Equity crowdfunding: The good, and not so good

• Ecosystem vibrancy will be enhanced, says Mavcap CEO
• Market observer: Path appears to be one of inception and constriction

Article amended with additional comments from the Technopreneurs Association of Malaysia (TeAM)
 
WITH the Sept 5 deadline looming for public comments on Securities Commission Malaysia’s (SC) proposed regulatory framework for equity crowdfunding (ECF), industry players – while lauding the move – have warned of challenges ahead.
 
While he feels the country needs such a platform, Malaysian Venture Capital Management Bhd (Mavcap) chief executive officer Jamaludin Bujang said he wonders if companies are ready to handle that many investors for the maximum US$1.6 million (RM5 million) they can raise.
 
“Whereas, if they go to venture capitalists (VCs) [and succeed in raising the same amount], they just have to deal with one party,” he told Digital News Asia (DNA) via email.
 
Mavcap is the Malaysian Government’s venture capital arm that invests in companies in what it sees as strategic industries.
 
The SC describes ECF as a new form of fundraising that allows startups or other smaller enterprises to obtain capital through small equity investments from relatively large numbers of investors, using online portals to publicise and facilitate such offers.
 
The SC considers alternative funding channels, such as ECF, a crucial and innovative market-based structure to facilitate growth of new small-scale enterprises, which it hopes will contribute significantly to the national economy.

The Technopreneurs Association of Malaysia (TeAM) describes it as a timely and positive development for the entrepreneurial ecosystem. “It’s the democratisation of funding,” said its president Dhakshinamoorthy ‘Dash’ Balakrishnan.

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Yet, having looked at its consultative paper, one seasoned market observer wonders where the path to a main board listing is, if some company is successful.
 
“If you are going to regulate it, show them the way,” said the observer, who preferred anonymity.
 
“Right now, it seems the SC is only showing how it will restrict those interested in ECF. I think the approach should be rapid inception, conception, growth and development.
 
“However, right now, the path appears to be one of inception and constriction,” he added.
 
The market observer mused that under the proposed ECF regulatory framework, Facebook could have started in Malaysia, but would have been stifled here as well.
 
Meanwhile there are questions over why the limit has been set at US$1.6 million, and that this seems to preclude the typical small and medium enterprise (SME) from participating in the platform.
 
In an email response to DNA, the SC said that as equity crowdfunding is an alternative source of financing for startups and SMEs, it is designed to encourage companies to raise funds up to a total paid-up share capital of US$1.6 million, excluding issuer’s own capital contribution or any funding obtained through private placement.
 
The SC pointed out that startups at the early stage of business do not typically have access to traditional financing methods that SMEs otherwise would.
 
Furthermore, DNA understands that a new funding initiative will be announced for SMEs in the upcoming national budget for 2015.
 
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