Alice Foong from 1337 Ventures on Equity Crowdfunding.
Are You Ready to Receive Funds?
Equity crowdfunding (ECF) is an innovative way for startups and small businesses to raise capital by offering equity shares to a broad audience through online platforms. In Malaysia, ECF is regulated by the Securities Commission Malaysia (SC), ensuring a structured and secure environment for both businesses and investors. Based on the current regulation, each startup or company can raise a maximum of MYR 20 million in its lifetime through a licensed ECF Platform from multiple tiers of investors.
Different Types of Investors
- Retail Investor: Anyone who is not an angel investor or sophisticated investor. The maximum investment limit for retail investors is RM5,000 for a single investment and no more than RM50,000 within 12 months.
- Angel Investor: Individuals who are tax residents in Malaysia with the following criteria: whose total net personal assets exceed RM3 million or its equivalent in foreign currencies; or whose gross total annual income is not less than RM180,000 or its equivalent in foreign currencies in the preceding 12 months; or who, jointly with his or her spouse, has a gross total annual income exceeding RM250,000 or its equivalent in foreign currencies in the preceding 12 months. Angel investors can invest up to RM500,000 within 12 months.
- Sophisticated Investor: Accredited investor, high net-worth individual or high net-worth entity. The Securities Commission of Malaysia has released a guideline about sophisticated investors here.
What is Equity Crowdfunding?
Equity crowdfunding involves raising funds from the public by selling shares in the company. Unlike traditional funding, which relies on a small group of wealthy investors, ECF allows businesses to attract capital from a large number of smaller investors, each acquiring a stake in the company. This democratizes the investment process, making it accessible to a wider audience.
The Role of Securities Commission Malaysia
The SC regulates ECF platforms in Malaysia to protect investors and maintain market integrity. Licensed platforms must adhere to stringent guidelines and undergo regular audits, ensuring transparency and security. In 2015, the Securities Commission Malaysia (SC) released the Guidelines on Regulation of Markets under Section 34 of the Capital Markets and Services Act 2007 to introduce new requirements for the registration of equity crowdfunding (ECF) platforms and provide governance arrangements for the operator of such platforms. The Guidelines require the operator’s board of directors to be fit and proper and have the ability to operate an orderly, fair, and transparent market. As the operator plays a critical role in ensuring confidence in the ECF platform, the Guidelines entrust the operator with obligations to ensure issuers’ compliance with platform rules.
Main Advantage of Equity Crowdfunding
The operator may deny an issuer access to its platform if it is of the view that the issuer or the proposed offering is not suitable to be hosted on the platform. The operator is also required to ensure that funds obtained from investors are safeguarded in a trust account until the funding goal is met. Other than that, the company that raises funding can deny investors entry before the campaign is closed or during the cooling period.
Steps to Onboard on an Equity Crowdfunding Platform
- Evaluate Suitability: Determine if your business model, market potential, and growth stage are suitable for ECF.
- Prepare a Business Plan: Develop a comprehensive business plan, detailing your vision, market analysis, financial projections, and strategy.
- Ensure Legal Compliance: Verify that your business is properly incorporated and adheres to local regulations.
- Organize Financial Records: Prepare audited financial statements to present a clear financial picture to investors.
- Develop Campaign Materials: Create a compelling pitch, including a detailed prospectus, promotional video, and marketing materials highlighting your unique selling points.
- Choose a Platform: Select a licensed ECF platform like LEET Capital.
- Submit Application: Apply to LEET Capital with your business plan and financial documents.
- Undergo Due Diligence: Collaborate with the platform during its due diligence process to verify business details.
- Launch Campaign: Once approved, launch your campaign on the platform and promote it through various channels.
- Engage with Investors: Actively communicate with potential investors, addressing their questions and providing updates.
- Close the Funding Round: Upon reaching your funding target, complete the necessary legal documentation and fund transfers.
- Maintain Investor Relations: Provide regular updates and fulfill reporting obligations post-funding.
Examples of Licensed Equity Crowdfunding Platforms in Malaysia
Besides LEET Capital, several other licensed ECF platforms in Malaysia include:
- pitchIN: One of the pioneering ECF platforms, facilitating numerous successful campaigns.
- Ata Plus: Known for its extensive support to startups during the fundraising process.
- Crowdo: Offers a combination of ECF and peer-to-peer lending, providing diverse funding options.
- Ethis: A shariah compliance ECF provider running a venture building/investment platform for early-stage startups.
Are You Ready To Raise?
Equity crowdfunding presents a valuable opportunity for businesses to secure the necessary capital for growth while offering investors a chance to participate in the success of emerging enterprises. By adhering to the regulatory framework set by the Securities Commission Malaysia and leveraging the support of licensed platforms like LEET Capital, businesses can navigate the ECF landscape effectively and responsibly.
