MAHB: Media Man
“software is eating the world,” declared tech investor and Netscape founder Marc Andreessen. Not many would disagree: today, there are few businesses whose traditional models haven’t been upended by software and online services. Much of that upheaval comes from the power the Web has given us. That’s evident from the success of Kickstarter and Indiegogo, through which projects like Pebble and Oculus Rift have raised millions from backers.
Regardless of how much they’ve contributed, however, backers don’t own a piece of the pie. That’s where equity crowdfunding (ECF) comes in. Where Kickstarter is a rewards-based programme, ECF is an online fundraising that allows small enterprises to obtain capital through small equity investments. Uk-based Crowdcube, for instance, raised more than Gbp70million for more than 205 businesses and expanded to Spain, where it acquired another GBP1 million. According to Nesta, an innovation charity, GBP84 million was raised on equity crowdfunding platforms in 2014, triple the previous year’s amount.
Malaysia is about to join the fray with the launch of Asian Crowdfunder. “In many ways, the equity crowdfunding platform is what the stock market was in the early days before protective regulation was put in place, and to some extent stifled innovation,” said one of its founders, Datuk Kenneth Kolb. Despite the platform’s potential— considering that about 95 percent of businesses in Malaysia are Smes—kolb is equally aware of the cautious nature of the Malaysian investor. “We’re not going to let the market decide everything. We’re likely to reject 80 percent of the companies that want to raise funds with us,” he said, adding that Asian Crowdfunder follows Crowdcube’s model in ensuring that companies seeking to raise funds would need to have a good track record, cash flow and reputation. “We want to make sure we have successes. If we put it up there and let the market decide, and a majority of them fail to exit, it doesn’t inspire a lot of confidence for future investments.”
The Securities Commission Malaysia also echoes the cautious approach: its guidelines released in February noted that retail investors can only invest a maximum of RM5,000 per issuer, with a cap of RM50,000 within a 12-month period. And as much as there is optimism for such a disruptive form of equity ownership, there remains several unanswered questions: how transparent are private companies prepared to be? What is the rate of successful exits and profiting investors?
“The industry will be very affected by what happens with exits over the next two to three years,” Stian Westlake, Executive Director of Policy and Research at Nesta, was quoted as saying in the Financial Times. “If there are a few big crowdfunding hits over the next two to three years, that will help growth. If you end up having a period where nothing really comes off, that could slow it down.”
For some investors and entrepreneurs, it’s a risk they’re willing to take in what could be a new model of business ownership. The question is, are you?