Crowdfunding as the mainstream venture financing model in Singapore & Asia

The way startups raise funds today remains largely unchanged for the last few generations and is ripe for disruption. The growing trend of entrepreneurship across Asia has made the need for more efficient ways to raise capital even more urgent.

Crowdfunding empowers startups by creating a powerful alternative to traditional venture financing. It allows growing businesses to leverage the full power of technology and the Internet to tap into the wisdom of the crowd. Investors benefit by gaining access to a new asset class in collaboration with a diverse virtual network of other investors.

Crowdfunding is no passing fad. According to the World Bank, funds raised through crowdfunding are expected to exceed 80 Billion USD in the intermediate term. Asia is already witnessing double-digit growth during the last few years.

Current Regulatory Environment
While the benefits of crowdfunding become clearer by the day, the regulatory environment that should govern crowdfunding, especially Securities Crowdfunding, until recently lagged behind in terms of clarity.

On February 16, the Monetary Authority of Singapore (MAS) released a much-awaited Public Consultation Paper (PCP) on Securities Crowdfunding (SCF). It marks a step forward in the realisation of Singapore’s ambition to become a regional hub for Securities Crowdfunding.

This development dovetails with the planned launch of our full-portfolio and regional SCF platform later this year, which aims to connect the region’s most promising startups with angel investors across the world.

MAS Public Consultation Paper Analysis
We view the positive aspects of the PCP first in the fact that the MAS seems intent on adopting a holistic approach to crowdfunding. The PCP introduces broad rules that cover not only Equity Crowdfunding (ECF) but also Peer-to-Peer (P2P) / Debt Crowdfunding (DCF) as well.

A holistic approach enabling both ECF and DCF will most definitely be welcomed by all, as it expands the choices not only to the issuer but also the investor as well.

However, there are still some areas that require further deliberation. Angel investors in Singapore are a real economic force in venture financing, but the PCP in its current form does not seem to recognise them. It only addresses accredited investors and institutional investors, whose capital is already relatively efficiently deployed to fund start-ups and SMEs.

Limiting the framework to include as investors only accredited and institutional investors will produce only marginal benefits to the ecosystem. Inclusion of angel investors will be critical, as it will provide additional capital access as well as help build sufficient critical mass to provide market validation.

We believe that it is possible to balance the inclusion of angel investors with protection of general retail investors. This can be done easily by introducing a cap on investment amounts, depending on income bracket. This mechanism would allow investors to undertake risks that are proportionate with their investable wealth.

The question of advertisement should as well be reviewed. The core power of crowdfunding lies in the inclusion of a large virtual community bringing expertise and experience from diverse backgrounds. This is often referred to as ‘crowd-wisdom”.

Mass outreach through the Internet is key to unlocking this crowd-wisdom. Overly stringent advertisement restrictions inhibit this dynamic. The distribution of investment information through the Internet and social media allows for not only issuers to build a mechanism for market validation, but also for investors to crowdsource the due diligence process.

Conclusion
The fundamental point that the PCP needs to address is the strategic objective of the introduction of Securities Crowdfunding for Singapore. If the Securities Crowdfunding framework results in a closed community and restricted investment environment, then Singapore will have lost a great opportunity to harness the full potential of crowdfunding.

We believe that the true potential of Crowdfunding lies in connecting high potential start-ups with professional investors, who provide investment expertise, and crowd-investors, who provide market validation as well as additional capital access.

For Singapore, Crowdfunding offers an ultramodern opportunity to build a regional hub championing innovative finance throughout Asia.

Crowdfunding in Asia will be the focus on April 23 at Crowdsourcing Week Global 2015, where Leo Shimada will discuss the new economics of finance that will lead to a prosperous Asia.

Crowdsourcing Week Global 2015
Genexis Theatre, Singapore
20-24 April 2015

Click here to register.