Equity crowdfunding (ECF) is an innovative form of alternative fundraising that allows small businesses to raise capital from the public, using online platforms registered with the Securities Commission Malaysia (SC). Ten ECF platforms have been registered to date. ECF allows small businesses to offer equity in their companies to investors, who in turn invest in the concept which they see potential in. Through ECF, investors can diversify their investments beyond traditional asset classes.
Malaysian ECF platforms have been charting impressive growth since 2016, in line with the Government’s call for financial services providers to embrace technology and develop more inclusive, innovative and efficient capital markets. Although ECF funding had skidded during the initial stages of movement restrictions in 2020 amid the economic slowdown, it had eventually bounced back following subsequent relaxations. Since its inception, ECF had helped raise RM560.4 million of funds for 305 issuers via 330 campaigns as at end-December 2022 (end-December 2021: RM420.9 million).
In 2022, some RM140.38 million was raised by 65 issuers through 67 successful campaigns (2021: RM220.72 million and 104 issuers). Although the pace had decelerated, larger campaigns were the order of the day, with 89% raising more than RM900,000 each. The biggest sum raised by a single campaign stood at RM17 million. About 49% of ECF issuers were technology-focused entities, with business expansion again cited as the main purpose for fundraising. As at end-December 2022, the investor demographics revealed that some 37% were aged below 35 years while an overall 48% were retail investors.
The SC launched a secondary trading framework for ECF and P2P in 2020, to provide an exit mechanism to investors. This permits early investors to exit from deals they have invested in and also offers new investors the chance to participate in the ones they may have missed earlier.
An applicant that wishes to be registered as an ECF operator must be a body corporate incorporated under the Companies Act 1965. The prospective applicant must be able to demonstrate to the SC that it is able to satisfy the relevant criteria mentioned in the Recognised Market Operator (RMO) Guidelines. An ECF operator must also comply with the following requirements:
- Undertake a due diligence exercise on prospective issuers planning to use its platform.
- Ensure that the issuer’s disclosure document lodged with the ECF operator is verified for accuracy and made accessible to investors through the ECF platform.
- Inform investors of any material adverse change in the issuer’s proposal.
- Ensure that the fundraising limits imposed on the issuer are not breached.
- Ensure that the investment limits imposed on the investor are not breached.
Only locally incorporated private companies (excluding exempt private companies) and limited-liability partnerships can raise funds from the ECF platform. The following entities are prohibited from raising funds through an ECF platform.
- Commercially or financially complex structures (i.e. investment fund companies or financial institutions).
- Public listed companies and their subsidiaries.
- Companies with no specific business plan or their business plan is to merge or acquire an unidentified entity (i.e. blind pool).
- Companies, other than a microfund, which propose to use the funds raised to extend loans or invest in other entities.
- Companies, other than a microfund, with a paid-up share capital exceeding RM10 million
- Any other type of entity that is specified by the SC.
An issuer may only raise, in total, a maximum of RM20 million through ECF platforms in its lifetime. This excludes the issuer’s own capital contribution, or any funding obtained through a private placement exercise.
Only locally incorporated private companies (excluding exempt private companies) and limited-liability partnerships can raise funds from the ECF platform. The following entities are prohibited from raising funds through an ECF platform.
- Commercially or financially complex structures (i.e. investment fund companies or financial institutions).
- Public listed companies and their subsidiaries.
- Companies with no specific business plan or their business plan is to merge or acquire an unidentified entity (i.e. blind pool).
- Companies, other than a microfund, which propose to use the funds raised to extend loans or invest in other entities.
- Companies, other than a microfund, with a paid-up share capital exceeding RM10 million
- Any other type of entity that is specified by the SC.
An issuer may only raise, in total, a maximum of RM20 million through ECF platforms in its lifetime. This excludes the issuer’s own capital contribution, or any funding obtained through a private placement exercise.
Investment in ECF is open to all investors, subject to the following limits
Retail Investors
A maximum of RM5,000 per company, with a total amount of not more than RM50,000 within a 12-month period
Angel Investors
A maximum of RM500,000 in total within a 12-month period.
Sophisticated Investors
No restriction on investment amount.
The ECF licence enables platforms to raise funding for Malaysian-registered sole proprietorships, partnerships, incorporated limited-liability partnerships, private limited and unlisted public companies. An issuer can only raise up to RM3 million within a 12-month period, through several campaigns. In total, an issuer can raise a maximum of RM20 million. Investors are allowed a cooling-off period of six business days, during which they can withdraw their entire investment amount
