EQUITY CROWDFUNDING An Alternative Fundraising Channel for Malaysia 1
About InvestSmart TM InvestSmart TM is a comprehensive investment awareness and literacy campaign under the Securities Commission Malaysia s Investor Empowerment initiative, to enable more confident and informed retail participation in the capital market. It aims to provide the public, particularly the next generation of investors, with valuable investment information, presented in a simplified format through new technology and multimedia platforms, supplementing existing investor education channels. The InvestSmart TM approach is guided by 3 main principles: Comprehensiveness: To target all segments of the Malaysian investing population to educate them with fundamentals of making sound investment decisions. Simplicity: To demystify investing by using plain language and employing impactful methods. Multiple modalities: To carry out our efforts through multiple channels: both traditional and new media, as well as face-to-face engagements. Funded by: Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However, no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or 2redistributing this content please write to: admin@investsmartsc.my.
? Did You Know? On June 14, 1982 an insurance agent named Peter Teo contributed an idea that would go on to unofficially become Malaysia s first ever successful crowdfunding campaign. He had phoned The Malay Mail newspaper s Hotline with a suggestion that Radio Televisyen Malaysia (RTM) allow the public to contribute RM1 each to pay for more live World Cup telecasts. By June 19, 1982 The Malay Mail launched the unique People s Live Telecast Fund (PLTF), after RTM had agreed to accept contributions from the rakyat to pay for more live telecasts. Eventually, the PLTF collected enough money to pay for four live World Cup 1982 telecasts. And on those glorious nights, the pride-inducing phrase Ditaja oleh Rakyat Malaysia ( Sponsored by the people of Malaysia ) was flashed, and verbally announced, over RTM. What is Crowdfunding? Peter Teo might not have known the exact definition of crowdfunding back then, but the meaning of crowdfunding is exactly the same today as it was in 1982. To crowdfund means to raise money by collecting it from people. Equity Crowdfunding (ECF) is a new form of fundraising that allows a start-up or other smaller enterprise to obtain capital through small equity investments from relatively large numbers of investors, using online portals to publicise and facilitate such offers to crowd investors. By the end of this leaflet, you as an investor will be able to: Identify the six registered ECF platforms in Malaysia; Describe the methodology for some of the more common crowdfunding methods available around the world; Define the rights of an ECF investor; Identify the obligations of ECF platforms in protecting investors rights; and Consider all the above relevant factors before making your own ECF investment decision. Basically, ECF represents an innovative, alternative method for small businesses to raise capital from the public. In Malaysia, equity crowdfunding is indeed in its infancy, with six ECF platforms having been approved and registered by the Securities Commission Malaysia so far. Globally, over 600 crowdfunding platforms worldwide raised about US$5bil (RM16.3bil) in 2014, with companies such as Indiegogo and Kickstarter leading the way since 2008 and 2009 respectively. In fact, most people consider Indiegogo and Kickstarter as the pioneers of online crowdfunding. 3
While there are various types of crowdfunding available to investors, the more familiar types of crowdfunding you may have heard of thanks to Indiegogo and Kickstarter are: donation-based and reward-based. In general, these are some of the more common crowdfunding methods available around the world: Type of Crowdfunding What the Funds are Generally Used for How it Works Typically Appeals to Donation-based Giving something to people in need, or a good or charitable cause Funder gives money, which is then channelled to a good cause or for financing a charity Investors who want an alternative method for using their money to do a good deed Reward-based Giving something in return to the funder (usually in the form of a tangible object or item such as a t-shirt, gadget, etc) Funder receives a tangible object or item after agreeing to pay for it Investors who believe in the development of a company s product and want to eventually buy or own one for themselves Debt or loan-based Providing a loan for parties, professionals or establishments who are unable to obtain a traditional loan or find a proper alternative Funder provides a loan and earns interest when the loan is repaid Investors who want to earn a profit by providing a loan with interest Royalty-based Developing and implementation of something e.g. a mobile application or software Funder covers the cost of developing the project or venture, and eventually goes on to earn revenue especially after the end product has been launched and entered the market Investors who want to earn revenue from a company s end product Equity Acquiring a percentage of ownership in a startup or existing company Funder has the opportunity to own a percentage of the company, almost similar to buying shares Investors who want to look beyond the traditional stock market when investing in a private company 4
What You Should Know Before Joining the Crowd (funding) Legislation and guidelines on equity crowdfunding were introduced in 2015 through amendments to the Capital Markets and Services Act 2007 and issuance of the Guidelines on Recognized Markets (the Guidelines). These rules serve to regulate equity crowdfunding activities and protect the interest of investors such as yourself. Among the important information you as an ECF investor should know are: The maximum investment amount you are allowed to invest is not more than RM5,000 for each issuer. The maximum total investment amount you can invest through equity crowdfunding is RM50,000 within a 12-month period. As an investor, you are given a 6-day cooling off period. During this period, you may withdraw the full amount of your investment. For any material adverse change relating to the ECF issuer, you as an investor have the right to be notified of such change. If you choose to withdraw your investment during this period, you may do so within a maximum of 14 days after the said notification. Note: A different limit applies to sophisticated* and angel # investors: No restrictions on investment amounts are placed on sophisticated investors; and Angel investors can invest a maximum of RM500,000 within a 12-month period. * Sophisticated investor refers to any person who falls within the categories of investors set out in Part 1, Schedules 6 and 7 of the Capital Markets and Services Act 2007. # Angel investor refers to an investor that is accredited by the Malaysian Business Angels Network as an angel investor. 5
What Are My Rights as an ECF Investor? The Guidelines protect your rights as an ECF investor as they cover the requirements for the registration of ECF platforms, define the terms, conditions and obligations that ECF platforms must adhere to, the factors the SC will consider before approving the registration of new ECF platforms, compliance matters, reporting and disclosure requirements, termination, cancellation and review of ECF platform status and the limit on the funds raised. In issuing the Guidelines, perhaps the simplest fact to remember is that the SC aims to assess all relevant facts and circumstances taking into account the protection of Malaysian investors and the integrity of Malaysian capital markets before approving an ECF platform. Notwithstanding the safeguards that have been put in place, all investments carry risks. Ensure you invest through one of the approved ECF platforms, and as always, do your research on the issuer and understand its business before parting with your money. What About the ECF Platforms Themselves? Do They Have Any Obligations in Protecting My Rights as an ECF Investor? As a matter of fact, they do. To summarise, an ECF platform MUST: 1. Carry out a due diligence exercise on prospective issuers planning to use its platform; 2. Monitor the conduct of an issuer and take action if there is misconduct; 3. Carry out investor education programmes; 4. Ensure the issuer s disclosure document lodged with the ECF operator is verified for accuracy and ensure that this information is shared with the investors; 5. Inform investors of any material adverse change to the issuer s proposal; 6. Monitor issuers to ensure that the fundraising limits imposed on the issuer are not exceeded; 7. Monitor investors to ensure that the investment limits imposed on the investors are not exceeded; 8. Ensure that investors sign the self-declared risk acknowledgement forms prior to them investing on an ECF platform, as well as obtain and retain the said forms; 9. Have in place processes to monitor anti-money laundering requirements; and 10. Ensure investors right to privacy of information is maintained in accordance with the Personal Data Protection Act 2010. For a better understanding of an ECF platform s obligations and more, please go to: http://tinyurl.com/ecfguidelines 6
I Want to Become an Investor Through an ECF Platform! How Do I Start? To get you started, here are the six official ECF platforms in Malaysia that have been registered by the SC. We encourage you to find out more about each ECF platform before making your investment decision. Name Website Founded or Launched in Description pitchin www.equity.pitchin.my 2012 pitchin initially started in 2012 as a Malaysian rewards and donation crowdfunding platform. Since receiving approval by the SC to operate ECF, they are currently preparing to launch another web portal for businesses opting to use equity crowdfunding AIix Global (FundedByMe) www.fundedbyme.com 2013 Strengthening Malaysia small and medium enterprises (SMEs) competitiveness by digitalising their conventional businesses Crowdo investment.crowdo.com 2013 Southeast Asia s largest crowdfunding platform Eureeca www.eureeca.com 2013 The first global online crowdinvesting, or crowdfunding for equity platform connecting SMEs with investors (the crowd) to raise funds in exchange for equity Ata Plus www.ata-plus.com 2014 Malaysia s first equity crowdfunding platform focusing on investments with a social impact dimension Propellar CrowdPlus www.crowdplus.asia 2015 Fusing venture capital methodologies with crowdfunding, Propellar CrowdPlus adopts a Qualified Matching Investor feature that will bring to play qualified mentors and investors across the region 7
Conclusion As an investor, you are free to fund the product, project, cause or campaign that you believe in through legitimate ECF platforms that have been approved by the SC. And best of all, you can help small Malaysian businesses and entrepreneurs finance their business growth and generate returns through equity crowdfunding! For more information, visit www.investsmartsc.my or download our InvestSmart app from the App Store or Google Play. Like us at facebook.com/investsmartsc. Securities Commission Malaysia T 03 6204 8999 E aduan@seccom.com.my www.sc.com.my www.investsmartsc.my