Top 10 Equity Crowdfunding Platform in Malaysia
ECF
Equity Crowdfunding (ECF) is a form of crowdfunding that allows startups and early-stage businesses to raise capital by offering equity or shares in their company to a large number of individual investors, often through online platforms.
Malaysia Top 10 SC-Licensed Equity Crowdfunding Platform:
Eligibility
Under the Guidelines on Recognized Markets issued by the SC ("SC’s Guidelines") Only locally incorporated companies i.e. private company and unlisted public company and limited liability partnerships; or Micro fund that has been registered with the SC as a venture capital company, has a specified investment objective and only raises funds from Sophisticated Investors (as defined below) and Angel Investors.
Who is not permitted to host the ECF campaign?
Exempt private company
Commercially or financially complex structures
Public-listed Companies and their subsidiaries
Companies with no specific business plan or plan is to merge or acquire an unidentified entity
Companies other than a micro fund that propose to use the funds raised to provide loans or make investment in other entities or paid-up
Any other type of entity that is specified by the SC
Requirements
While specific requirements may vary among different Equity Crowdfunding (ECF) platforms, there are generally common criteria that a company (the Issuer) must meet to raise capital through these platforms:
Business Stage: ECF platforms typically cater to startups and early-stage businesses. While there may not be strict limitations on the business stage, most platforms focus on companies that have a clear business plan, product/service offering, and initial traction in the market. Some platforms may have specific requirements regarding revenue, growth potential, or industry focus.
Fundraising Target: Issuers need to determine the amount of capital they aim to raise through the ECF platform. The target funding amount should align with the company's growth plans, expansion goals, and financial projections.
Valuation and Equity Offering: Issuers must determine their company valuation and the percentage of equity they are willing to offer to investors in exchange for the investment. Platforms may have guidelines or recommendations regarding valuation methods or acceptable equity dilution ranges.
Business Plan and Documentation: Issuers typically need to provide a comprehensive business plan, including details on the product/service, target market, competitive landscape, growth strategy, and financial projections. Additionally, relevant legal documents, such as the company's memorandum and articles of association, may be required.
Disclosure and Transparency: Issuer should be prepared to provide transparent and accurate information about their business, operations, financials, and risks to potential investors. ECF platforms prioritize investor protection and may require startups to disclose relevant details to ensure informed investment decisions.
Fee Structure
The fee structure for Equity Crowdfunding (ECF) platforms can vary depending on the specific platform and the services they offer such as:
Success Fee/Commission: Many ECF platforms charge a success fee or commission based on the amount of funds successfully raised. This fee is usually calculated as a percentage of the total funds raised and is payable to the platform upon successful completion of the fundraising campaign. The percentage can vary but typically ranges from 5% to 7% of the total funds raised.
Listing Fee: Some platforms may charge a listing fee to cover the cost of listing campaign on their platform. This fee is often a one-time payment and may vary depending on the platform and the scope of services provided.
Due Diligence Fee: ECF platforms often conduct due diligence on the companies before accepting them onto their platform. This process involves assessing the viability, legality, and credibility of the business. In some cases, the platform may charge a due diligence fee to cover the costs associated with this evaluation.
Administration Fee / Nominee Structure Fees: ECF platforms may charge an administration fee to cover ongoing administrative and operational costs. This fee can be a fixed monthly or annual charge or a percentage of the funds raised. It is important to review the platform's fee structure to understand if there are any recurring administration fees.
Miscellaneous Charges: Depending on the platform, there may be additional charges for additional services such as investor relations management, legal documentation, marketing support, or post-funding reporting. These charges are typically disclosed by the platform upfront and may be optional depending on the specific needs of the company.
How It Works
Equity Crowdfunding (ECF) platforms typically follow a similar process for companies (Issuers) looking to raise funds. Here's a general overview of how it works:
Platform Selection: Issuer begin by researching and selecting an ECF platform that aligns with their funding goals, industry focus, and target investor base. It's crucial to review the platform's requirements, fee structure, success stories, and investor community.
Application and Due Diligence: Issuer submit an application to the chosen ECF platform, providing details about their business, shareholders, directors and key management, product/service, financial projections, and growth strategy. The platform conducts due diligence, evaluating the company’s viability, legality, and credibility. The ECF Guidelines mandates for various levels of audited or certified financial information.
Campaign Preparation: Once accepted by the platform, the Issuer prepares the necessary campaign materials, including a comprehensive business plan, investor pitch deck, video presentations, and any additional documentation required by the platform. These materials should effectively communicate the value proposition and growth potential of the business.
Valuation and Equity Offering: Issuer determine their valuation and the percentage of equity they are willing to offer to investors in exchange for the investment. Valuation methods, such as discounted cash flow (DCF) or comparable analysis, can be used to determine a fair value for the business.
Listing the Campaign: The Issuer’s campaign is listed on the ECF platform, typically with a specified duration (e.g., 30-60 days). The campaign page includes relevant information about the startup, its fundraising target, equity offering, and the overall value proposition for potential investors.
Investor Engagement: During the campaign, Issuer engage with potential investors through the platform's communication tools, responding to queries, providing updates, and sharing additional information. This engagement helps build investor interest and confidence in the business.
Funding Goal and Investor Commitments: Issuer set a funding goal and investors make commitments to invest in the company. Some platforms use an "all-or-nothing" model, where the campaign must reach its funding goal within the specified duration to receive the funds. Others may have a "keep-it-all" model, allowing Issuers to access the raised funds even if the goal is not fully met.
Funds Disbursement and Equity Distribution: If the campaign successfully reaches its funding goal, the platform facilitates the funds disbursement process. Investors' commitments are processed, and the funds are transferred to the Issuer. In return, the Issuer issues equity or shares to the investors as agreed upon.
Post-Funding Reporting and Compliance: After the fundraising campaign, Issuer have ongoing reporting obligations to keep investors informed about the it’s progress, financial performance, and potential risks.
FAQs
What type of equity can a company offer?
The equity that can be offered is in the form of preferred or ordinary shares.
What is the maximum target funds can be raised?
The maximum amount per issuer that can be raised through equity crowdfunding in the issuer’s lifetime is RM20 million. (This excludes the issuer’s own contribution or any funding obtained through a private placement exercise).
What is the maximum number of investors can offer equity to?
Theoretically, there is no maximum number of investors that a company can offer equity to. As such, a company can stipulate the maximum number of investors that they want to have.
How long does it take to raise the funds?
Issuers have to apply for equity crowdfunding and go through a due diligence process. If accepted for equity crowdfunding, they can launch their campaign. Equity crowdfunding campaigns will generally be set to run for between 30 to 60 days. If the funds are successfully raised, agreements are executed between all the shareholders and the funds are then transferred over to the issuer after shares has been issued by the issuer.
Can a company create more than one (1) campaigns at the same time?
No. Under the SC's Guidelines, startups are only allowed to create one (1) campaign at any one (1) time.
Can a company use multiple ECF Platforms at the same time?
No. Under the SC's Guidelines, a company are not allowed to use different ECF Platforms or on any stock market of Bursa Malaysia Securities Berhad concurrently. Also, they are not allowed to switch to another ECF Platform after their campaign is hosted on an ECF Platform.
Can a company use ECF Platform and peer-to-peer financing platform ("P2P Platform") at the same time?
Yes. Under the SC’s Guidelines, a company may use ECF Platform and P2P Platform at the same time provided that they have complied with the disclosure requirements as may be specified by each platform operator.
What happens once a company has reached its funding target?
Once the maximum targeted amount set by the company is reached, no further investments can be made. The ECF platform then proceed to the documentation phase and arrange all necessary agreements for both the investors and the company.
Where will the funds raise during the campaign period kept before releasing to the company?
Funds will be held in a Trust account until the documentation phase is completed and all conditions precedent are met.
What happens if a company fail to raise the Minimum Target Amount?
For companies who do not meet their minimum capital raise at the end of offer period, a fund raising campaign is deemed unsuccessful. All funds committed from investors will be refunded without any cost. (all-or-nothing basis)
Tips for Crowdfunding Success:
Achieving crowdfunding success requires dedication and effort at every stage – pre-launch, during the campaign, and post-campaign. Drawing from our expertise, we've outlined essential strategies below to enhance your campaign's likelihood of success:
Prioritize Fundraising Commitment: Dedicate a senior team member to manage your crowdfunding campaign; treat it as a core business priority rather than a side task.
Community Engagement: Identify and engage your community and industry stakeholders, such as customers, partners, and suppliers, both offline and online. This engagement is essential for mobilizing retail investors.
Network Building: Actively build a presence on relevant social media platforms to attract followers and potential backers. Social media engagement plays a significant role in crowdfunding success.
Showcase Traction: Before launching your campaign, ensure your company has achieved some form of traction in the form of signed merchants, a tested prototype, or a substantial social media following. This credibility enhances your campaign's appeal.
Defensible Valuation: Value your startup using a valid valuation method that you can defend. Investors want to see a clear valuation strategy that justifies their potential investment.
Strategic Exit Plan: Address potential exit strategies, timelines, and justifications for investors' peace of mind. A well-defined exit plan boosts investor confidence.
Indicative Funds Commitment: Launch your campaign with a portion of your target amount already committed (~20%). This reduces perceived investment risk and increases backers' trust.
Ongoing Investor Engagement: Keep backers informed about your business progress during the 60 to 90-day campaign period. Regular updates create a sense of transparency and involvement.
Post-Campaign Engagement: Continue providing updates to investors after the campaign concludes. This transforms investors into enthusiastic advocates and increases their likelihood of supporting future fundraising efforts.
Quarterly Reports: Share brief quarterly reports with investors to maintain their interest and demonstrate the progress of your company. Transparent reporting enhances trust and confidence for follow on investment.
Key Takeaways
It's crucial to carefully review and understand the fee structure of each ECF platform they consider. Comparing the fee structures, services provided, and the value offered by each platform will help determine the most suitable option for raising funds while keeping the costs in check.