INDUSTRY: EQUITY CROWDFUNDING IN GOOD SHAPE, SAYS PITCHIN
The good track record of companies that have raised funds on equity crowdfunding (ECF) platforms have fuelled investor confidence. They have begun to notice that good companies have chosen to raise funds through this avenue, says pitchIN co-founder Kashminder Singh.
“There may have been some apprehension when ECF started two years ago, as to what kind of companies would raise funds on these platforms. That fear should be gone by now. The issuers that raised money on pitchIN are great companies and they are doing well,” he adds.
This was reflected in the performance of the ECF industry last year, which raised RM23.9 million — more than double the RM10.9 million raised in 2016. The number of successful campaigns jumped 46.6% to 22 last year from 15 in 2016. This was revealed in a year-in-review report by platform operator pitchIN.
Speaking to the media after presenting the report earlier this month, pitchIN CEO Sam Shafie said having reputable entrepreneurs, such as Ganesh Kumar Bangah, raise funds via an ECF campaign is essential for the industry’s growth. “I think it is important to get someone like Ganesh, who has made a name in the industry, to look at ECF as an option to raise money because it sends the message that it could be the first option, not the last,” he added.
“The message we want to get out to the public is, when you think about fundraising or raising growth capital and getting value investors, the crowd is actually a great option for people to raise money from. That is because when you convert the crowd into investors, they will automatically be your marketers, your evangelists, and will really do good work in terms of getting the word out on your company. That is why Ganesh could see the value and benefit of ECF, as opposed to going straight to corporate investors.”
A few weeks into the new year, pitchIN — which was set up in 2012 — has already lined up 20 companies for the first half of the year. According to Kashminder, they are as good as the ones they chose last year. “We expect keen interest from investors this year,” he says.
Successful and diverse campaigns
Loyalty, Sam opines, is not what investors would give to ECF platforms as they will only choose those that host quality companies. “That is our No 1 priority,” he says. To date, 856 investments have been made on pitchIN campaigns.
In 2016, human resources management start-up Kakitangan.com raised its target of RM1 million on pitchIN in less than 24 hours. It was the third campaign to have successfully achieved its target on pitchIN after creative vocational college KRU Academy and logistics delivery start-up RunningMan.
Last year, six of the 12 campaigns — Babydash, MyCash Online, Signature Market, WOBB, SalesCandy and QEOS LED — raised more than
RM1 million each on pitchIN, with QEOS LED being the first in the country to reach the maximum RM3 million funding target.
This year, the 20 companies that registered on the platform include parking payment app JomParking, alcohol delivery platform Boozeat, education enterprise Me.reka, and bricks-and-mortar company Lord’s Tailor as well as two financial technology (fintech) firms Curlec and Mobiversa.
“We are fairly confident, based on our performance and experience last year, that the momentum is with us. Investors are already educated and aware of what we do. Most of them are looking forward to the next few deals,” says Sam, adding that pitchIN aims to have about 40 companies register for their campaigns this year.
He says although the majority of the current line-up are technology companies — a continuation of last year’s trend — the ECF report indicates that about a third of the companies were non-tech. “Currently, investors are more inclined towards tech companies, but I wouldn’t discount the fact that we will see more non-tech ones as they become more educated about ECF.”
More options for ECF investors
Kashminder observes that what investors want for the ECF industry is the same thing they want from other investments — deals that will give them good returns. “They also want more options to trade their investments. A secondary market will emerge in time to address that need,” he says.
“Just by looking at the explosive growth alone, ECF has become almost mainstream. Deals such as [Ganesh’s] Commerce.Asia will be another tipping point for us, like what we achieved with Kakitangan.com. This type of deal will help us take the industry to a whole new level. Ultimately, when the secondary market comes, and that is not going to be long now, I think you will have a full-blown ecosystem. Then, everyone will be able to participate.”
The Securities Commission Malaysia (SC) has given companies until March to discuss the secondary market, says Kashminder. He describes this period as a “pre-consultative environment” and the SC will finalise a regulatory framework for the secondary market later. “We definitely want to be in the market,” he adds.
Kashminder admits that it will be a challenging task to be involved in a secondary market. “It is not so easy because we are not talking about the stock market or a market that is going to be extremely liquid. We are probably looking at a market that is very organised and that will allow people to enter and exit in an orderly fashion. The mechanics are the things we want to discuss with the SC.”
Liquidity will occur in a couple of years, says Kashminder. “It took two years for the ECF industry to reach the level it is at now. So, the secondary market will also take about that long to grow. And by that time, the market size will be much bigger. There will probably be about 40 companies by the end of this year just on pitchIN alone so by then, it will be a very liquid scenario.”
Sharing business risks and growth through ECF
Ganesh Kumar Bangah, who was founder and group CEO of MOL Global Inc, is currently chairman of the National ICT Association of Malaysia (Pikom). MOL was Southeast Asia’s first internet company to be listed on the Nasdaq. He recently founded Commerce.Asia (Commerce DotAsia Ventures Sdn Bhd), which aims to grow an ecosystem to help SMEs become omnichannel-commerce merchants.
The decision to choose equity crowdfunding (ECF) as a way to raise funds for Commerce.Asia came after many of his investor friends approached him and asked if they could put some money into his new business. “As I built my operations, I realised that for the start-up side of my business, it made sense for me to raise money from strategic investors or third parties,” says Ganesh.
“Before I became chairman of Pikom, I was talking to pitchIN. And one of the things that came up was how a lot of my friends were asking if they could invest when I start something new. But every time we entered into negotiations, the question of how they could invest and how to determine valuations and due diligence would arise.”
Ganesh found himself in a dilemma as he had to manage the demands and expectations of his friends, who were willing to invest up to RM1 million each. So, he talked to pitchIN and proposed that they work together.
“Why don’t I run an ECF round and get my friends to participate, and allow your investors to participate in the round so we can share the risks and growth of the business?” he suggested to the platform operator.
Despite having other fundraising avenues, such as working with corporates, Ganesh chose to share the risks and growth with the public. “I have dealt with corporates before but this time around, I wanted to be my own man and ECF is one of the best platforms for us to work with the public,” he says.