How much do you know about Equity Crowdfunding (ECF)?

Equity crowdfunding (ECF) has become a popular and alternative fundraising option by startups and early stage companies in Malaysia. According to SC Malaysia as of 31st March 2021, there are 193 successful equity crowdfunding campaigns and RM243.67 million amount raised.

Equity Crowdfunding (ECF) is an innovative form of alternative fundraising that allows small businesses to raise capital from the public using online platforms registered by the Securities Commission Malaysia. Previously, the only source of funds were bank loans, angel investors, venture capitalists or loans from family and friends. The funds in crowdfunding originate from individuals; equity crowdfunding allows you to invest in a company. It’s also notable that Malaysia is the first ASEAN country to have a legal framework on crowdfunding. Currently, 10 ECF platforms have been registered including Ata Plus , Crowdplus , Crowdo Malaysia , Ethis Ventures , Eureeca SEA, FBM Crowdtech , Fundnel Technologies, Leet Capital , MyStartr , and  PitchIn. 

Malaysia Co-Investment Fund (MyCIF) will co-invest in ECF campaigns based on a 1:4 ratio, in which MyCIF will invest RM1 for every RM4 successfully raised from private investors. MyCIF’s maximum co-investment in each ECF campaign is limited to RM1 million. MyCIF co-investment will be taken into account as part of Issuer’s maximum fundraising target. Issuers are required to report annually to MyCIF on business growth, usage of funds & exit strategy.

Businesses can host their crowdfunding campaign on ECF platforms which allow them to offer equity in their companies to investors, who in turn invest in the idea they see potential in. Over time, if the company’s business does well, the investor who is now a shareholder will benefit from either the potential dividend paid out by the company; sale of the shares to new investors or if the company becomes eligible to list on the stock exchange.

ECF investment opportunities are open to all investors and they have the opportunity to diversify their investments beyond the traditional asset classes. There are 3 types of investor categories: Retail Investors, Angel Investor, and Sophisticated Investor. They may invest in any issuer hosted on the ECF platform, subject to the following limits:

1. Retail investors: A maximum of RM 5,000 per company with a total amount of not more than RM 50,000 within a 12 month period
2. Angel investors: A maximum of RM 500,000 in total within a 12 month period 
3. Sophisticated Investor: No restriction on investment amount

Under the Securities Commission Guidelines on ECF, only locally incorporated private limited companies (excluding exempt private companies) , unlisted public limited companies, limited liability partnerships (LLPs) and microfunds registered with the Securities Commission as a venture capital company are allowed to be hosted on ECF platforms. The issuer must have a specified business plan or objective and with paid-up share capital not exceeding RM 20 million.

Under the Securities Commission Guidelines on ECF, only locally incorporated private limited companies (excluding exempt private companies) , unlisted public limited companies, limited liability partnerships (LLPs) and microfunds registered with the Securities Commission as a venture capital company are allowed to be hosted on ECF platforms. The issuer must have a specified business plan or objective and with paid-up share capital not exceeding RM 20 million.

Under the Securities Commission Guidelines on ECF, only locally incorporated private limited companies (excluding exempt private companies) , unlisted public limited companies, limited liability partnerships (LLPs) and microfunds registered with the Securities Commission as a venture capital company are allowed to be hosted on ECF platforms. The issuer must have a specified business plan or objective and with paid-up share capital not exceeding RM 20 million.

Companies have to apply and go through a due diligence process. If accepted for equity crowdfunding, they can launch their campaign. Equity crowdfunding campaigns will generally be set to run for between 30 to 90 days. Please note that it’s important to allocate time and budget for the campaign marketing.

An issuer may only raise, collectively, a maximum amount of RM20 million through ECF platforms in its lifetime, excluding the issuer’s own capital contribution or any funding obtained through a private placement exercise.

1. Validation for your business

It’s wise to seek validation for any product or service as early as possible. This should be seen as an crucial part of the development cycle for any startup or early stage businesses. It’s important as it allows entrepreneurs to understand their customers need and want, rather than what entrepreneurs might think are wanted by customers.

2. Access to bunch of investors and supporter

If you raise capital via an equity crowdfunding platform, the chances are that you will receive capital from a wide community of investors.  By securing an anchor investor first, it’s possible to increase the popularity of the raise and boost the confidence of other potential investors.

3. Easy funding source

We know how hard it is for small businesses to get bank loans. The long waiting period,  collateral and financial records to show creditworthiness, are some impediments which make bank borrowing impossible. Crowdfunding could be an alternative and easy funding source for businesses.

Covid19 is transforming human behaviour and has accelerated the shift towards a more digital. Businesses should also change their traditional perception and embrace a new way of fundraising where you can raise funds via the ECF platform and gather the funds on the internet. So, are you ready to start your equity crowdfunding campaign? The next success could be YOU! Kindly contact us if you are interested in exploring the ECF opportunity.