Are you a
newbie entrepreneur setting up a company in Singapore? Are you looking for ways
to fund your business idea? Then you might have already considered
crowdfunding. Though crowdfunding is still a relatively new financial concept
in Asia, it has significantly gained traction in the Singapore business scene.
What is Crowdfunding?
Crowdfunding
is a way to raise money or ‘fund’ from a large number of people—‘crowd,’
usually done via an online platform. Crowdfunding is very promising for a
startup haven like Singapore as it has the likelihood to strengthen
entrepreneurship by expanding the network of investors that could invest in a
business idea as opposed to just tapping on your personal network or resorting
to traditional financial instruments given by banks and other financial
institutions.
There are four kinds of crowdfunding in Singapore specifically
targeting different needs. These are donation, reward, debt/lending, and equity
crowdfunding.
1. Donation-based crowdfunding
Donation-based
crowdfunding is where individuals give out or donate money without expecting
anything in return. Most of the time, donation-based crowdfunding are utilized
by charities and other altruistic causes. Even if the funding goes to a
business, donors do not expect anything in return—no shares, freebies, or
product/service in return. Knowing that they have given to a worthwhile cause
or something that they believe in are enough for the crowd on this kind of
model.
2. Reward-based crowdfunding
Reward-based
crowdfunding is a lot like the donation-based model in the sense that the crowd
that supports a cause or a business does not expect monetary gains for their
pledge and knowing that they are integral to the success of the cause is enough
for them. But unlike donation-based, they get a reward in ‘kind’ like a simple
token or actual product/service of the venture. These are often used by
startups that have an out-of-the-box idea or cause.
3. Debt-based crowdfunding
Debt-based
or lending-based crowdfunding can be likened to buying bonds. The investors
expect a return to their investment from the venture. Both the borrowers and
investors would have an agreement to pay back the money lent with a
predetermined interest at a predetermined date. This type of crowdfunding is
best for SMEs as they have a more difficult time to get funding from public
listing or limited access to traditional financial instruments. This will give
them enough liquidity to get the company started and interests are usually
revenue-based to ensure that the startup survive. For investors, this is a
great way to create passive income in the short-term from surplus cash while at
the same time supporting local ventures. You can tap this kind of crowdfunding
through the following platforms:
4. Equity-based
The
equity-based crowdfunding is where the investor is offered a stake in the
company in exchange for funds being lent. This can be likened to buying stocks
from publicly listed companies but the ventures are private and not listed.
Thus, monetary gains are derived from the increase in share value and
dividends. This kind of crowdfunding model suits startups that are quite
innovative and out-of-the-box or targets a very narrow or niche market. Such
kind of ventures often faces financial constraints to bring their ideas to
fruition. It's the ingenuity of their idea that will also help them attract
media attention and peak the curiosity of potential investors that will
eventually help them raise the needed funds. Equity-based
crowdfunding, in essence, democratized venture capitalism that serves and
elevates the interests of both the capitalists and the startups. The
introduction of crowdfunding platforms made the whole process accessible and
open the doors to many small-time investors
An added note, often referred to
as securities-based crowdfunding, both lending based and equity-based
crowdfunding model are regulated by the Monetary Authority of Singapore (MAS)
under the Securities and Futures Act
(SFA).
If you are thinking of setting up a company or have
recently completed with your company incorporation in Singapore and are looking
to fund your business, Corporate Services Singapore has company incorporation
services that will guide you throughout the process of setting your business to
choosing the right crowdfunding platform. Contact us
to get a free quote within 24 hours.
