What is ECF?
Equity crowdfunding (ECF) is an investment vehicle that allows any individual the opportunity to invest in companies for a return in equity (shares). ECF is quickly becoming popular with younger folks who have a higher risk appetite and with people looking to diversify their investments from the usual options like the stock market.
The low initial capital required makes it a very attractive option for those looking to get started on their investment journey, coupled with Malaysia being a ripe market that is continually expanding. The reason ECF is deemed as ‘high-risk’ is due to how it is structured.
How does Equity Crowdfunding Work?
Equity crowdfunding is a long term investment where investors (like you) can invest up to RM5,000 per year to own equity in a company. Think of it as being an early investor except that it comes at a much lower cost and much higher potential profits! Businesses looking for a set amount of funding will offer up a percentage of equity in return, with the equity interest of each investor proportionate to the amount invested. So for a relatively small amount of money, you’ll be able to own a slice of the pie.
However, there’s no timeline as to when you’ll get to see your money back. Returns only come when:
- The company is bought out by another company (i.e capital gains through selling of stake) Example: Pappa Rich Group buying out eatcaketoday.com for undisclosed millions, making an easy 500% in returns within 12 months for the initial shareholders.
- The company becomes profitable and chooses to pay dividends to its shareholders
Who is Eligible to Invest?
The Securities Commission Malaysia (SC) have broken down investors into three categories:
- Sophisticated investor
– Over RM3 million in net assets
– Prior experience investing in securities
– No investment cap - Angel investor
– Gross annual income of at least RM180,000 or RM250,000 with spouse
– Investment cap of RM50,000 per company, and RM500,000 over 12 months - Retail investor
– No minimum income required
– Investment cap of RM5,000 per company, and RM50,000 over 12 months
How Do You Start Investing?
- Becoming a retail investor is easy, but you’ll need an account first. To create one, sign up with your email address and password.
- Your account is now up and running, but don’t rush to invest right away. As per the regulations of the Security Commissions Malaysia, you’ll first have to verify your identity.
- You will fall under retail, sophisticated or angel investor. Choose the relevant option for yourself before going through our Know Your Customer (KYC) process.
- Once verified, you’re now part of our network of investors!
- You can pre-book investments or simply check out our offerings and see if anything stands out to you.
- Click the Invest Now! button to invest, where you can determine the amount of money you want to put in.
- If any of our campaigns don’t reach the amount needed to raise, you will get a full refund.
Pros and Cons of Investing in ECF
It is important to be aware of the potential drawbacks of any investment vehicle. As ECF is classified as a high-risk investment, consider the following:
High risk
This goes without saying but investing in issuers is a high-risk game. Without trying to scare off investors, the rewards can be lucrative, but the downside is high. You’re essentially investing in the belief that the issuer will continue to grow steadily before being bought or taken over by another investor or group, which is when your stake will come into play. However, there is no guarantee that this will ever happen, which brings us to our next point…
No timeline for returns
Want your money back fast? ECF might not be for you. There’s no limit as to how long it will take before you can get returns, it at all. A potential exit could take anywhere from a year to a decade or longer – it all depends on how well the company performs, and if larger investors want to buy a controlling stake! In addition, if the company goes bust, your investment goes down with it. However, this is true for any high-risk investments such as stocks or cryptocurrencies, so only invest what you’re prepared to lose.
High returns
If the company you invested in made an exit, congratulations! You’ll have the option of cashing out or holding onto your shares in the hope that they will be worth much more down the line. In 2019, Malaysia saw three successful exits in the ECF space with investors in Skolafund, Mycash Online and Greenlagoon getting anywhere from 10% to 100% in returns!
Easy to get started
You don’t need large investment capital to get started in the world of ECF, which is why it’s quickly gaining popularity among younger investors. In fact, one of 2019’s success stories (Skolafund) set a record for the smallest investment entry size – a mere RM10! It’s unlikely that you’ll want to beat that record if you choose to invest but it just serves to highlight how it doesn’t take much for you to get into the game!
Is ECF the Right Investment for You?
To conclude, it’s always important to think of investing for the future as you never know which way the wind will blow. Plus, if you have additional money sitting in your bank account, it’s much better to let it work for you instead of collecting interest that doesn’t even beat inflation!
It’s important to note that while traditional investment methods should never be discounted, it’s also wise to dedicate a portion of your investment portfolio to slightly higher risk ventures to balance out the steady returns with appropriate risk and reward. After all, it only takes one success story to bring you one step closer to financial freedom!
We hope we’ve managed to shed some light about the pros and cons of this exciting new vertical in investing. If you’re keen on getting started, click here to invest now!
Disclaimer: Our articles are not and should not be taken as financial advice. You should conduct your own research carefully and be fully aware of all implications prior to making any investments.
