Crowdfunding platforms gaining ground in S’pore

SINGAPORE — The slowing economy has opened up new opportunities for businesses seeking alternative sources of funding for their ventures, as traditional avenues of financing dry up. Crowdfunding, or the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically through the Internet, has gained momentum.

Crowdfunding company FundedHere, which received its licence in Singapore in March last year, has grown its investor base and expanded its reach. Last week, the platform announced its expansion to Malaysia and Indonesia.

Crowdfunding allows investors to participate in new and upcoming companies, even if they are not “the super rich”, Mr Daniel Lin, partner at FundedHere, told TODAY.

“A year ago, there was economic uncertainty, and traditional routes to fundraising were becoming more challenging. Banks were less willing to lend because of a lack of collateral and financial visibility for the next few years. On the other hand, the cost of funds through the private equity route was too high for some of the smaller companies,” said Mr Lin.

“We saw this as an opportunity, and started FundedHere. By matching investors with entrepreneurs, we are able to mitigate investment risks while allowing investors an 8 to 10 per cent return. At the same time, entrepreneurs now have another avenue (through which) to raise funds.”

In the past 12 months, the company has helped seven Singapore firms raise a total of S$4 million through its online platform. The first company that FundedHere helped to raise funds for was energy start-up Evercomm. It took them a month to raise S$300,000.

In June last year, the Monetary Authority of Singapore (MAS) made it easier for start-ups and small and medium-sized enterprises to access securities-based crowdfunding. However, the process of gaining trust and credibility was not without teething problems.

The process called for a close collaboration with MAS through dialogue sessions to qualify and ensure sufficient safeguards for investor protection, shared Mr Lin. “The biggest challenge was that the regulators did not have a comprehensive framework to deal with crowdfunding.”

“We recognise that this is a relatively new area, and adopted a flexible and resilient stance to ensure we evolve together with the industry,” he added.

Other issues included a lack of familiarity by accredited investors, who are defined under Singapore law as individuals with more than S$2 million in personal assets, or have at least S$300,000 of income in the preceding 12 months. “Many are unsure exactly how much protection is afforded to them, and whether it is through MAS, FundedHere, or the underlying investee company,” Mr Lin noted.

Today, the crowdfunding platform has close to 1,000 accredited investors and boasts a success rate of more than 80 per cent.

The typical investor profile is made up of largely senior management personnel, with an average age of 40 to 48 years, according to Mr Lin. This may be set to change as FundedHere grows its investor pool.

The company plans to double its investor base by the end of this year, said Mr Lin.

In February, the MAS lifted the rule that restricted the crowdfunding investor base to accredited investors, giving the online platform more room to expand its investor base.

FundedHere will reach out to the mass affluent or investors with annual earnings of at least S$100,000 and some understanding of the risky nature of crowdfunding. The lowest amount for investors in an equity campaign remains at S$5,000.

The crowdfunding scene in Singapore is definitely growing. There are currently close to a dozen crowdfunding platforms in the Republic today, according to Mr Lin. The start-ups have also become more business savvy and have a better understanding of what makes a successful pitch.

“Previously, start-ups were not appreciative of the requirements of average investors. Having been in this business for a year, we have gone through more than 500 pitch decks and can see a clear trend of more sophistication in start-ups,” he said.

Even as crowdfunding gains ground, however, Mr Lin doesn’t think that it could potentially overtake public listing as a source of fundraising.

“While public listing is essentially crowdfunding, there is a fundamental difference in the maturity of companies and the stage that investors are buying into the company. In addition, they generally operate in very different environments,” he said.

Public-listed companies are largely supported by a healthy proportion of retail and institutional investors, noted Mr Lin. “They still need the institutional investors to give them the bulk of their funding and to lend reputation to the business. The assurance of investing in a liquid asset is also more evident in listed companies. Liquidity is still a key pillar to investments, and the crowdfunding industry cannot offer that.”