This alternative source of funding has helped many entrepreneurs achieve their dreams.
CROWDFUNDING has gained a strong following as an alternative funding option over the past few years. Small businesses that have not been able to secure conventional financing are looking more and more towards the practice as a source of financing.
However, the level of awareness and interest in crowdfunding in Malaysia is still at its infancy stage, noted Fundaztic.com chief executive officer Kristine Ng.
“Maybe about one in 20 people have heard of the concept and understand exactly how it works. There are currently just a handful of noted platforms in the market. Some local companies try to raise funds on international platforms such as Indiegogo.com.
“There is still a lot more which local players need to do to gain the credibility and recognition to grow further. And having the support from the local community would be a great boost for us,” she said.
Fundaztic, which rolled out in June this year, is among the handful of local crowdfunding players in the market. The platform was founded by a group of ex-bankers and a lawyer who have been following the development of financial technology (FinTech).
The potential of crowdfunding as an alternative funding platform is huge, said Ng, because access to funds has always been an issue, especially for new businesses and new business sectors that are viable but yet to have proven track-records.
Furthermore, Malaysians tend to be generally cautious when it comes to adopting new technology. Additionally, having to overcome the hurdle of building confidence in the credibility of the platforms would take a lot of time and effort for crowdfunding to be a significant part of the funding scene here.
Fundaztic has listed eight projects on its platform so far, with four projects currently in active funding stage.
But crowdfunding has taken the world by storm in the western countries and established strong platforms such as Kickstarter.com and Indiegogo.com that have helped many entrepreneurs bring their dreams and aspirations to life. Reports have even noted the possibility that the crowdfunding industry could account for more funding than venture capital (VC) in 2016.
A recent report by Massolution said global crowdfunding is set to raise US$34.4bil for 2015. In comparison, the VC industry invests an average of US$30bil each year.
“We truly believe that crowdfunding is a proven platform for like-minded people to support each other, and epitomises the meaning of ‘people power’ in an extremely positive manner,” Ng said. Fundaztic has listed eight projects on its platform so far, with four projects currently in active funding stage.
“We are happy that two of the projects are over-funded and have helped the project creators, who are both women and homegrown entrepreneurs, to grow their business in a risk free manner.
“This is the strongest benefit of crowdfunding. Entrepreneurs can leverage on the platform to gauge the level of public acceptance and support towards their products before having to splash out the funds on their own to commercialise a product or to stock up on inventory,” said Ng.
Funding on Fundaztic is through the concept of cornerstone funding whereby projects that are not able to meet its funding goal but have managed to generate at least 80% of the required funding, can get a maximum of 20% of the required funds from Fundaztic itself.
“Because we truly want all projects to be successful, we would be more than willing to hand-hold in the curation of the project so that the message will sink in well with the local community and thus, enjoy a higher degree of success,” Ng concluded. – The Starbiz
Entrepreneurs Slow to Market Via Equity Crowdfunding Platforms
Brian Gallagher, CEO of United Way Worldwide, talks about the rise of Giving Tuesday and the latest trend in charitable
Equity crowdfunding platforms are providing a new and innovative way to raise money from angel investors that centralizes, streamlines, simplifies and shortens the fundraising process. Equity crowdfunding pools money from a group of investors via internet platforms, using social media and other types of marketing.
You might be surprised to learn that entrepreneurs, who are known for innovating in their products and services, are not innovating when it comes to the way they raise money. And angel investors, who put money into innovations, are not innovating in the way they invest. Few entrepreneurs are marketing their securities offerings to angels online via crowdfunding.
That’s unfortunate, since angel investors provide about half as much financing as venture capitalists: $24 billion compared to $48 billion, according to the Center for Venture Research and MoneyTree, respectively. Angels, defined here as accredited investors who earn $200,000 annually (or $300,000 as a couple), or have a net worth, excluding their homes, in excess of $1 million, are more likely than VCs to focus on seed and early-stage companies.
The State of Private Companies Publicly Raising Financing
This new public-facing financing method became possible on September 23, 2013, when the SEC put into effect the rules and regulations that allow private companies to advertise their securities offerings to angel investors. Previously, public solicitation was prohibited. Entrepreneurs now can market their securities offerings through websites such as AngelList, CircleUp, Crowdfunder and Portfolia.
Yet surprisingly few companies choose to seek funding publicly. Last year, 382,000 companies sought to raise money from angels in the real world. Fewer than 100 companies were added to those already trying to do so in the online world between January 1 and June 30, 2015, according to Crowdnetic, which aggregates data from 18 equity crowdfunding platforms.
The reality is that concerns about a new way of doing business often hold back adoption. I tackle these concerns in 6 Common Misconceptions About Equity Crowdfunding. The good news is that entrepreneurs who are embracing public-facing financing are blazing the trail, and best practices are emerging. I’ve written about some of those practices in How to Ensure a Successful Crowdfunding Campaign and in Stand Out In the Crowd: How Women (and Men) Benefit From Equity Crowdfunding
Women Entrepreneurs and Equity Crowdfunding: A Gap and Great Potential
Raising money via equity crowdfunding platforms has the potential to level the playing field for anyone raising money, but its impact may be greatest on underrepresented groups—such as women—who lag even further in taking advantage of this new approach. Women entrepreneurs are twice as likely to seek money offline from angels (36%) than publicly online (18%), according to the Center for Venture Research and Crowdnetic.
The average amount raised via crowdfunding is rising for companies in general ($412,000 as of the end of 2014 to $432,000 as of June 30, 2015) and falling for women-led companies ($331,000 as of the end of 2014 to $323,000 as of June 30, 2015).
This gap highlights tremendous potential. “The Kauffman Foundation reports that women build capital-efficient companies, generating 12% more revenue on one third less capital,” according to Kay Koplovitz, chairman and co-founder of Springboard Enterprises, an accelerator for women-led businesses in technology, media and life sciences. “[Think] how much more productive they could be if they raised capital on a par with men!”
Types of Securities Used
You may wonder what types of securities other entrepreneurs use when raising money. A majority (58%) issue stock as their method of financing. Nearly one third of entrepreneurs choose convertible note, which allows them not to set an equity valuation at the time of the investment or to simply pay back the money within a set period of time prior to taking in permanent equity capital.
There are other financing structure options, such as revenue sharing or royalty agreements, but these are far less likely to be used. Depending on your long-term goal for the company, a securities lawyer can advise you on which is the right form for you..
Top Locations for Equity Crowdfunding
It’s no surprise that the top location for equity crowdfunding activity and deals is the San Francisco/Silicon Valley area, both for entrepreneurs in general and for women-led companies in particular.
Over the past few decades, this area has developed a strong culture of entrepreneurship. It takes a village to build a growth company and to provide the ancillary support that makes growth possible. San Francisco/Silicon Valley has a long tradition of assisting high-potential entrepreneurs, not just with capital but with expertise and connections to customers, talent and vendors.
New York City is in second place. Worth noting are the high performance of relatively small cities such as Austin and Las Vegas, which rank among the top ten cities for raising money publicly online.
Other Signs That Equity Crowdfunding Is Gaining Credibility
Venture capitalists recognize the potential of crowdfunding and have invested in these platforms to the tune of $250 million in 2014, according to Massolution’s 2015CF Crowdfunding Industry Report. Big-name companies such as Coca-Cola, Nike, General Mills and Chrysler use crowdfunding platforms not to raise money but to gain insights into consumers.