MAS improves crowdfunding access for start-ups and SMEs

SINGAPORE — The Monetary Authority of Singapore (MAS) has made it easier for start-ups and small and medium enterprises (SMEs) to gain access to securities-based crowdfunding (SCF) as well as secure investors.

In a statement issued yesterday, the MAS said SCF platform operators seeking to raise a maximum of S$5 million within a 12-month period may do so without having to issue a prospectus. But to safeguard investors, MAS will require SCF platform operators to document and disclose key risks of the investment and obtain acknowledgment from investors that they have read and understood the risks.

To make it easier for start-ups and SMEs to secure investors, pre-qualification checks on investors have been simplified. SCF operators now need only determine that investors have either the financial competence or are suitable to invest in the product given their investment objectives and risk tolerance. This is a change from the previous guidelines, which require investors to fit all criteria of financial competence, suitability as well as financial means before they can invest.

Examples of securities-based crowdfunding include equity-based funding where investors become shareholders of the company in return for capital investment, and debt-based funding where investors become lenders to the fund and receive interest.

MAS will also be reducing the financial requirements for SCF platform operators who want to raise funds from accredited and institutional investors. Both the base capital requirement and minimal operational risk requirement will be lowered from S$250,000 to S$50,000. The requirement for a S$100,000 security deposit will also be removed.

Crowdfunding platforms welcomed the move by MAS. “The new rules strike a balance between relaxation and requiring the platform operators to be more transparent in disclosures and risks. They are useful as it would enable us to increase our customer base to include retail investors,” said Mr Brian Wee, CEO of real estate crowdfunding platform FundPlaces.

“The regulations are a step in the right direction,” said Mr Getty Goh, CEO and co-founder of CoAssets. “It would make it easier for SMEs and start-ups to access securities-based crowdfunding. At the same time, by alerting retail investors to the potential risks, it would also provide greater transparency and protection to them. The latest announcement by MAS is helpful as it adds greater clarity (to) the regulatory underpinnings in the rapidly growing crowdfunding sector in Singapore.”

Some start-ups said that it is good to have more options for funding, but noted that this still depends on the needs of each business.

“It is good that there are more options and we acknowledge that crowdfunding is a very fast way to get funding,” said Mr Alfy Ngor, CEO of clubbing app WOOFR. “However, we prefer to look for investors who have real concern over the business and can take it to the next level. For example, strategic investors or venture capitalists can give advice and mentorship. Those are very important for start-ups. It’s not just about the money sometimes, we need the right people to help the business.”

Dr Walter Theseira, senior lecturer at SIM University, commented: “The measures are a safeguard to reduce the potential harm that could be caused by crowdfunding becoming an easily accessible investment opportunity for all. The Minibond saga in Singapore and Hong Kong during the recent financial crisis is a good example of how investors were harmed when they invested in financial assets whose risks they did not fully understand.

“The basic challenge with crowdfunding platforms the world over is that they generally have much lower accountability, safeguards, and recourse for investors than traditional funding mechanisms such as banks or the stock market. When you consider that many investors on crowdfunding platforms are unsophisticated, this has resulted in quite a large number of failures,” added Dr Theseira.

MAS assistant managing director, capital markets, Mr Lee Boon Ngiap said in the announcement yesterday that securities-based crowdfunding is a “useful addition to our financing landscape” while acknowledging that SCF investments can be quite risky. “The measures we are implementing seek to strike the right balance between improving access to SCF for start-ups and SMEs, and protecting investor interests,” he said. “The public consultation exercise has been very useful in helping us arrive at this ... approach.” The MAS launched a consultation in February last year proposing measures to facilitate funding access by start-ups and SMEs.