Are Crowdfunding Platforms Getting Hot?

Venture capital and private equity fundraising activities declined by 41% last year as there were increased uncertainties caused by the Covid-19 pandemic. The amount raised amounted to RM11.7 billion last year, of which RM4.31 billion was via venture capital and RM7.39 billion via private equity (The Star, 20 March 2021).

But the reverse was seen for equity crowdfunding (ECF) / peer-to-peer (P2P) financing, which grew by 43%, raising RM631 million for the Micro, Small and Medium Enterprises (MSMEs), as reported by the Securities Commission.

Total capital raised through ECF in Malaysia grew by a whopping 457% to RM127.73 million last year from RM22.92 million in 2019. The campaign sizes in 2020 also shifted towards larger fundraising amounts, with 84% of campaigns raising more than RM500,000.

The top three sectors in terms of the amount of capital raised in 2020 were:

- the other services activities with RM38.88 million or 31% of the total amount of capital raised; - the professional, scientific and technical activities sector saw RM19.96 million (16%); while   - the information and communication sector raised RM18.27 million (14%).

P2P financing also saw total capital raised increase by 20% to RM503.31 million last year, from RM418.64 million in 2019. Wholesale and retail trade; repair of motor vehicles and motorcycles sector remains the largest sector served in 2020 at 52%.

ECF and P2P have proven to be viable financing options for MSMEs. Within six years, about 3,000 MSMEs have raised more than RM1.3 billion (as at end 2020) through ECF and P2P. Over 80% of the investors in the crowdfunding markets are retail and about 60% of them are under the age of 35.

More and more entrepreneurs and investors are acknowledging the benefits of crowdfunding. To entrepreneurs, the hinderances of long waiting period, collateral and creditworthiness track record in getting a loan approval now seem avoidable. But to investors, high returns will always come with high risks. Do your due diligence and make sure you diversify your investments!

 

Reference:

1.     SC Annual Report 2020, Securities Commission Malaysia

2.     B.K. Sidhu, Crowdfunding more popular, 20 Mar 2021, The Star

3.     Jagdev Singh Sidhu, Risen Jayaseelan, SC remains vigilant on emerging cyber risks, 20 Mar 2021, The Star