Singapore is ready for crowdfunding. A few days ago, MAS announced that it will ease the rules to improve access to debt and equity crowdfunding to startups and SMEs. At the same time, all debt and equity crowdfunding platforms will be required to get proper licenses. The message is loud and clear: MAS recognizes the benefits of crowdfunding and will support its growth. At the same time, it wants to protect investors by bringing crowdfunding under its supervision. The question is: are you – the investor – ready for this new wave of investing?
Crowdfunding is coming, whether you like it or not
No, we are not talking about chipping in money to help the Vietnamese guy who was conned at Sim Lim Square. That is known as donation-based crowdfunding.
We’re talking about two new forms of investing: debt- and equity-based crowdfunding. In simple terms, investors pool in money to invest in the loans or shares of companies, expecting a financial return.
Debt and equity crowdfunding is already accepted in many countries, including the US, Europe and China. This trend is only going to get bigger. MAS must have done its homework and concluded that it is better to support this new wave and nurture it to be a force for the good than to leave it growing haphazardly and unregulated.
Are you ready for the future?
Most people are familiar with the stock market. Sorry, debt and equity crowdfunding is nothing like it. There is no charting, no trend-lines and breakout patterns. There are no research reports, no superstar analysts to help you. There is only brief financial information about the company, perhaps a P&L statement.
And once you commit to an investment, there is no getting cold feet. You cannot cut loss. There is nobody to sell your investments to! For crowdfunded loans, you wait until the loans to mature. For crowdfunded equity, you wait for the startup is acquired.
Yes, this is hard. Of course it is. If it’s easy, everybody will be doing it. If it’s easy, you will never get 15-20% return in loans and the crazy 1,000% returns in startup equity. This is as good as or even better than the stock market. If you are serious about crowdfunding, you should learn the basics.
For debt-crowdfunding, you need to think like a banker. Who will you lend to? What’s the risk? I’ve written a Beginner’s Guide that covers the basics. For equity-crowdfunding, you need to think like a venture capitalist. What’s the idea? Who’s the team and their backers? What’s the market potential? What’s the exit? We’ll talk more about these concepts next time.
Like any new forms of investing, crowdfunding is risky. But ignorance is riskier. Crowdfunding is entering mainstream globally. MAS will welcome and support its growth. The question is, are you game enough for the challenge?