Equity crowdfunding is an online mechanism for private companies to raise money from investors in exchange for equity (shares) in the company. In other words, investors give money to a business and receive ownership of a portion of that business
Yes, there are other kinds of crowdfunding such as reward crowdfunding and donation crowdfunding. pitchIN operates a reward platform too. Check it out at www.reward.pitchin.my
The Securities Commission made equity crowdfunding legal in Malaysia in 2015 but only through approved operators. pitchIN is a Registered Market Operator (RMO) approved by the Securities Commission to offer equity crowdfunding.
Many countries all over the world has legalised equity crowdfunding. The most matured market is in UK (check out www.crowdcube.com, www.syndicateroom.com and www.seedrs.com). Many other countries in Europe have equity crowdfunding too and so does the United States. Nearer home, equity crowdfunding started in New Zealand in 2014. Malaysia is the first in Asia to launch equity crowdfunding.
Equity crowdfunding has grown steadily in UK. From 2011 to 2014, around £190 million has been raised through equity crowdfunding there. 2015 alone saw more than £130 million raised there. In New Zealand, the leading platform there raised $11 million for 10 companies in 15 months.
Global crowdfunding statistics generally lump all crowdfunding services together. The Cambridge Centre for Alternative Finance (CCAF) has been studying alternative finance and collecting data on the crowdfunding market since 2015. In 2020, the centre published its first global bench-marking report. CCAF reports the following numbers:
Crowdfunding Worldwide: USD304.53 bn
Active Countries/Territories: 171
Malaysian registered private limited companies (Sdn Bhd) with paid up capital less than RM10 million are allowed to launch equity crowdfunding campaigns. Limited Liability Partnerships (LLPs) are also eligible. Some private limited companies are barred from seeking funds through equity crowdfunding. Those not allowed include:
The maximum amount per company that can be raised through equity crowdfunding in the company’s lifetime is RM10 million. (This excludes the company’s own contribution or any funding obtained through a private placement exercise)
The business will have to provide information on the company, shareholders and Directors. They will also have to state why the funds are required and provide relevant business cases and projections. Most importantly, depending on the amount of money intended to be raised, SC guidelines mandates for various levels of audited or certified financial information.
Companies have to apply 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 company.
No. Malaysian equity crowdfunding legislation only allows for the All-Or-Nothing funding model. Companies must raise the targeted amount from investors or the campaign is considered unsuccessful and money collected is returned to the investors. Companies are also free to set minimum and maximum target amounts for their fundraising campaigns. In such cases, the campaign is considered as successful when the minimum target amount is reached. The company can then proceed to accept more investments until they reach their maximum target.
It is possible to allow for over subscription. Companies have the option to decide if they want to allow for that but this intention must be made clear at the beginning of the campaign and the company must state what the excess funds will be used for and the amount of extra equity it will give out.
The guidelines allows for the issuance of ordinary or preference shares.
No. Companies can only raise on one platform at any one time.
An administrative charge of RM1688 is payable upon acceptance to undergo our due diligence and hosting processing. pitchIN charges companies Success Fee of 5-7% from the funds successfully raised on the platform. The fee includes use of an escrow account to receive the funds, the setting up of a nominee structure and first year administration of this nominee service as well as access to our legal documents templates.
A nominee structure is needed because current Malaysian Company Law does not allow for private limited companies to have more than 50 shareholders. Since equity crowdfunding is aimed at getting a crowd of people to invest, the number of investors per company is likely to be higher than 50. All equity crowdfunding platforms will thus have to use a nominee structure to accommodate large number of investors. pitchIN has created a simple and low cost structure to efficiently handle large number of investors under our own nominee company, Pitch Nominees Sdn Bhd ("Pitch Nominees").
The company will decide how much equity to offer for the amount of money they plan to raise. pitchIN will be able to point Issuers towards means and methods of valuation that help them come up with a valuation that is fair and attractive to investors.
Anyone can invest. Malaysian regulations class investors into three categories, namely retail investors, angel investors and sophisticated investors.
Sophisticated investors have total net personal assets exceeding RM3 million and have the requisite knowledge on investing. Angel investors have income of at least RM180,000 per year. Anyone else is a retail investor.
Retail investors can invest a maximum of RM5,000 per company with a total amount of not more than RM50,000 within a 12-month period. Angel investors are limited to a maximum of RM500,000 within a 12-month period. Sophisticated investors can invest any amount.
Yes, companies and other corporate bodies can become investors.
Foreign investors are allowed to make investments in the companies. The same investments limits apply to them.
Yes, investors are able to change their minds and request for a refund of their investment at any time until the end of the crowdfunding campaign plus an additional cooling-off period of six (6) business days from the campaign end date.
Equity crowdfunding investments should be done with a long term view. It may be difficult to find buyers for your shares quickly. And you may have to find buyers yourself. pitchIN is working to establish a secondary market where investors can freely trade their shares (if approved by the Securities Commission) but until then, be prepared to hang on to your investment for the long term.
When you invest in growing companies and startups, you are investing for the time when the company becomes large and you make an exit when there is an IPO or trade sale. Depending on the type of shares issued by the company, your shares may also be redeemed after a certain period.
In most cases, your investment will be consolidated together with other investors under Pitch Nominees. Pitch Nominees will then take the appropriate equity (subscribe to shares) in the company on your behalf. A digital share certificate will be issued to you as proof of your beneficial ownership of the shares. You can also choose to subscribe to the shares directly in the company under your name.
All companies will prepare a Shareholders Agreement which will lay out how the company will be administered and managed as well as the rights of all investors. One Shareholders Agreement may differ from another on some points but essentially the agreement will protect your right to receive periodic management reports, financial reports and vote on major items. Investors will have access to these agreements on the platform before they invest.
Investors pay no fees when they make an investment. pitchIN charges Issuers a fee for successfully raising money through our platform.
You can become an investor by registering yourself on the platform by using your full name as per your National Registration Identity Card (NRIC) or Passport and by providing us with your identity information. You may be required to provide more information such as your banking details when you actually make an investment.
Platform operators have to implement systems and processes that ensure protection of investors and public interest, the proper functioning of the market, promote fairness and transparency and manage any conflict of interest that may arise. Specifically, they have to:
Equity Crowdfunding is risky. You are investing in early stage companies which may not do well and could even fail. You could lose part or all of your investment. You may not be able to sell your shares easily.
Investments are speculative and carry high risks. To decrease exposure, these types of investments should only be made as part of a diversified portfolio. Spread your risks and only invest money that you can afford to lose. pitchIN wants all investors to understand these risks and make careful investment decisions. You are also encouraged to seek independent advice.