The Myth of Equity Crowdfunding in Malaysia. Debunked.

In June 2015, the Securities Commission Malaysia (SC) opened the door to the new era of capital fundraising for businesses, allowing founders and their businesses to raise capital from the public at large, via six licensed equity crowdfunding platforms.

It was the first of its kind in Asia, where the authority is issuing license to allow crowdfunding to be done legally in a country. That creates ample amount of opportunities for both companies and investors. As crowdfunding began to gain popularity in the fundraising scene in this region, it’s only natural that a few mistaken beliefs will emerge.

Hence, we hope that through this article, we will be able to shed some lights with regards to the crowdfunding industry and dispel some of these myth that it has associated with, while we work to continue strengthening equity crowdfunding as one of the mainstream finance option for businesses.

 

MYTH 1: “Only for early stage companies”

Not True. A report published by AltFi Data goes a long way to dispel this myth that equity crowdfunding is only for early stage companies. In fact, it notes that the average age of a business that conducted a crowdfunding is over 3 years old.

For the matter of fact, equity crowdfunding works for companies at different stages, ranging from start-up to matured companies with stable customer base. In fact, equity crowdfunding works better with established brands as brands turn their customers into loyal fans by allowing the customers to be part of the businesses.

 

MYTH 2: “Venture capitalists look down on equity crowdfunding” 

Wrong! The truth is, increasingly, we are seeing more VC collaborating and taking part in equity crowdfunding not only in Malaysia, and globally. The reason is simple, a successful crowdfunding raise proves that the crowds (supporters, customers, investors) stand behind you. Venture capitalist see that as an advantage and as a prove of concept on the business itself – and so many are happy to invest alongside of an equity crowdfunding raise.

For example, the likes of Cradle Fund, Netrove Capital and many more are getting more involved in investing into “equity crowdfunding” in Malaysia, alongside with the crowd.

 

MYTH 3: “Raising equity crowdfunding is too expensive”

While it is true that a certain amount of money will need to be invested in order to run a successful campaign, but the benefits of a successful campaign will most certainly outweigh the costs.

As with any kind of raise, there are costs – either in the form of money or time. Here are some of the costs required to conduct equity crowdfunding:

  • Application Fees
  • Campaign Marketing
  • Legal Due Diligence
  • Platform Success Fee
  • Setup of Escrow / Nominee structure (optional)
  • Crowdfunding Consulting Fee (optional)
  • Dedicated Pitching Events (optional)
  • Video Production (optional)

In a typical scenario, these costs will amount to less than 10% of the fund raised through the campaign. To raise a larger amount, one could spend more in terms of video production and marketing, but one of the benefits of raising money through crowdfunding is that: the marketing budget spent is helping you to acquire both investors and loyal customers.

If you take into the account of the time and travel expenses you’ll likely to incur to raise funding from traditional venture capitalist through a 1-to-1 meeting, equity crowdfunding will seem a lot less expensive, in term of time especially.

 

MYTH 4: “Crowdfunding platforms are the unregulated ‘rebels’ of the finance industry.”

Incorrect. As mentioned in the beginning of the article,  the Securities Commission Malaysia has approved in 6 platforms namely Crowdplus, Alix Global, Ata Plus, Crowdonomic, Eureeca, and pitchIN in 2015. These platforms are highly regulated by the Securities Commission, and they are required to work closely and within the regulatory framework set by SC.

In recent time, SC has called for more applications from interested parties to apply for the ECF licenses as they look to spur the growth of equity crowdfunding in Malaysia. In 2018, another company was awarded license to operate as a platform in Malaysia.

As equity crowdfunding becomes more mature over time, it will serve an important purpose in the ecosystem. Hence, it is essential for us to continue to educate the market, giving more confidence to both businesses and investors to get involved and enjoy the benefits equity crowdfunding can bring.