We currently live in an anomaly whereby the Covid pandemic has provided unforeseeable circumstances as well as challenges that were once unimaginable, with travelling restrictions and working from home being the ‘new normal’. However, with this, the pandemic may have provided us with an opportunity to reshape the Malaysian economy and the landscape for investment in the post-pandemic world.
ECF is a form of private equity where startups and SMEs can issue securities through participating in campaigns on a digital platform. On the other side of the platform are investors, consisting of both ordinary people as well as high-net-worth individuals or entities who can invest into the private market through browsing on the platform. It is a relatively new form of private equity that seeks to enable wider access for both issuers and investors. It’s prominence continues to grow in Malaysia, especially during this pandemic, with the total capital raised by ECF rising by 457% in 2020 as compared to the year prior (Shankar, 2021). Once we leave covid behind, it is likely that we will begin to enter a new world, particularly one where Equity Crowdfunding (ECF) could play a more prominent role and be the ‘new normal’ for startups in Malaysia.
Business-Investor relationship
Equity Crowdfunding is a method of raising capital through an accumulation of small investments from a ‘crowd’ of investors on a platform, with 70% of them being retail investors. Since there is a ‘crowd’ of investors, there is the potential that some of your investors may also be your consumers, which startups can leverage on. This can result in a number of benefits that go beyond simply raising capital, from consumer-based guidance to brand ambassadors that can help promote the business. Although ECF investors tend to be more passive, there will always still be the opportunity to ask for feedback. At Leet Capital, we also have a plethora of resources and mentors that will help guide startups to the right investors that will best suit them. Overall, when raising capital through ECF, startups will have the opportunity to create a community as well as build tight-knit relationships with their investors.
Geographical Accessibility
Unlike traditional methods of private equity, there is no longer a need for businesses to be located near popular investor hubs, such as Kuala Lumpur, due to the digital nature of ECF. Attending events, networking and meeting potential investors has now been made easy and convenient since it can be done online, removing any potential geographical constraints. In the wake of the global pandemic, where the lockdown has restricted cross border travelling and forced people to work from home, this is revolutionary for startups. Though we hope to quickly get out of this pandemic, this has potentially catalysed the ‘new normal’ for the future of investment. With the online platform, ECF creates a marketplace for investors and businesses alike to meet, improving geographical accessibility.
Market Validation
When startups are participating in an ECF campaign, they are able to have a glimpse of the potential demand for their business prior to scaling up and accelerating. Though a successful campaign demonstrates a high demand for the business’s securities, it is also evidence of a demand for the product in itself, since retail investors are unlikely to invest in a product that they could not see themselves or anyone else consuming. Here at Leet Capital, we thoroughly screen the potential issuers, ensuring that all issuers that list on our platform are able to satisfy a strong market demand. However, market validation can provide a sense of security and when showcased onto the platform, can increasingly improve investor prospects.
Social Entrepreneurship
Often, social entrepreneurs struggle to raise capital through more traditional methods of private equity as their businesses do not always result in high financial returns. As VC firms and angel investors take huge risks and invest large sums of capital, it can be difficult for them to provide grants or invest out of ‘charity’. However, as ECF has widened the access for investors to tap into the private market, there are greater opportunities for more socially conscious investors to invest. Thus, ECF can ultimately provide a platform for social entrepreneurship and innovative solutions to flourish, which is what should be encouraged in the midst of this pandemic.
Diversity
A market that was once exclusive to only VC firms and angel investors is now accessible to the general public. With the majority of investors on platforms such as Leet Capital being retail investors, the main difference between Equity Crowdfunding (ECF) and the more traditional alternatives to private equity is the fact that the majority of the investors on ECF are ordinary people. This means that it is more accessible for the ordinary person to invest and businesses are able to find investors from more diverse and underrepresented backgrounds. This is particularly important as it means that the guidance and market validation is more diverse and thus potentially more accurate and precise as it draws ideas from a wider pool of perspectives. Inclusion and diversity are key for a successful business, and ECF is at the forefront of this.
By enabling retail investors to invest into the private market, ECF has significantly lowered the barrier of entry for investing as well as raising capital. It provides a fresh new approach to raising capital through offering wider inclusivity and accessibility for both the investor as well as the startup. Currently, trends show that ECF’s popularity is on the rise and it does not appear to be slowing down anything soon. With the pandemic in mind, it is important that we consider more contemporary and innovative solutions to prepare us for the post-pandemic world, and ECF has proven to be a key driver in this.
At Leet Capital, investing and raising funds has been made easy as we would like to ensure that all good ideas have the opportunity to raise funds and all investors have the opportunity to invest. If you’d like to find out more on how to raise funds or how to become an investor, contact us through whatsapp at +60 11-5628 0817, email at info@leet.capital or through our website at Leet.Capital.
Bibliography
Shanker, A.C. (2021). SC Annual Report 2020: ECF, P2P platforms saw big leap in capital raised. [online] The Edge Markets. Available at: https://www.theedgemarkets.com/article/sc-annual-report-2020-ecf-p2p-platforms-saw-big-leap-capital-raised [Accessed 5 Aug. 2021].
