Funding for the win

CROWDFUNDING, the practice of raising funds for an enterprise, project or cause from many individuals, is growing at a phenomenal rate. It was estimated at over US$34 billion (R442 billion) worldwide in 2015.

The ease with which pitches can be made and funds pledged have led to a boom in crowdfunding platforms like GoFundMe, Indiegogo and Kickstarter. Social media is also being harnessed to raise funds from large online crowds as the returns can be staggering at times.

Smaller contributions lower risks to the point that many generous souls give impulsively. As donations snowball, recipients are enriched by the power of aggregation.

There is no doubt that the responsible use of crowdfunding tools can help young and entrepreneurs pursue their vision without having to rely on financial institutions. However, those who offer money must do so with their eyes wide open.

There are rules now for lending-based and equities-based crowdfunding platforms in Singapore. Those dealing with retail investors have to obtain a capital markets services licence and set aside a capital base of $500 000 (R6.5 million).

It is right to distinguish retail investors from accredited and institutional investors and to offer the public some protection, as laymen might not be alert to all the risks involved.

Pure donation-based crowdfunding opens a different set of issues. Not expecting any financial returns, people might be less vigilant about the altruistic causes they support. In one case, a woman who sought money for immunotherapy raised $771 962 (R10m) from the public.

No eyebrows would be raised if donations are private in nature, for example, when there is a direct relationship between the donors and the recipient.

But when the circumstances are suspicious, steps ought to be taken to stop or limit appeals for donations.