Crowdfunding of­fers po­ten­tial gold mine for star­tups

China Daily (Canada) - - CHINA - By LI XIANG lix­i­ang@chi­

On­line crowdfunding has emerged as a new fund-rais­ing chan­nel for China’s cash­strapped small com­pa­nies and star­tups amid a slow­ing econ­omy.

Crowdfunding, or a large num­ber of in­di­vid­u­als pro­vid­ing start­ing cap­i­tal in small bits each on­line to a new com­pany, has been backed by China’s top lead­er­ship.

Premier Li Ke­qiang said re­cently that the gov­ern­ment will en­cour­age the new­fi­nanc­ing chan­nel to help fund small busi­nesses that ap­pear set to boom in the coun­try.

“New ideas like crowd­sourc­ing will be pro­moted to bring more so­cial forces into play,” Li said at a re­cent meet­ing of top lead­ers on ed­u­ca­tion, science and tech­nol­ogy.

The num­ber of on­line crowdfunding plat­forms in China has re­cently bal­looned. As of Septem­ber, there were 234 crowdfunding plat­forms and re­gions op­er­at­ing in 21 prov­inces across China, ac­cord­ing to a re­port by Web por­tal Wang­daizhi­, which tracks the on­line fi­nanc­ing in­dus­try.

In 2014, the four largest crowdfunding plat­forms, in­clud­ing an­gle­, the coun­try’s first crowdfunding web­site, set­tled 3,091 fi­nanc­ing deals, rais­ing 1.03 bil­lion yuan ($160 mil­lion).

The World Bank had forecast that the global mar­ket value of crowdfunding will reach $300 bil­lion by 2025. China will take about one­sixth of the global mar­ket share.

The rapid growth of crowdfunding has drawn the at­ten­tion of China’s se­cu­ri­ties reg­u­la­tor, which is draft­ing rules to bet­ter reg­u­late the chan­nel and erad­i­cate il­le­gal fi­nanc­ing.

In Au­gust, the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion clar­i­fied the def­i­ni­tion of crowdfunding, stress­ing that funds raised through crowdfunding plat­form must be in small amounts and that the process should be open and pub­lic.

The reg­u­la­tor said no en­ti­ties can il­le­gally sell shares to the pub­lic in the dis­guise of crowdfunding, which is dif­fer­ent from pri­vate eq­uity in­vest­ment.

Thenum­berof in­vestors has been capped at 200 for pri­vate eq­uity place­ment. Pub­lic share of­fer­ings to more than 200 in­vestors are sub­ject to reg­u­la­tory ap­proval .

Mean­while, the $5-tril­lion stock-mar­ket sum­mer rout has made on­line crowdfunding in­creas­ingly the pre­ferred route for smaller com­pa­nies seek­ing cap­i­tal.

Alan Li, chief ex­ec­u­tive of United Pho­to­voltaics Group Ltd, a Chi­nese so­lar power panel farm op­er­a­tor, was quoted by Bloomberg as say­ing that the May-Septem­ber stock-mar­ket woes have af­fected the abil­ity of many com­pa­nies to raise funds.

United PV is join­ing Chi­nese com­pa­nies, in­clud­ing the In­ter­net in­vest­ment plat­form So­lar­, in crowd­sourc­ing funds for so­lar projects, broad­en­ing the in­dus­try’s sources of fi­nanc­ing.

The com­pany raised 10 mil­lion yuan last year for a 1-megawatt so­lar power plant in the southern city of Shen­zhen, which was the first crowdfunding in China for the in­dus­try, ac­cord­ing to a Bloomberg re­port.

Nick Duan, a Beijing-based an­a­lyst from Bloomberg New En­ergy Fi­nance, said: “In­di­vid­ual in­vestors are in­ter­ested in In­ter­net-based wealth prod­ucts due to lim­ited in­vest­ment choices, making crowd­sourc­ing a likely source of fund­ing.”

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