The Securities and Exchange Commission (SEC) said the regulations to govern crowdfunding platforms will be finalised this year while the Market for Alternative Investment (MAI) expects that once the rules are in place, foreign and domestic crowdfunding portals would pop-up.
Some start-up companies with high potential and small and medium enterprises (SMEs) that have set up their businesses via crowdfunding platforms will be able to enter the MAI market within 2-3 years, they said.
Crowdfunding is an alternative for start-ups and SMEs to raise funds via “crowdfunding portals” that are usually online and do not involve traditional banking. Businesses or projects have to invite people to pledge or invest small amounts by providing information on business plans, financial statements and returns on the website while the “crowd” are potential investors (institutions or individuals) who are interested in investing in an innovative idea or an unlisted company by providing a fund pool via a crowdfunding site to help turn ideas into real businesses.
The crowd can provide financial support, product and service ideation or access to their social networks in return for nothing, which is called a “donation model.” This type of crowd is normally associated with philanthropy or social sponsorship.
Three other types of crowd or “model” are “reward model” (supporters receive non-financial rewards for their contributions), “lending model” (peer-to-peer lending or peer-to-business lending at attractive rates), and “equity model” (supporters receive equity stake in a company such as common stock in return).
The usual size of the fund being pooled via crowdfunding is usually less than the size of a venture capital fund.
SEC’s secretary general, Vorapol Socatiyanurak, said at the first “Crowdfunding Asia Thailand Summit 2015” yesterday that the regulations for crowdfunding platforms should be concluded within this year and the regulator can try and make sure that businesses that are going to enter the crowdfunding platform are legitimate but they cannot guarantee that those businesses will be successful.
He also revealed that there is a massive growth of fundraising through crowdfunding from $1.5 billion in 2011 to $5.1 billion in 2013 and the World Bank has estimated that the global crowdfunding market potential could be between US$90 billion and US$96 billion by 2025.
“The investment-base or equity-base crowdfunding involves the offering of securities that fall within the scope of SEC supervision. The SEC has conducted public hearings throughout last year on crowdfunding supervision and we wish to allow enterprises to offer sales of shares and debentures to regulated funds in the [crowdfunding] portal,” he said.
Vorapol said the crowdfunding regulations would allow SMEs that meet certain criteria and conditions to offer securities by means of crowdfunding and the rules will take into account that crowdfunding regulations should not be too burdensome for SMEs while the supervision will be more reliant on the funding portal to assure a proper level of investor protection.
The funding portal will be regulated so that securities businesses can only provide services to their members and the portal must be financially sound with reliable systems in place, he added.
MAI’s president Prapan Charoenprawatt said, “These crowdfunding portals will be feeders for MAI and we are willing to support them helping to extend their effort such as giving training and coaching in terms of account setting and internal control for start-up companies and SMEs, after they have set up their business as preparation before their next step of entering the MAI market.”
Kwek Hong Sin, president of Crowdfunding Asia Association and founder of Phoenixict, said it is a positive sign that the SEC and the MAI are willing to give their support to the crowdfunding platform as another way for SMEs to raise funds. Crowdfunding emphasises transparency and collaboration, she added.
“Fraud is something that happens in many other financial products but at this moment, this point, this second, there is zero fraud as far as equity crowdfund funding is concerned because crowdfunding platform providers are normally responsible in curating the deals. The problem lies with crowd-funding platform providers that do not curate the deals,” she said.
“Investors are responsible for their investment and they are encouraged to read all the disclaimers along with rules and regulations and at the same time, especially for crowdfunding, there is a lot of visibility on the progress of the business or campaign, so I urge investors to read and pay attention and do not just leave their investment lying around and hope that magic would happen,” she added.
