How Average Malaysians can Shape the EconomyNovember 30th, 2016 by Natalie Heng
The Time is Ripe for Equity Crowdfunding
All over the world, equity crowdfunding is being hailed as a game changer for stimulating small and medium-sized business growth. This is how the little guy can make a difference.
With wage stagnation, cutbacks in subsidies and declining oil revenue from a global slump in oil prices, sentiment this year has been gloomy. But you know what makes an economy resilient? SMEs.Small and medium enterprises are the backbone of our economy. They account for up to 98% of the business establishments in Malaysia, 62% of employment and 42% of our national GDP. Make no mistake about it, small and medium-sized businesses may not generate as much money as large corporations, but they are critical to the strength of local economies the world over. So the best way to encourage resilience in times of economic uncertainty is to support SME growth. Small businesses help stimulate economic growth by providing employment opportunities. They provide goods and services that improve the quality of life for the local community and create the kind of local ecosystem that will attract larger corporations seeking a good location to set up their businesses. The trouble is that one of the biggest challenges faced by SMEs in Malaysia is limited access to finance. Investments in early stage startups tend to be dominated by government agencies, whilst private local investors seem to prefer more traditional asset classes, like real estate.
Money is the Seed of Money
Venture capitalists go for high-risk returns. But what about the mom-and-pop shops deciding to take their business a step further? Or someone looking to open a modern childcare center just down the road from where you work? Or a home-grown tech company looking for seed funding to get their virtual admin assistant platform off the ground? It’s often said that to make money, you have to spend some; whether that’s through converting your website to an e-commerce platform, hiring new staff, or updating equipment to increase operating efficiency.
Startups and SMEs often use personal savings to get their ideas off the ground or turn to friends and family for money. But this often isn’t enough, which means for every great idea that sees the light of day, many more great business ideas go untested. The arrival of equity crowdfunding in Malaysia couldn’t have been more timely. Equity crowdfunding refers to the online offering of private company equity to members of the public. In some places, it’s called ‘crowd investing’, because it enables broad groups investors (the crowd) to fund small companies or startups, in return for equity.
More Relevant than Ever
Since the idea first began to take off in the aftermath of the 2008-09 financial crises, regulatory bodies around the world have been busy creating legal frameworks to enable ECF; seen as an alternative to traditional debt financing to help kickstart the economy in light of a global credit crunch. Last year, the Securities Commission of Malaysia took a bold step, making Malaysia the first country in Asia-Pacific to legislate equity crowdfunding (ECF). This year, we’ve seen a proliferation of Malaysian equity crowdfunding platforms – including our own platform Ata Plus, creating greater access for both Malaysians and foreign investors to invest in local companies. But the benefits of ECF benefits aren’t restricted to businesses – this is a new opportunity for everyday citizens to shape the community around them, by supporting businesses ventures that not only stimulate growth, diversifying and creating a more vibrant local economy, but enabling a better quality of life for the customers they serve.
Our own first list of issuers on Ata Plus, are great cases in point; Skolafund for example, creates greater access to higher learning for students from low and middle-income families, through education crowdfunding. They offer investors like you and me – retail investors can invest anything from RM100 to RM5000 – more than just a potential return on the equity we buy; they give us the chance to support something that is making a better Malaysia for everyone. Likewise, PasarTap, another one of our issuers, supports local farmers by connecting them to urban consumers via a modern door-to-door delivery service. That means that just because you live in a city, doesn’t mean you have to buy your groceries from expensive supermarkets. Instead, PasarTap offers a fresh solution, giving consumers access to local produce at market prices, at the click of a button – and they are seeking to improve and grow this great low-carbon footprint business model via capital sourced from the crowd. Our third issuer, Neuroware is a fantastic example of how equity crowdfunding gives everyday people the opportunity to be part of something new. Blockchain technology is at the cutting edge of financial innovation, with potential applications in all sorts of other business areas. By opening equity up to the crowd, Neuroware – a leading blockchain technologist and the first in Southeast Asia’s to offer blockchain agnostic solutions and infrastructure – is giving businesses the chance to be part of this pioneering space.