(Note: This is a 3 min read)
Ever dreamt of investing in cool startups like Grab or Google before they hit it big in the stock market? Well, you don’t need to be a big-shot investor. There’s a cool, legal and affordable way for regular folks like us. It is called Equity Crowdfunding (ECF). No need for complicated stuff; now you can join the investment game without spending a ton of money or breaking any rules!
In the past, business owners used to tell their family or friends about their business ideas to get money. It’s like having your own group of supporters. That’s pretty much what crowdfunding is. You share your ideas with your community, and they might give you the funds you need. It is like having your buddies back you up. When a private company (Sdn Bhd, LLP or unlisted Berhad) is looking to raise funds, it can turn to Securities Commission (SC) regulated platforms like Ata Plus. Ata Plus can list or showcase a company that intends to fundraise on its platform with its business plan, terms of investment and usage of funds. Before it can be listed, Ata Plus will carry out thorough assessments to ensure that the company meets the compliance and disclosure requirements under the SC guidelines. This process is called due diligence, which is the process of looking at relevant risk areas – business, operations, legal and financial. A company can only be listed on an ECF platform if it successfully passes the due diligence assessment.
Regulated ECF Platforms like Ata Plus provide a safer environment for both companies seeking funds and individuals looking to access and invest in reliable opportunities. The ECF platform is a way for anyone and everyone, including regular folks, to invest. Ata Plus stresses on inclusivity and accessibility in all the fundraising activities on their ECF platform. For example, the smallest investment entry point for one of the ECF campaigns was as little as MYR10 or a mere USD2, which is the lowest amount ever offered for investment in Malaysia’s (and global) history for ECF fundraising. Investors are grouped into three categories based on their income and assets which are sophisticated, angel, and retail investors.
Source: Capital Market Services Act (CMSA) 2007
People invest because they want to grow their money. Investors invest their money and in return, get a share in the business. Businesses that fundraise through ECF will offer investors to participate in their business either through ordinary shares or preference shares. In some instances, there are also rewards in terms of product and services that are bundled in the investment offer.
For Preference Shares, typically the investor can earn an annual dividend for a certain period and at the end of the investment tenure, the investor will get their initial investment back. In some cases, the business owner may offer the investor an option to convert the shares to ordinary shares at the end of the tenure. Let’s look at the Musang Valley Agro ECF campaign as an example. With a minimum investment of RM3,500 in their durian plantation business, the company will pay out annual dividends ranging from a minimum of 2% up to 14% over 12 years. On top of that, investors are eligible for discounts on the durians, get to visit the plantation, look at their trees and have a Musang King feast onsite!
Aside from Preference Shares, the business owner may also offer ordinary shares. This is pretty common among startups as investors buy into the company when the value is low. Investors essentially are looking at earning a massive upside based on the potential of the business. This is termed as “patient investment” as investors may need to wait up to 3 to 5 years, or longer, before they could realize their gains. Take Revolut, for example, a British fintech platform. In 2016, Revolut launched its ECF campaign at CrowdCube securing £1.01 million. Investors could invest between £10 to £5,000. In 2018, they raised USD250,000 investment from DST Global at a whopping £1.2 billion valuation! In that round, the ECF investors were offered the choice to keep or sell back their shares to Revolut. Someone who invested £5,000 in 2016 would have made a humongous 19X return on investment of £95,000 in just 2 years!
Investing in ECF is like putting your money into different investment opportunities in the stock market. The difference is, now you get to invest in private businesses that are not listed in stock exchange through a regulated ECF platform. Before investing in any investment products, typically an investor would have done his/her homework in evaluating the investment product and its potential returns. Similarly with ECF, before investing in any ECF campaigns, make sure that you also conduct your own assessment and diversify your investments to spread your risk as you can invest in smaller amounts across many different campaigns.
Get ready for the grand finale of our investing series! In our last act, we’re diving into the exciting world of ECF campaigns. We’ll unveil the key areas that savvy investors need to have on their radar. Don’t miss out on the ultimate chapter of our investing saga! Stick around for the big reveal in our epic final installment!
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