Malaysia’s pioneering Equity crowdfunding (ECF) legislation, which is expected to be tabled in the parliament in the near future, will put country much ahead of the Asian financial powerhouse Singapore and sophisticated crowdfunding market of Australia.
Hailed as progressive, the legislation will be the first of its kind in south-east Asia. Currently, the Australian crowd-sourced equity funding is available only to the wholesale investors with more than AU $2.5 million in assets to be invested or annual earnings of around AU$250,000. Australia has, potentially, put off the legislation that will let small businesses and startups raise funds through crowdfunding, to the year 2016.
Singapore, which has a huge VC population, still does not have any clear law or specific regulatory framework to govern equity crowdfunding. While Malaysia (geographically, just an hour away) cannot beat Singapore in the sheer numbers of resident VCs, it might be able to capitilize on the lack of defined ECF legislation in Singapore, said Sam Shafie, co-founder, PitchIn.my, a Malaysia-based crowdfunding platform operator.
The concept of ECF is fast catching up in Asia. “We’ve seen impressive numbers generated by the reward crowdfunding platform (in markets like the UK) and the momentum is on the side of equity crowdfunding. Soon, other countries will consider legislations for this, but Malaysia has done it at the right time,” Shafie added.
While the industry is closely watching this new development, they are also cautious. “Malaysia is a pioneer in the sector, but it does not guarantee success. I expect Singapore and Australia to come on board soon and they will be watching the development in Malaysia with interest. So the first year of the ECF implementation would be crucial for everyone,” he said.
The Securities Commission of Malaysia (SCM) has formulated the ECF framework, which when passed, will lead to amendment of the Capital Markets and Services Act, to include equity crowdfunding as a legal means for raising capital in the country.
According to US-based Crowdfund Capital Advisors, LLC principal Jason Best, “Malaysia has an opportunity to create co-investment strategies and programs that support crowdfunding; and also create good environment for entrepreneurs.”
“ECF could foster more collaboration between different existing initiatives that support entrepreneurs and investors here,” he said, adding that there “is a window of opportunity for Malaysia now.”
Other market players have echoed similar sentiments. “This fundraising platform can unlock the business potential in Malaysia by increasing the efficiency of capital formation which in turn will allow the companies to focus on building their business. Through equity crowdfunding, (Malaysian businesses) will be able to reach out and solicit interest from a diverse group of investors who are each looking at various sectors, growth stages and investment criteria using the power of the Internet and social media,” said Leo Shimada, Co-Founder and CEO of Crowdonomic Media (CWD) Singapore-based South East Asia’s largest crowdfunding platform operator,
Shafie acknowledged that although the new legislation made Malaysia much more attractive to the global capital and entrepreneurs, the system needed a “consistent number of good deals to funnel to the ECF platform.”
This could happen only through consistent awareness and education programmes. According to Shafie, the operators (of the ECF platform) have the responsibility of educating retail investors and ensuring due diligence on part of the issuer before listings.
Similarly Best was of the opinion that the country needed a program of education for both the sophisticated investors and the retail investors regarding this new and high-risk investment opportunity under the ECF.
“Investors should only invest a small portion of their savings (some experts suggest less than 10%) in high-risk investments. Take the time to learn about the companies and entrepreneurs before making an investment,” he said, adding that connecting universities to accelerators and incubators will be very important, now.
(Editing by Yamini)