Open up equity crowdfunding to more

Straits Times
16 Mar 2015
Jacqueline Woo

Market players weigh in as MAS seeks feedback over proposed rules

AS THE crowdfunding scene booms, industry players are paying close attention to a Monetary Authority of Singapore (MAS) consultation paper on securities-based crowdfunding (SCF), where start-ups can raise funds by giving investors equity in return. The consultation period closes on Wednesday.

The paper, put out last month, has proposed that this form of funding be open only to accredited and institutional investors – defined as those with an annual income of at least $300,000 or having $2 million in net assets.

The proposed new rules will not cover crowdfunding based on donations or rewards – still the most prevalent form today – as they “do not involve offers of securities or the prospect of financial returns”, said the MAS.

It said it is looking at offering securities-based crowdfunding to a select group of investors “as a start”, as the practice carries “significant risks”.

It noted that there would be “a high probability of capital loss” while securities issued in this form of funding “are more illiquid compared to traditional securities investment instruments”.

But some market players are keen for a wider group of investors to be involved.

Mr Getty Goh, chief executive of real estate crowdfunding platform CoAssets, told The Straits Times that accredited investors are “already very well served by private bankers”.

“There is, on the other hand, a large pool of people who fall slightly short of qualifying as accredited investors, but are very savvy with it comes to technology and investments.

“They also want to have more say over growing their own finances.”

Mr Goh added that allowing this group of people to participate in an alternative investment such as securities-based crowdfunding would “open up an avenue where they can realise their financial goals and dreams without over-stretching themselves financially”.

Entrepreneur Andy Lim, who is behind the newly launched equity- and lending-based crowdfunding portal FundedHere, said equity crowdfunding would be limited from realising its full potential if it was open only to accredited investors – “a small crowd”.

His ideal model of securities-based crowdfunding would involve heavily and specifically knowledgeable, tech-savvy 25- to 40-year-olds who draw an annual income of $100,000 and have “surpluses (in finances) to participate in such high-risk projects”.

“If we want this to be a serious, credible crowdfunding platform, it would be better to have a wider pool of investors.”

Crowdonomic, one of the first crowdfunding platforms set up here, is looking at a “gated community” approach, comprising white-collar professionals, said co-founder and chief executive Leo Shimada.

It would include mid-level and senior managers from industries such as accounting, banking and financial services, and law.

“They have the academic foundation or professional training to not only add value to the companies they choose to invest in, but they are also well equipped to understand the inherent risks of venture investments,” Mr Shimada said.

“Including this segment would be critical to making sure there there is enough of a ‘crowd’ to enable the dynamics of crowdfunding to come to life, and for (start-ups) to access additional venture capital.”

These white-collar professionals, added Mr Shimada, can be segregated from the more vulnerable non-professional retail investors by income declarations or having to pass a test before participating in investment activities.

Mr Lawrence Yong, co-founder and chief executive of peer-to-peer lending platform MoolahSense, cited regulations adopted by the Financial Conduct Authority (FCA) in Britain.

He noted that the MAS could introduce similar measures, such as setting investment limits and self-certification requirements for non-accredited investors to protect people without comprising the spirit of crowdfunding.

Already, there is a steady, growing interest in equity crowdfunding here.

Crowdonomic, for instance, is set to launch a securities-based crowdfunding platform this year, together with a new joint venture between the Singapore Exchange and Clearbridge Accelerator.

Mr Brock Murray, chief executive of Canada-based software development firm Joi Media, said he is seeing more clients from Singapore who want to launch platforms for financing start-ups.

“Businesses across all industries are going online today – from movie rentals to hotel bookings to personal banking – and it’s time for the private financial market to do the same,” he said.

“A trend like this is a gamechanger, and those that ignore it could become irrelevant.”

That said, it may be still some time before equity crowdfunding really takes off.

“There may not be millions of early adopters even if the regulations are to be relaxed entirely, because people are so comfortable investing in stocks and property here,” noted Mr David Bebko, chief executive of Crowdworks Inc, a Boston-based crowdsourced e-learning firm, which also has an office in Singapore.

“Crowdfunding is still very nascent here. Awareness is still pretty low, and more needs to be done to educate the public.

“I do believe that equity crowdfunding has a bright future here in Singapore – it’s a very empowering tool for both investors and start-ups alike – but it’s just not something that will develop overnight.”

For Mr Kenny Goh, 29, a senior associate at a law firm here, the opportunity to invest in a company via crowdfunding would be a draw, especially if he sees potential for it to list publicly.

“But I’ll part with my money only if all factors (in my assessment of the company) point to a ‘yes’.

“Otherwise, I’d stick to stocks and property, which already have reliable sources of information to help me evaluate and decide if I should invest,” he added.

Lawyer Elizabeth Kong cautioned that investors, for their part, should be aware that there is no ready market for the trading of equities in such start-ups, and that they may not be able to cash in on their investments for a long time, if at all.

“Start-ups are generally very risky investments and investors should not invest more than what they are comfortable losing,” added Ms Kong, a director at Stamford Law Corporation.

“They must go in with their eyes wide open.”