So, What Is Equity Crowdfunding (ECF)?
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 look for deals on ECF platforms to invest in businesses in exchange for equity.
How Does Equity Crowdfunding (ECF) Work?
For Startups, here’s what you can expect when raising funds via Equity Crowdfunding.
1. Prepare to go public (or semi-public). Your business will now have shareholders from the outside. Having a good shareholders agreement will help in the future
2. Be prepared to show your numbers on the platform. Members of the platform can view the information to evaluate your company. This is to help them make a decision for investment purposes. So, the numbers should look good.
3. The Securities Commission of Malaysia has allowed ECF operators to charge a certain percentage (%) on the amount raised. For example, if you raise RM3m, the ECF operator will charge 7% (RM210k) as their fee. This goes to pay for their operational costs in running the ECF platform. This is standard in the ECF industry.
4. Prepare to publicize the offering. Having a media strategy is important to get a maximum benefit from ECF funding publicity.
5. Prepare your F&F (Friends & Family). Letting them know before you go live is important to help you boost your initial fundraiser. This will help you get the rest of your money. If a deal is only 5% funded for the first 2 weeks, that is not a good sign. Feel free to include current shareholders.
6. Prepare a fundraising video. This is important to engage and to educate your target investors on why they should invest in your company. It is important to help them understand your business so that they feel comfortable to invest in your company.
Some ECF 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.
Who is the Top Crowdfunding Platform in Malaysia?
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.
How Can We Compare the Equity Crowdfunding (ECF) Platforms in Malaysia?
The answer, as always, is that it depends. Some platforms have their specialties and niches, or strengths.
- Funded By Me – FBM has a track record of deals with companies based in Penang.
- Eureeca – Most of their track record are from the Middle East & the UK.
- PitchIn – PitchIn has a track record of various types of Startups to date.
- Crowdo – Crowdo has a track record of Startups and P2P Money Lending.
- Propeller Crowd Plus – PCP has a track record of SME companies.
- Ata Plus – AP has a track record of funding social enterprises.
Pros & Cons of Equity Crowdfunding
- ECF is an easy way to get media attention – Having this as part of your media strategy will help.
- Engage your customers – Why not get your best advocates to be a part of your business? Hopefully, they will join you in promoting it further.
- Transparency & Compliance – Having a transparent & compliant business is important for long-term success.
- A strong reach of retail investors – There are hundreds of investors on ECF platforms, all of which are a potential your investors!
- ECF platforms act as your Investment Advisor – There is someone to help you through the process.
- Crowdfunding is not for every business – For example, the benefits of crowdfunding may not apply to B2B businesses.
- Startups have to be ready to open up their numbers to the public – Although this is available to members only.
- Startups need to be ready to have a larger than the usual number of investors or shareholders – Having additional partners in your business is something that all businesses should think about seriously.
- There are costs to equity crowdfunding – Other than fees, it takes time and effort to build up a crowdfunding campaign.
- There is a chance that the crowdfunding process may fail – This may not reflect well in the market.