In Asia, crowdfunding is still relatively new and in early stages of development when compared with the likes of Europe or North America. In Singapore, however, crowdfunding appears to have taken off, becoming a popular way for entrepreneurs to raise capital to either start or expand their businesses.
Crowdfunding is the practice of funding a project or a venture by raising amounts of money from a large number of people, typically via the Internet.
There are four crowdfunding models:
Donation-based crowdfunding where contributors don’t require anything in return for supporting a campaign;
Reward-based crowdfunding where contributors get a promised commodity, usually the product or service they have invested in;
Lending-based crowdfunding where contributors lend money and get the returning investment with interest;
Equity-based crowdfunding which offers securities to certain groups for investment.
Not only crowdfunding allows to secure seed money, it also offers a wide variety of non-financial benefits by tapping into the wisdom of the crowds. For instance, it allows startups to disseminate information and publicity campaigns more efficiently through online communities. A company can leverages social media to have a more intimate audience engagement.
Crowdfunding also allows businesses to gather feedback from contributors, providing them with instant access to an on-going market testing capability. The success of a crowdfunding is a good indication of the viability of a business idea and a test for initial market reaction.
Singapore’s crowdfunding platforms
Several Singapore-based online crowdfunding platforms that have appeared in recent years. These include FundedHere, MoolahSense, Crowdo, Cliquefund and Capital Match.
Founded in 2013, MoolahSense is one of the leading platforms in Singapore and a pioneer in the industry. MoolahSense provides a peer-to-peer lending platform that connects SMEs with investors.
FundedHere was the very first crowdfunding platform to launch in Singapore. FundedHere offers equity crowdfunding and lending-based crowdfunding. The company is known for being the first licensed platform in Singapore.
Crowdo is a regional fintech startup offering a full portfolio of alternative financing solutions including peer-to-peer lending for SMEs and securities/equity-based crowdfunding.
A notable player is CoAssets, Southeast Asia’s first public listed crowdfunding site with offices in Singapore, Australia, Malaysia, China and Indonesia. CoAssets is also the first real estate crowdfunding and group buying platform in the region, bringing together real estate developers businesses and investors on a single platform.
Crowdfunding regulation in Singapore
In Singapore, equity-based crowdfunding platform operators need a Capital Markets Services License since this involves securities, which is mandated under the Securities and Futures Act. Furthermore, they have to set aside a capital base of S$500,000 because they deal with retail investors.
If the platform operator simply advises investors on securities purchase, a financial advisor’s license will be required under the Financial Advisers Act.
Those who offer securities to investors in Singapore are required to lodge and register a prospectus with the Monetary Authority of Singapore (MAS).
In June, MAS proposed measures to make it easier for startups and small and enterprises (SMEs) to access securities-based crowdfunding in two ways.
First of all, MAS will make it easier for these platforms to rely on the existing regulatory framework for “small offers” for campaigns aimed at raising less than S$5 million within 12 months from retail investors. These platforms will not be required to issue a prospectus. Furthermore, platforms that want to tap only accredited and institutional investors will now need to have a base capital requirement of S$50,000, down from S$250,000 previously.
MAS has also clarified that the publication of information on the individual or corporation that wishes to raise funds, or the details of the offer of securities, on a crowdfunding platform does not contribute a breach of the Advertising Restriction.
According to Lee Boon Ngiap, Assistant Managing Director, Capital Markets at MAS:
“Securities-based crowdfunding is a useful addition to our financing landscape. At the same time, SCF investments can be quite risky. The measures we are implementing seek to strike the right balance between improving access to SCF for start-ups and SMEs and protecting investor interests. The public consultation exercise has been very useful in helping us arrive at this balanced approach.”
The new measures came after a year long public consultations.
Featured image via Pixabay