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 (SC). Today, 10 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.
In 2023, Malaysia’s government announced tax incentives for the ECF market as well as an allocation of RM100 million to the Malaysia Co-Investment Fund (MyCIF) initiatives to spur co-investment in micro, small and medium enterprises (MSMEs) and social enterprises alongside private investors via ECF and peer-to-peer (P2P) financing. Since its inception, ECF has helped raise RM686.69 million of funds for 377 issuers via 381 campaigns as at end-December 2023 (end-December 2022: RM560.4 million).
ECF saw a declining trend across the board in 2023 with total funds raised decreasing to RM126.28 million (2022: RM140.38 million) by 50 issuers through 51 successful campaigns (2022: 66 issuers, 68 campaigns). Although the pace decelerated, larger campaigns were the order of the day, with 25% of the campaigns raising funds exceeding RM3 million. The largest sum raised by a single campaign stood at a maximum of RM20 million. In addition, Islamic ECFs have been gaining significant traction as an emerging asset class that appeals to a diverse range of investors due to its adherence to Islamic principles, as well as ethical and socially responsible investments (SRI).
The ECF market also observed a shift in fundraising stages, as the number of seed-stage campaigns doubled to 42% from 16% the previous year. Professional, scientific and technical activities retained its status as the most popular economic sector served by ECF, raising a total amount of RM32.51 million in 2023. The proportion of issuers with technology focus slightly decreased to 47% compared to 57% the preceding year. While ECF issuers from Selangor and Kuala Lumpur continued to make up the majority at 84% of the total issuers in 2023, businesses situated outside the Klang Valley have increasingly leveraged ECF due to its digital nature.
Investor participation increased slightly in 2023 to 4,095 (2022: 4,035), with first-time investors comprising 76% of ECF investors. As at end-December 2023, the investor demographics revealed that some 34 were aged below 35 years while an overall 56% 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 offer new investors the chance to participate in the deals 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
