Lately, there has been a lot of crowdfunding news. p2p lending, also known as debt-based crowdfunding, is moving mainstream fast. The next wave will be equity crowdfunding. What are the differences between debt and equity crowdfunding? Are they suitable for all investors? What should investors take note of? In this post, I’ll give a quick introduction to equity crowdfunding. (By the way, I’m not an expert in equity crowdfunding. I’m also learning along the way and expect to make several mistakes here and there).
What is Equity Crowdfunding?
For equity crowdfunding, investors are shareholders, i.e. taking an equity stake in the company. This is unlike p2p lending (or debt-based crowdfunding), where investors are lenders, lending money to the company for a fixed interest rate and duration. In my view, equity crowdfunding is a riskier and harder game than p2p lending.
- Investors are shareholders of the company.
- No fixed investment return. Can be very multiples of investment amount or can be zero.
- No fixed investment horizon; can be several years.
- Company has no obligation to issue dividends or provide opportunities for investor to realize investment returns.
- Suitable for startups without track records and unable to borrow.
- Key risks for investors: startup failure, equity dilution, exit
p2p lending (or debt-based crowdfunding)
- Investors are lenders to the company.
- Fixed return (interest rate).
- Loan duration is fixed, usually less than 18 months.
- Company is legally obliged to repay according to the terms of the loan.
- Suitable for companies with decent track records or with assets that can be used as collaterals.
- Key risks for investors: borrower default
Who can invest in equity crowdfunding?
Under the current regulations, equity crowdfunding is regulated and only accredited investors (net personal assets > $2m, or annual income > $300k) can participate. But the world is fast changing. US and UK already allow equity crowdfunding for non-accredited investors. MAS will have to adapt or risk being left behind. I believe the regulations will change sooner than later. For investors, equity crowdfunding carries higher risks. Most startups will fails, although several will make a tremendous amount of money. It is, therefore, very important to take a portfolio approach to equity crowdfunding.
What are the equity crowdfunding platforms in Singapore?
CapBridge is a capital raising awareness platform dedicated to assisting high growth companies globally raise capital. Capbridge is a JV between SGX and Clearbridge Accelerator, and is headed by Dr. Steven Fang.
FundedHere is the first Singapore home-grown platform that offers equity crowdfunding and lending-based crowdfunding. It is headed by CEO Michael Tee and backed by serial entrepreneur, Andy Lim.
Crowdo is a regional Financial Technology (FinTech) company offering a full portfolio of crowdfunding solutions including equity crowdfunding and peer-to-business (p2b) lending. It is led by co-founders Leo Shimada and Nicola Castelnuovo.
Fundnel is Asia’s ﬁrst collaborative fundraising platform that connects the most promising private businesses with opportunities via a growing community of investors and the collective power of the crowd. Fundnel is founded by three investment bankers – Sam Ng, Kelvin Lee and Chua Khai Lin