Over the years, several Singapore Company especially startups looking for multiple ways to finance their businesses. And crowdfunding is one of the most ideal and prominent ways to fund your newly established business.
However, it is legal in Singapore to receive funds from crowdfunding platforms to fund your new project or capital for new business from the general public. Considering the increasing demands for crowdfunding, several big platforms have also been established which are certified by the Singapore government.
In simple words, crowdfunding is an alternate process of funding your business by receiving a large amount of money from several people or through the internet—the evolution of crowdfunding has attracted several entrepreneur’s abilities to finance their business idea is much more accessible than earlier.
As per the reports, the crowdfunding market was valued at 10.2 billion USD in the year 2018, and now it is expected to cost 28.8 billion USD by the end of the year 2025.
The reason behind sharing this article is to share all the related details regarding crowdfunding and its guidance to the individual who is willing to choose crowdfunding to source their business. So keep on reading the article to learn more about the process.
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What is Crowdfunding?
Crowdfunding is defined as the process of funding your business by collecting several small investments from multiple sources. The idea of merging most parties’ resources to fund the new company is to promote the old one (for example, the British East India Company was formed as a joint-stock company in 1599). In the past few years, crowdfunding is considered a rapidly growing industry.
The crowdfunding process is straightforward and separated from voluminous paperwork, high fees of investment banks, and bureaucratic processes, business owners can quickly raise funds from the several reputed crowdfunding platforms certified by the Singapore government. Generally, the funds raised from the platform are relatively small.
As per the rule, Company capitalists, investment banks, and angel investors choose only those projects and companies a) from which they are aware of b) under which the entrepreneurs can make a sizable investment (generally greater than USD 2 million) that is worth their efforts and investment. However, several investors avoid investing in early-stage start-ups.
The crowdfunding platform has a solution for this; they serve as a medium for connecting entrepreneurship with small investors looking for relatively small funds. The audience of the several reputed crowdfunding platforms is usually small and mid-sized business owners or startups. However, the small-sized business firm usually struggles in the beginning due to the limited capital.
Not only small or mid-sized business firm use the crowdfunding platform to raise funds, but at times highly reputed company also uses crowdfunding platform to a) raise funds for the new projects which is completely separated from their regular line of business b) when looking to launch the new product in the market.
Regulations for Companies Seeking Crowdfunding in Singapore
Crowdfunding consist of several different types of relationships between the entrepreneur and investor. Prior to setting up of crowdfunding plan, every business owner needs to have a complete understanding of the difference between the following types of crowdfunding options:
- Lending-based crowdfunding
- Equity-based crowdfunding
- Rewards-based crowdfunding
- Donations-based crowdfunding
We have covered further information regarding each type of crowdfunding with the applicable Singapore regulation below:
1. Lending-based Crowdfunding
This type of crowdfunding option is commonly known as peer-to-peer lending. In the Lending-based Crowdfunding option, investors provide money to the respective business. The business owners are required to give the legal commitment to the investor, mentioning that they will pay back the money with the pre-agreed interest rate. The commitment given by the business owners should also involve the deadline to repay the amount.
This type of money lending option usually takes place online through peer-to-peer crowdfunding platforms, including Funded Here, Funnel, Invest Crowd, etc. The Monetary Authority of Singapore (MAS) expects that the people claiming to provide the company’s money should get the debenture as security. Such a claim is directly related to the prospectus criteria that include preparing and registering prospectus with MAS.
However, there are several exceptions to the existing rules of security regulations in Singapore given below:
A.) Small offers
The exception is only considered when the total amount provided from all the offers by the issuer or securities stays within the period of 12 months, and the amount must not exceed SG$5 million (or should be equal to the foreign currency). The monetary authority of Singapore has also made changes in the base capital criteria for all the crowdfunding platforms, which are between S$ 50,000 to S$2,50,000. However, while raising funds, it is the responsibility of the Company to disclose all the possible risks of investments to all the moneylenders.
B.) Private placements
In order to get liable for this exemption, the offer should not be provided to more than 50 people within the period of 12 months. Furthermore, it should not be part of any advertisement that attracts the general public towards the offer. Trustees and entities both will be counted as individuals only if the trustor venture is not established primarily for the motive of acquiring securities that are subject to the particular offer. But if the venture or trustee is established to obtain the security, then each member of any entity or beneficiary of the trust will be considered individually.
If you are looking for a crowdfunding platform for lending-based crowdfunding, then the platform will make sure that you follow all the above-given rules and keep in mind its exceptions. Some of the examples of such crowdfunding platforms are Funding Societies, Moolah Sense, Zopa, Upstart, etc.
2. Equity-based Crowdfunding
This type of crowdfunding option includes investing in the company’s capital and enjoying the benefit of equity shares, which gives the moneylender the right to be a part of the company’s future profit. This idea is more likely similar to those of initial public offering as in the stock market, with the difference being that companies will not be listed but private.
Therefore, the contribution in the crowdfunded equity-based investment cannot be transferred to any secondary market and thus comes with liquidity risk. Nevertheless, this type of crowdfunding option is common for start-ups as it comes with excellent outcomes for their investor.
The monetary authority of Singapore executes equity-based crowdfunding in a similar way as it administers debt-based crowdfunding. In both cases, the crowdfunding platform should hold a capital market service (CMS) license. In addition, if the crowdfunding platform provides financial investment advice, it should also hold a license to serve as a financial advisor.
3. Donation-based Crowdfunding
In this type of crowdfunding options, the investors serve as a donor and do not get liable to receive anything in return. Generally, this type of crowdfunding option is considered by Charity projects, artistic and social enterprises.
Monetary Authority of Singapore regulation does not apply to reward-based crowdfunding. Furthermore, the Commissioner of charity has organized a code of practice for online charitable fundraising appeals. It is established to make sure about accountability, transparency, and legitimacy. It expects online fundraisers to fulfill the declaration of requirements with fundraising provisions.
The primary motive of the code of practice is to show the right path to the fundraiser to make appropriate representation to the contributor. However, they are also required to make a separate record of the donations and where they have used the donation amount with the intended purpose.
4. Rewards-based Crowdfunding
Reward-based crowdfunding options allow the group of individuals to invest the funds in the non-financial reward, including novel products or experiences, to make sure that their expected rewards materialize. The reward can be either product or service. Some of the examples of such rewards include a documentary movie, custom cruise vacation, new gadgets, etc.
The monetary regulation of Singapore does not apply to reward-based crowdfunding options. In such a case, the fund issuer must also abide by the charity law. Just like the case of donation-based crowdfunding, the Commissioner of charity code of practice conducts the reward-based crowdfunding option as well.
Popular Crowdfunding Platforms Singapore
1. Kickstarter
Have a great business plan but lacking behind due to insufficient funds? Kickstarter is one of the best-performing crowdfunding platforms that you should not miss.
However, for reward-based crowdfunding, Kickstarter has launched a number of uncountable projects. Some of the projects include films and games, technology, and creative projects that have become one of the most successful.
The coolest cooler, exploding kittens card game, fidget cube, and travel tripod are some of the most successful projects which almost every one or two people are using; special thanks to the Kickstarter.
Also, note that raising funds on Kickstarter is either all or nothing: your sponsor will not be able to contribute unless your business reaches its goal. A total of 5% of the total amount raised will only be considered.
2. Indiegogo
Another one of the most incredible crowdfunding platforms is Indiegogo, one of the biggest rivals of Kickstarter. This crowdfunding platform provides greater flexibility to the business owners who are looking to raise funds for their new projects or their business startups, undoubtedly higher fees are an integral part of the equation. Indiegogo gives you the option to choose between all or nothing options or retain with yourself what you have already raised option.
However, retain what you have raised option sounds great; always keep in mind you have to analyze your project to the completion no matter how much you have raised at the completion of your campaign. It is one of the most reliable crowdfunding platforms for those people who are looking to launch a project in the field of creative and technology works.
3. Patreon
Patreon is undoubtedly one of the most reliable crowdfunding platforms, especially for artists and creators like YouTubers, cartoonists, musicians, live streams, forecasters, bloggers, and many more.
But do you know how Patreon actually works? Patreons who are willing to support their favorite creators and personalities can either pay per month or per creation to encourage the creators to create more engaging and better content. In return for the contribution, the creators provide each kind of exclusive perks so that the contributors can take the benefit on the basis of the payment tier they have subscribed for. Some of the most basic examples of exclusive perks include access to shootouts, branded swag, sneak peeks, etc.
If you are an internet influencer and love to create content on a daily basis and are confident enough about your online presence, then it will be worth creating a Patron page.
There are in total three different types of plants available on the platform, and Patreon starts taking a small cut after you start earning through the platform. Always bear in mind that payment processing fees may apply.
4. Crowdfunded App — Shopify
Already owns a store on Shopify? Then, you can apply for crowdfunding as per the convenience of your store and get hassle-free control over the process from scratch to finish. This will be helpful no matter you are willing to test the new product ideas, launch a limited edition of your best-selling products, provide pre-orders for the products in demand, and even you can raise funds for new projects.
5. Funded Here
Funded Here is the Singapore true equity crowdfunding platform option preferred by a number of business owners willing to raise funds from the platform. However, it is a true equity crowdfunding platform, so you can expect MAS regulations as you use them to raise funds and develop promising startups. Undoubtedly it is the most reliable true equity crowdfunding platform.
Here is the checklist of three major requirements that you require to meet with in order to use Funded Here to match your startup with potential investors:
- The minimum paid-up capital in your business start-up should be $50,000
- One of the founders of your business owners should be a Singapore citizen.
- Your newly started business should be a Singapore-based entity that’s been in operation for the previous three months.
Obviously, the Monetary Authority of Singapore (MAS) certified Funded Here asks for the success fee of cash and shares at the same value. The minimum investment amount for every investor should be $5000 within 12 months. In return for the investment, the investor will get liable to receive the equity in the company and semi-annual interest payments.
6. Fundnel: for start-ups
Fundnel is another of the most reliable Singapore crowdfunding platforms that serve as a middleman between start-up businesses and investors. This platform is regulated by the Monetary Authority of Singapore (MAS).
In contrast to Funded Here, this platform is considered the ideal choice for slightly bigger start-ups. Similar to the Funded Here, in this platform also start-up businesses can choose between loans and equity.
If you are interested in raising funds from a crowdfunding platform, you will need to submit an application. It takes up to 2 to 3 weeks for them to screen the applicants. They are a bit strict with the selection process so ensure that you provide all the relevant documents as per their selection criteria.
7. Funding Societies
Small business enterprises that are looking to enter into peer-to-peer (P2P) lending prefer using Funding Societies. One of the most prominent and most well-funded P2P lending platforms in the whole of the southeast region, Funding societies allow small and medium-sized enterprises to crowdfund an array of business loans directly into the heart of Singapore.
Two of the examples of funding Societies include invoice financing and business term loans.
In return, the company will require to pay off the interest on the loan amount to the investors. Luckily, small and medium-sized enterprises with good credit ratings can expect to raise the business loan amount ranging in between $5,000 to $1.5 million through Funding Societies.
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Undoubtedly, crowdfunding is one of the unique concepts to raise funds for your business; several start-ups and even completely established businesses are also using this platform to raise funds.
By following all the above-given tips and going through all the regulations of MAS, You will quickly learn to raise funds through crowdfunding platforms and take your business to greater heights. Just ensure that prior to moving further with any decision, consider everything carefully.
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