|Good ideas means easy money will rush in???|
Attended a good introductory seminar by SAMENTA on the crowdfunding scheme in Malaysia; particularly crowdfunding for Small & Medium Enterprise (SME).
Previously I read alot of about crowdfunding online and the recent development in Malaysia where the Securities Commission (yes, the same folks over-seeing Bursa Malaysia) have provided a LEGAL framework to legalize and standardize the crowdfunding process.
6 crowfunding entities were given the license to operate in Malaysia. Despite Malaysia being the first country in SEA (yes, 1st) to have the legal framework set in stone, the crowfunding scene in Malaysia is still very very young.
Below are snapshots of the presentation slides. Just click on it for enlarged version.
Below is my personal opinion & summary on Crowfunding for equity in SMEs: (Perhaps in future posts, I will touch on the popular (In the US at least) reward based crowdfunding. The presenter in the seminar also noted some pro & cons in equity-based crowdfunding (E-CF) that I fully agreed upon.
1. Being a investor in equity-based crowdfunding does not really make you a stakeholder or somehow who have a say in the management of the startup or company especially if you are a retail investor (ikan bilis). In short, you have NO SAY in the company's direction or management.
Remember crowdfunding scheme (at least in the US) initially a platform for innovators to appeal to the masses aka normal average guy on the street to put some small money into their innovations to bring it to reality. The power of collective.
2. Currently, there is NO clear cut way on how you can exit your investments profitably pre-IPO. Perhaps if the startup gets to the IPO stage, your investment can be converted to be shares. Statistically, in Malaysia there is a very slim chance that startup can get into that stage.
The presenter talked about the possible introduction and establishment of unlisted security market aka to allow the trading of unlisted "shares" of startup companies, here is where you can sell your crowdfunding shares to other investors to do an exit. This is still very far.
3. Investing in crowdfunding reminds me of the concept of cooperatives or "Kooperasi" concept will have been long established in Malaysia. Nevertheless, at least the cooperatives will have AGM for all its member where you can vote to pass/fail a motion.
Though i am not sure whether there is such requirements or entitlement for equity crowdfunding investors for SME.
4. Some crowdfunding entities do Peer to Peer lending (P2P), where they instead charge interest on the loan that they give to SMEs. Of course, the loans are at a HIGHER rate than banks.
This is to account for the risks that they take to invest in startups. Many startups die very young and many dont have any collaterals to be used as a pledge.
Some crowdfunding companies, I believe do insist on collaterals by the lenders.
I did not dig deeper on what happens if the lender defaults. But I dont think you will be able to get 100% money back... there is NO claim of guarantee of capital protection! yet! Let me know if there is such scheme by any crowdfunders.
Hence in such arrangement, crowdfunders should put some skin into any venture that is being proposed. Furthemore in most crowdfunding platform, the crowdfunders will typically charge some fees aka take commission upfront.
I need to read more whether there is an ANNUAL management fee for the P2P schemes. I need to check also whether there is a way to exit prematurely and the set conditions.
5. Yes, it is typical of crowdfunding to charge fees for their services to list SME's desire to get funding.
There is NO free lunch man..
A similar structure also exists for tech startups accelerators and incubators. I saw in the news that some accelerators/incubators got at least a whooping 8% for just RM50K investment.
If I am entrepreneur, I might say that it is just too much for too little money but for startup investors it might be justified as many many startups just fail in their 1st year.
Conclusion: Because of the above points and the infancy of crowdfunding in Malaysia, you dont see many local startups getting crowdfunded.
Just look at the 6 malaysian legalized crowdfunding online platform, and you will see that equity based crowdfunding for SMEs is not really flying per se..