You’ve got a great idea for your business, but not enough funds. Crowdfunding can get you investors from all over the world – here’s how it’s working in Singapore.
It sounds easy: Pitch your idea to many people via an online crowdfunding platform. If they like it, they invest. The amount of money from each person can be as little as $1, up to hundreds or thousands of dollars. Multiply that by thousands of investors and suddenly you’ve got the funds to start your dream business.
“Crowdfunding is a platform for entrepreneurial individuals and businesses to raise money from the public, usually via the Internet, to fund completion of a specific project,” explains Stephen Lee, Head of Starhub’s crowdfunding platform, i3 (Innovation, Investment, Incubation).
People asking for crowdfunds create an online profile to explain their project details and how much money they need. They share this project information with their friends, family, social networks and the general public. Crowdfunding projects must also set a deadline and a financial goal, for example: “I need $10,000 by December 2015 to make my product.” If the amount is not reached by the deadline, any money already pledged and not used is usually returned to investors.
The concept of crowdfunding is not new to Asia – people here have always pooled money together to start a business. But with social media this method now has global reach. Singapore’s loudest advocate is Hong Sin Kwek, CEO of Phoenixict Pte Ltd and Creator of the Crowdfunding Asia Summit. She says, “Crowdfunding is not just about getting funds. It is also an amazing platform for branding. You get global access to a large pool of people who support you and contribute to your idea.”
Crowdfunding platforms are huge in the US, with over 150,000 projects launched on Kickstarter, raising over USD$1 billion. Indiegogo, another crowdfunding portal, has over nine million people visiting their site, and on-going campaigns from over 224 countries.
The concept of crowdfunding is more recent in Singapore – yet we are already among the top 10 countries supporting campaigns on Kickstarter. Out of its USD$1 billion ($1.27 billion) pledges, over USD$6 million ($7.6 million) of that came from our shores, as local platforms such as Starhub’s i3 Crowdtivate are gaining interest. Since its launch last year, Crowdtivate has received more than 500 campaign proposals.
What’s the catch?
So what’s in it for investors? According to Andrew Tinney, KPMG’s CEO for Management Consulting in Southeast Asia, most investors here do it on a ‘rewards basis’. “Crowdfunding campaigns can be fun, especially with innovative products or services,” he explains. Most campaigns offer investors “rewards” for their investment, such as a discount off the product, or the chance to be amongst the first to receive the product or service. Often, the value of rewards increases as they invest more money.
But unless you are an accredited investor, you cannot buy a share of equity from a campaign. Explains Andrew, “The Monetary Authority of Singapore is working on how to create a framework where crowdfunding can thrive, whilst ensuring investors have adequate protection. Until that framework is established, existing rules on equity apply.” Currently, there are no immediate adverse tax implications for investing in a start-up, or for starting a crowdfund campaign in Singapore.
However, the reality of most crowdfunding projects is that they are start-ups with ideas, but no product. So you do not really know if they can meet production and delivery schedules, or whether they can run their business well.
In a nutshell, the risks of investing in crowdfunding projects are as real as any other investment – you can lose your money and get nothing in return, so do your homework before investing.
5 Keys To Crowdfunding Success
- Understand your target audience – Leo Shimada, Co-Founder and CEO of crowdfunding platform Crowdonomic.com, advises, “Learn from similar campaigns. Identify your target audience and ways to reach them. Be personal, tell your story through your campaign.”
- Engage the crowd – Says Hong Sin of Crowdfunding Asia Summit, “Be responsive to comments. Don’t just put your campaign on a platform; use social media like Youtube, Facebook, Instagram and blogs to keep people up-to-date.”
- Incentivise in smart ways – “Create good incentives for people who support you. Test these rewards on your market,” says Leo.
- Work your campaign tirelessly – “It’s a common mistake to think a campaign will go viral just by being online.You should put in at least 80 per cent of the marketing effort,” says Mouna Langendorf of CrowdFundHerLive!
- Line up a few backers first – Says Leo, “Line up some early supporters to back you from day one to help you gain momentum. Crowdfunding is like a dancefloor – others are more likely to join if you already have a crowd.”
By Vicky Henniker, The Singapore Women’s Weekly, March 2015