how it works because I think people have this understanding that if ‘I invest in something tomorrow, I could just sell it off like on the stock market’. But in ECF, you can’t do that.
“Investors should approach this as a long-term investment. The exit would not be as quick as on Bursa Malaysia. You (must) enter thinking that it will be a marathon, not a sprint.”
Crowdonomic
Crowdonomic, a regional crowdfunding company with offices in Singapore, Malaysia and Indonesia, is backed by American and Japanese investors.
According to co-founder and CEO Leo Shimada, Crowdonomic aims to distinguish itself from other players that are saying, “We’re doing ECF”, when in fact they are just doing software for private placements.
“For us, up until now, it’s been about finding more about the market, helping to shape competitive regulatory policy and also to educate,” explains Shimada.
“One is to build an amazing product. The second thing is, we’ll build up our services. That’s why we call this Finance 2.0. The products and services are distinctly different from traditional finance.”
The third pillar for Crowdonomic is to build alliances. Crowdfunding platforms should not be standalone websites as they aim to connect various players within the ecosystem from around the region, says Shimada.
When it comes to crowdfunding, there are certain sectors that have traditionally been more successful than others. However, crowdfunding has also proven to work in new industries all the time.
Shimada says Crowdonomic will focus on business they think are consumer-facing.
“But then again, shame on me if I start to close down businesses in other areas because it’s been proven that crowdfunding can be used in other sectors,” he adds.
Shimada explains that platform operators are more like curators instead of gatekeepers or financiers.
“We don’t want to act as a traditional finance institution where we say no. First of all, convince me you don’t need money and then we’ll talk about things. So, it’s about curation and we’ll make sure that the business is set up for success and use crowdfunding to raise money.”
“Once I decide to become too picky, I’m adding more friction to the market because we’re trying to introduce something completely different, which is scalable and is going to have a massive impact on capital formation.
“The crowd should decide. If the crowd decides that this guy does not merit funding, that will be reflected. That’s the way crowdfunding works.”
Propellar Crowd+
Propellar Crowd+, a portfolio company under Netrove Group, aims to use Malaysia as an ECF hub for Asean. It has partners in Hong Kong, China, Taiwan and New Zealand.
According to chairman Teh Kim Seng, Propellar Crowd+ stands out by offering a different feature called QMI, which is effectively accrediting the investors listed on its website.
“We also already have a number of companies in our pipeline and we will pick one or two as the right ones and get them onto the website to get the process started.”
With the vision to become an Asean hub, Propellar Crowd+’s bigger plan is to redomicile Asean companies in Malaysia.
“The idea is to use this platform and take advantage of the ecosystem in Malaysia, the MSC status and all that … use this platform, raise funds and then create an ecosystem of Aseanentrepreneurs using Malaysia as a hub,” Teh explains.
Netrove’s strength has been in technology companies but as far as Propellar Crowd+ is concerned, it’s not limited to technology, says Teh.
Alix Global
Alix Global is teaming up with Swedish crowdfunding platform FundedByMe, which has a Scandinavian nexus of investors. The latter, which also has more than 53,000 registered investors in 74 countries, set up a regional office in Singapore last year.
Penang-based Alix Global is a digital marketing agency with operations in Germany and Singapore. It is also a WeChat solutions provider in Malaysia.
Daniel Goettfert, executive director of Alix Global, says crowdfunding is the next hub for marketing.
With the partnership, the two outfits will offer a crowdfunding platform as well as digital marketing solutions.
“As a marketing company, we need to have a crowdfunding platform because we have a big client database and they (clients) can leverage their business on this (platform). We see ourselves as the first company in the market that is a digital marketing company and a crowdfunding platform. We can provide a complete ecosystem,” says Goettfert.
Alix Global aims to bring WeChat solutions to more entrepreneurs. In Malaysia, there are around 25 million downloads of the app and about 12 million active users.
“So, even if you are a small hawker stall, you can somehow reach all these people because you’re mobile. And this is our strategy, to go on WeChat. This year, we will put the payment gateway into the mobile so you can transfer money with your fingertip,” he adds.
This article first appeared in #edGY, a section of The Edge Malaysia, on June 29 – July 5, 2015.
