Crowdfunding has now become appealing to many entrepreneurs in Singapore who aim to have enough capital to either start or expand a business. Its impact and potential was not publicly felt until Gabriel Kang raised $1,250 through a crowd funding website Indiegogo for a Vietnamese tourist who got scammed in Sim Lim Square after he intended to buy an iPhone6. The news spread internationally, and crowdfunding seemed too good or is it too good to be true?
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In 2014, Zelos Watches raised more than $150,000 through two Kickstarter campaigns, while Pirate3D raised more than $1.44 million in 2013. These are eye popping results, on the other hand, not all are as successful.
From the name itself, crowdfunding is raising a small amount of business capital from a large number of individuals through an internet website platform. Willing investors will pledge or give part of the target capital and depending on the used crowdfunding model; they will receive something in return.
There are four crowdfunding models:
- Donation-based crowdfunding – contributors do not require anything in return. This is usually used for social good or for a cause.
- Reward-based crowdfunding – contributors gets a promised commodity, usually the invested company’s product, so it will seem to be a pre-buy. This is usually used for budding creative projects. Kickstarter is one known example of a platform using this model.
- Lending-based crowdfunding – the contributor loans money and get it back with interest.
- Equity-based crowdfunding – this model involves a security that is usually a stake in the company. This type of model has the interest of Monetary Authority of Singapore due to legal issues subject under Securities and Futures Act (Cap. 289),also known as SAF.
ON LEGAL ISSUES: Are you sure it is legal?
- Licensing requirements of the Platform Operator
If the platform operator deals which with the Equity-based crowdfunding model, it needs a Capital Markets Services License as this involves securities as mandated under SAF. If the platform operator simply wishes to advise investors on securities purchase, a financial adviser’s license will be required under the Financial Advisers Act (Cap. 110).
- Requirements for those offering securities
Those who are going to give securities as part of the crowdfunding deal to investors must register a prospectus under Monetary Authority of Singapore (the “MAS”). Prospectus is a legal document that clearly describes the securities in details. It the securities involves stakes of the company, the prospectus will include the company’s financial details such as stocks, bonds, biographies of the board members and mutual funds.
- New laws underway
MAS sees the risks in crowdfunding for investors, thus new laws to regulate this are being under considerations. MAS seeks the possibility that the Equity-based crowdfunding be strictly offered to accredited investors and institutional investors. In its opinion, those who have experience in investing can do more sound decisions when it comes to investments decisions.
SMEs and start-ups, on the other hand, can use the Donation-based crowdfunding and Reward-based crowdfunding. This is not yet a finalized law and is still subject for change since MAS is also looking into the consideration for retail investors.
MAS has proposed to lower the base capital requirement to $50,000 and remove the security deposit requirement to obtain a Capital Markets Services License.
- Clarification on scope of advertising restrictions
MAS has clarified that the publication of information on the individual or corporation that wishes to raise funds, or the details of the offer of securities, on a crowdfunding platform does not constitute a breach of the Advertising Restriction.
How Do The Platforms Make Money?
There are various ways on how the platforms earn money by putting up proposals online.
- Success fee – this is the most common way of earning for the crowdfunding sites. They take a percentage off from the raised money. It can range from 3-4%, however it could reach to skyrocketing 30%. Should the campaign fails, the investments will go back to the investors and the site won’t get anything. If it is successful, the site will get the share.
- Membership fee – this can be a monthly membership fee, yet this is rarely used. Even if the campaign is successful, the platform won’t touch even a single cent.
- Equity interest – this involves the future interest of the company, like getting parts of the shares.
- For free – this is possible. An example of a platform offering free services is Why such valor? It is possible that these site may just want to collect research data, get emails for further business transactions, or use this as a stepping stone for brand visibility.
List of Crowdfunding Platforms
- MoolahSense – a peer-to-peer crowdfunding site usually for small businesses. They evaluate the small business’s financial standing then send out the information to investors. Interested investors may then offer loans with rates around 9-24%.
- Crowdonomic -offers various model of crowd funding.
- Woomentum Fund – a crowdfunding site dedicated for women to empower female entrepreneurs.
- FundedHere – the first equity crowdfunding platform in Singapore, and it is now offering lending based crowdfunding.
- KickStarter – one of the most famous crowdfunding sites in Singapore and commissions 5% of the money if the project is successfully funded.
While MAS is open to facilitate crowdfunding to flourish in Singapore, it is determined to put clear regulations in its activities. Some parts of laws and guidelines are still under refinement and propositions for changes are considered.
Also, there is no 100% assurance that the goal will be met at the given time period. There are also risks involved such as if you are offering parts of your shares as your security. Are you sure you are offering it to strangers? It might also take more time to raise the money you need. And if you don’t reach your goal, remember that all the money you raised will go back to the investors. Nothing will be left and you might even have shed money for advertising.
On the other hand, Cash Mart offers business loans in Singapore and guarantees cash out in just a day. You can use the money to start rolling your business or expand, without worrying about not keeping all your shares. Use the service of a certified moneylender and you don’t have to wait whether your campaign with be successful or not. Use the safer and faster option with a licensed money lender in Singapore, Cash Mart.
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