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Why equity crowdfunding should be part of your fundraising strategy

Several years ago, many small businesses wouldn’t have even heard of equity crowdfunding. Some may even say it’s a fraud and a foreign or alien concept. This week, due to overwhelming responses, MDEC had to extend its current alternative fundraising programme as we see more companies exploring equity crowdfunding and peer to peer lending to raise funds due to higher bank loan rejections and also those affected by the Covid-19 crisis.

On the law firm side, we’ve written a quick guide on what companies should look out for before raising funds on an equity crowdfunding campaign. Do take a look at that which I feel will be useful for many trying to figure out what they need to do before engaging a crowdfunding platform.

Here are some reasons why equity crowdfunding should form part of your fundraising strategy.

1. Broader investors base

Being able to host a crowdfunding campaign gives you the opportunity to do marketing roadshows around the country and showcase your company to everyone. On top of doing these, you also get to invite people to invest in your business.

We sometimes tend to forget that crowdfunding investors are only limited to Malaysia. Crowdfunding investors can invest in a company from anywhere in the world. Even our region in Southeast Asia is a growing region has a sizeable younger tech savvy population who are seeking to diversify their investments would be looking at specific industries which may not be available from where such investor is based.

Despite the lockdown, crowdfunding operators like Pitchin is aggressively pushing for their fundraising roadshows to continue using virtual pitching sessions.

2. Get your supporters to be involved

As a fan, what is the best way to demonstrate his or her love towards a brand other than just buying the products or using services. I think there’s a certain novelty or higher purpose when you have a customer who doesn’t just buy your product or service but also has an ownership of the business.

If you have strong brand especially with a set of loyal and hardcore fans who will buy stuff from your business, seriously consider equity crowdfunding as an option. It is really a great way to get your customers or your 1000 true fans to get a chance to be part of your business journey.

3. Bigger brand awareness and publicity

Given the additional publicity that founders get when they raise on an equity crowdfunding platform, naturally, some founders may feel that they will face a higher level of scrutiny over their management and business.

This isn’t necessarily a bad thing as tech media tend to cover crowdfunding campaigns a lot more than companies that may not be in any spotlight.

Similarly, crowdfunding platforms compete among each other aggressively. They also keep track of how their portfolio companies area doing like any good exits and how their graduates perform post crowdfunding campaigns.

For instance, when the news on the acquisition of Skolafund, a donation crowdfunding platform for students was made, it became big news for many as there seems to be a general perception that crowdfunding investors may not see any exit until a listing or a trade sale. The publicity also gave additional merit for Ata Plus, being the crowdfunding platform which Skolafund was hosted.

4. Investment exit opportunities

If you’ve been following the crowdfunding development in Malaysia, you’d be excited to hear when the Securities Commission finally revised the guidelines to include secondary market features.

To summarise, the secondary market allows crowdfunding investors to buy and sell back the shares that they’ve invested in a company using the same crowdfunding platform.

Currently, there are very limited options where a crowdfunding investor may realise his or her investment either a pre-agreed shares buyback from the founders or to wait for a trade sale or an initial public offering.

Although it may take a while before the secondary market is implemented and adopted by crowdfunding platforms, this new feature would certainly allow crowdfunding investors with an additional exit option for crowdfunding investors to sell their investments sooner.

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