So you look for other ways to invest your hard-earned money, or you are a successful entrepreneur and you want to develop a platform to help other ambitious entrepreneurs who have dreams but lack of funding.
The good news is finally here!
The Guidelines seek to strike a good balance between the benefits of crowdfunding and its risk to the public.
The SC describes equity crowdfunding (“ECF”) as “a new form of fundraising platform that allows startups or other small-and-medium-sized enterprises (“SMEs”) to obtain funding through small equity investments from a relatively large number of investors, using online portals to publicise and facilitate such offers to investors.” The investors receive shares or stocks in return for their investments and can expect a return in the form of dividends if the company performs well.
The SC places great emphasis on the security and integrity of the ECF platform’s IT system as it requires the operator to put in place adequate security measures and hire sufficient and capable IT and technical personnel to maintain the system.
As such, the SC sees it fit to require the operator to carry out a due diligence exercise on prospective issuers; monitor conduct of issuers, investment limits of investors and any money laundering activities; carry our investor education programmes as well as protect personal data of individuals in accordance with the Personal Data Protection Act 2010.
In terms of the limit to fundraised on the ECF platform, the Guidelines say that an issuer can raise up to RM3 million within a 12-month period, irrespective of the number of projects an issuer may seek funding for and a total of RM5 million through the ECF platform.
Raising money from complete strangers is never easy.
The issuer will need to come up with a strategic business plan to effectively market and promote itself and its project. First of all, the issuer must choose the right ECF platform to do its listing as it is not allowed to list on multiple ECF platforms concurrently. It should also target a specific pool of investors if the project is a very niche one.
For example, if the project is about healthcare related product, it should first target people from the healthcare industry as they would be more inclined to invest in products or services that will improve or add value to their field.
Most of the crowdfunding platforms adopt the “all-or-nothing” model i.e. if the issuer fails to raise the targeted investment amount by the deadline, the fund raised will be returned to the investors and the issuer will get nothing.
That is why it is so important to have a strong, well-executed plan, as projects listed on an ECF platform can go by really quickly, especially when there are dozens of other projects listed on the platform at the same time, all vying for attention.
The pitching message must be creative and concise enough to grab people’s attention. Getting listed on an ECF platform is just the beginning. The issuer will need to treat fundraising activity very much like how politicians run their political campaigns, and it has to continually drive traffic to its project page through social media, email marketing and other communication tools to engage with its potential investors.
In this Internet age, great ideas spread virally very easily and broadly. Make good use of the Internet to reach out to large audiences. Highlight the potential ROI from the project. Show the investors how the fund will be utilized. Practice transparency as that is the key to gain confidence from the investors
If you are a sophisticated investor (i.e. accredited investor, high-net-worth entity or high-net-worth individual),
if you are an angel investor (i.e. an investor accredited by the Malaysian Business Angels Network),
if you are a retail investor,
The Guidelines also put in investor protection mechanisms whereby the operator is required to ensure that any fund raised in relation to a listing on the ECF platform must be kept and maintained in a trust account until the targeted amount sought to be raised has been met.
Investors are given a six (6) day cooling off period within which they may withdraw the full amount of their investment. If there is any material adverse change relating to the offer during the offer period, the investors must be notified of such change and will be given the option to withdraw their investment if they choose to do so.
The emergence of ECF is just another innovative example of how technologies are disrupting the traditional means of funding, democratizing access to capital as well as offering up more investment opportunities to everyone.