MAHB: Me­dia Man

Crowd­fund­ing? Boleh!

Esquire (Malaysia) - - CONTENTS - mahb / me­dia man by John lim @john­lim STEIDL.DE

“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?

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