If you have the idea for the next big thing but not the funds and having difficulty to find investors – then this is for you! A new exciting opportunity is emerging, thanks to the Internet era heavily influencing everything, for innovations and ideas to find investors and be realised!
Crowdfunding is here; as part of an emerging wave of financial services that meet crucial needs in the business community. And as this new phenomenon has arrived also to Southeast-Asia, Swedish FundedByMe.com plays an instrumental role in connecting investors and entrepreneurs.
Now increasingly including equity, crowdfunding is significantly altering the game-plan as we know it; transforming the investor market from being only for the few to open for us all! Through crowdfunding companies and ideas can obtain funding to grow stronger and then be able to gain venture capital funding down the road.
Chief Operating Officer Pontus Frohde explains the philosophy behind it: “FundedByMe wants to open up deal flows that never before have been exposed to the general audience. In fact anyone can be a business angel, anyone can be an investor, even if you don’t have endless amount of cash in the bank – you still have the possibility to invest in the next skype and in the next Spotify. So everyone is invited – I think’s that’s a fantastic strength in crowdfunding,”
It is fast becoming a route for start-ups to raise funds, in form of equity or loans, where entrepreneurs and companies have a global stage to find investors. Start-ups and companies can then accelerate and build powerful momentum from day one, if they succeed in attracting such investors.
A telling example is when earlier this summer a new start-up to be based in Singapore called Djenee raised almost S$500,000 on the first day of the campaign on FundedByMe, setting a new standard for equity crowdfunding (ECF) in Asia! Being an app focused on personal on-demand digital concierge service, the strong interest in Djenee came hot on the heels of a similar service based in the US, which recently raised money at a US$40million valuation just after six months of operations.
FundedByMe see this as the modern way to finance start-ups and expand smart businesses. ECF creates a staircase for the companies to climb upwards in the eco system of funding, making them ready for venture capital investment.
“We believe that this is what will happen; that we will become what we call a pressure cooker for venture capitalists because what we are seeing is that these are moving upwards in the value chain; they are investing in more mature companies and the rounds are bigger and bigger, which is fantastic for us because it opens up the space below them to us.”
He mentions the Finnish company Yoogaia as a perfect example of this. The live, interactive online yoga start-up has received venture capital twice following on a round of crowdfunding, which actually worked as stamp of approval for the VC investor.
It is also significant that equity crowdfunding, now rapidly spreading worldwide, was born from a FundedByMe campaign in Sweden when the question came up if shares in the company could be offered as a reward.
“Luckily nobody involved was from the finance sector so they didn’t understand that this could have risks, that there were laws and regulations for anything involving shares,” recalls Pontus Frohde who joined shortly after. “I think that many traditional financial people would have hesitated since no one had done this before.”
Soon after, the first ever successful equity-based campaign for the Swedish vodka brand Virtuous Vodka closed, which Pontus describes as a great case story, where 105 shareholders became excellent brand ambassadors for the start-up to succeed.
Stock exchange collaborations
In Singapore (its crowdfunding hub and centre of operations for the region), FundedByMe attracted a local co-investor and collaborator in September 2014. The investor network Link2Ventures entered in the company for further expansion into the Asia-Pacific.
In Malaysia they have then partnered with Alix Global, approved for ECF by the Securities Commission Malaysia (SC). In early 2015 Malaysia became the first Southeast-Asian country to announce an ECF framework and introduce the concept. In addition to allowing investment in companies in exchange for equity the regulations also allow businesses to raise up to RM3 million (S$1 million) within a 12-month period and micro funds (such as venture capital funds) to raise unlimited amounts via an ECF platform.
SC argued that ECF will democratise finance, enabling capital markets to be inclusive, so that SMEs and start-ups can also be able to obtain market-based financing.
In the Nordic countries ECF is allowed by law, while it is also being regulated, and where FundedByMe are in dialogue with the authorities to ensure realistic and favourable conditions.
In Singapore FundedByMe so far have collaboration with the bourse, while the Monetary Authority of Singapore is expected to announce their standpoint on this within shortly.
“We have very close discussion with a number of stock exchanges, and they are looking very closely at what we’re doing, which is not that different but of course so far not that all regulated and structured. So it’s all related; could we organise it in a way so that we would be the first phase of a potential future IPO, like the first step of the ladder? I think so! But it’s going to take some time and it will require regulation.”
Having said that FundedByMe has its own ethical rules, and each submitted project is scrutinised very carefully.
“We don’t focus too much on the actual business idea–because we know that lots of times we are wrong–but more on quality: that it’s tidy and clean, crisp and clear. And now the filter is substantially thicker than from the beginning, and it will become quite tough to get through.”
Broader audience of investors
While crowdfunding started off with reward-based campaigns the Swedish-Singaporean service within this focuses onwards on FundedByMe (considering themselves among the top five in Europe) to be an investment platform open to anyone.
“We struggle a little bit with trying to become a serious player in the financial market and at the same time doing reward-based crowd-funding about for example saving kittens [a previous local campaign in Sweden].”
Then, says the Swedish COO, it is also important to clarify ‘crowdfunding’ as such. They sometimes struggle with the word.
“It’s a misconception that it must be a crowd of investors. On our platform one decides if to bring on board one, five or thousands of new investors. It’s absolutely up to the entrepreneur to set the terms and the rules, and then the crowd is invited to participate.”
The key difference is that one can reach a broader audience of potential investors, making it easier to find someone likely to invest. FundedByMe has already built up 56 000 registered members in its network, including people from 120 different countries.
“If we rewind the tape two ot three years, and you wanted to find interesting unlisted, still privately held companies, where did you go to find them? It’s not that easy to answer because there were no destinations like that. I think this is just the start of something that can become really big.”
Pontus Frohde explains that it has been estimated that in Northern Europe, where crowdfunding has advanced the most, it is currently catching less than five percent of the potential market. That points to that this is still very early days. Yet FundedByMe has described 2015 as a pivotal year.
“This is the year, and the period up until Christmas is the period when we will in particular see equity crowdfunding skyrocketing. The industry standards are suggesting that the business will double every year for a few years ahead – we see that on our side as well.”
He also highlights cross-border investment as a particularly crucial section, and where FundedByMe is a leader.
“We have never closed a single round on the platform which hasn’t had investors coming from outside of the entrepreneurs own country.”
“Finland is actually the leader, where the average number is about 40 per cent non-Finnish people investing into the Finnish companies that we launch on our site.”
Pontus Frohde especially highlights how also their presence in Asia, with a Singapore office, often has been a defining factor for the many exciting Nordic growth companies to start a round of capital-sourcing via FundedeByMe as it fits well with their own ambitions.
These entrepreneurs have reacted: ‘Really, do you have presence in Singapore! We already have an expansion plan including Asia, and where we would like to start off in Singapore!’
As for the market conditions and potential here Pontus Frohde replies: “There is tons of money and we believe that there’s a mentality in Southeast-Asia that matches really well with the nature of crowdfunding. We came here for that and the future hope and projections around region.”