Crowdfunding - An Introduction

Did you know that the 1986 hit movie Crocodile Dundee was produced partly by using funds that were crowdfunded from the Australian public? 

Crowdfunding has been around for a long time. Newspapers and telephone enabled the earlier rounds, but the Internet has taken things to unseen heights, and it’s not even the peak…yet!

Basic components

The 3 main actors are the borrowers, the investors, and the P2P platform, and they are supported by payment gateway providers, banks, regulators, and trust companies providing various supporting roles ranging from the handling of deposits, securing its safety, enabling movement of funds back and forth between all parties, and to oversee all activities performed by the platform ensuring it operates within the confines of the law

Most popular crowdfunding application

1. Charity crowdfunding

Perhaps the most self explanatory one. Lenders generally don’t expect any returns from this exercise. The “borrowers” are usually individuals, schools, places of worship, community projects, charitable organisations and many more. Gofundme.com is popular around the world and in in Malaysia.

2. Reward based crowdfunding

Investors are funding companies or projects that they like in return for future goods and services produced or offered by the fund seekers. One example is a startup making affordable “Swiss quality” watches. The first 100 funders who invest a pre-determined minimum sum will be the first owners of such watches when they are eventually produced,  Most popular are Kickstarter and IndieGoGo

3. Debt crowdfunding

This is the main focus of this blog because we believe that it has the greatest positive impact on our economy, particularly in the current climate where everybody is affected by covid-19.

This is basically a “business loan” and the public investors in this segment are most definitely folks that are looking to get their principal back plus handsome interest for the Ringgits that they put in. 

Terms are usually between 15 to 180 days and could go to multi year payment schedules. Major players in Malaysia are moneysave.com.my, fundingsocieties.com.my, and fundaztic.com 

4. Equity crowdfunding

Similar to reward-based crowdfunding but here, the investors receive a portion of the company’s ownership or shares (hence “equity”) instead of goods and services. Like Debt Crowdfunding, this segment is also highly regulated in Malaysia. Popular platforms are crowdplus.Asia and pitchin.my

Summary

Debt and Equity crowdfunding are well regulated in Malaysia and features many awesome homegrown platforms. Rewards and donation crowdfunding, especially the former are widely used but regulations are not specific (if there is one at all – happy to be corrected) and platform of choice remains that of big international brands like gofundme, kickstarter and indiegogo. 

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