Crowdfunding has been gaining popularity in recent years and is now one of the best ways to raise capital for businesses in Singapore and in other countries. I’m sure we’ve all heard of international crowdfunding sites like Indiegogo, Kickstarter and GoFundMe. Some of us may even have backed projects on these platforms!
Perhaps you are interested in starting your own business, are looking for ways to raise capital, or are simply curious about crowdfunding and investments. If so, read on, because today we’ll tell you what you need to know about crowdfunding and then introduce you to some of the best crowdfunding platforms for investors in Singapore.
So, what exactly is crowdfunding?
Crowdfunding, as its name suggests, is an activity that involves raising small amounts of money from a large number of people with the aim of financing a new business or supporting a cause.
Crowdfunding takes advantage of the fact that it is now possible to reach many people over the Internet. Social media platforms and crowdfunding websites enable those with shared ideas to come together and make contributions towards a given business venture.
Aside from conventional methods of getting capital, such as a person’s personal savings, reliance on venture capitalists, or borrowing from banks, friends and relatives, crowdfunding is now another way for people to fulfil their dreams and goals.
Some startups, which may find it harder to secure business loans from banks due to their short history and small company size, may turn to crowdfunding as a solution to gathering funds.
The Four Types of Crowdfunding
Donation Crowdfunding – In donation crowdfunding, individuals and interested parties do not expect anything in return. If they are funding businesses, investors are not expecting discounts or products. This form of crowdfunding is commonly used by charities, and investors are usually only interested in helping worthy causes with no expectation of reward.
Reward Crowdfunding – Reward crowdfunding is similar to donation crowdfunding, except that investors will receive non-monetary rewards in exchange. For example, investors may receive mugs or keychains in return for their contributions. This makes investors feel a part of the project they are supporting.
Debt Crowdfunding – This form of crowdfunding is similar to bond investments. Investors or moneylenders will lend a sum to borrowers or companies and borrowers have to pay back the loaned sum with interest to the lenders by a stipulated date. Repayments typically start a few months after crowdfunding ends and are sometimes based on a fixed percentage cut from the company’s business revenue. This method of funding is good for startups as they usually face cash constraints in their nascence.
Equity Crowdfunding – Investors of equity crowdfunds are given a stake in the companies when they offer funds. The concept is similar to investing in the stock market except that the companies are private or smaller enterprises. Investors will be able to profit from the dividends should the share value increase over time.
How Crowdfunding Works And Why People Are Interested In It
At the core of crowdfunding is the concept of raising funds from a ‘crowd’—a crowd that can now be reached via online platforms. This means that opportunities for funding are pretty much limitless, because you can reach anyone, anywhere over the Internet and get them to support your cause. With many people making contributions, it is possible to raise significant capital even from the small amounts that each person contributes.
People are also interested in crowdfunding because the concept makes it possible for businesses, especially small firms, to raise capital more quickly compared to other ways of raising funds. The traditional method of borrowing capital a bank, for example, usually takes a longer processing time and does not guarantee an approval.
In general, people like to take part in crowdfunding campaigns related to services, products and causes that they deem worthwhile. It could be an idea that could significantly make someone’s life better or bring convenience to their daily routine.
Tile, for example, designed and crowdfunded small convenient trackers to help users find their belongings easily. They were inspired to create the product to solve the problem of people misplacing their house keys, car keys, wallets, iPads and more. If an entrepreneur pitches an idea well through a crowdfunding platform, they are likely to get the support that they need quickly.
Best Crowdfunding Platforms For Investors In Singapore
If you’re interested in being a part of the crowdfunding trend, know that when choosing a crowdfunding site, it is important to consider factors such as the objective, cause or nature of problem the crowdfunding is to solve.
Then look at expected returns, fees, and the return profile, as well as the potential risk that is associated with the various investments provided by each crowdfunding site. Based on the aforementioned considerations, the following are the best crowdfunding platforms for investors in Singapore:
Funding Societies: Funding Societies is the best choice for investors looking for a crowdfunding site with the best track record in performance. Notably, this platform has a very low default rate (1.3 percent), which almost matches the default rates of premier commercial banks in Singapore.
Funding Societies also has the best asset quality and has sealed the highest number of deals in Singapore compared to other peer to peer crowdfunding platforms. It is also highly competitive compared to other crowdfunding sites.
KapitalBoost: KapitalBoost is the best choice for investors who need the best zero-fee crowdfunding. KapitalBoost provides an opportunity for investors to put their investments in SMEs and get high returns, while avoiding investor fees. It also has one of the lowest minimum investment requirements vis-à-vis other platforms.
MoolahSense: For investors looking for the best long-run crowdfunding platform, MoolahSense is the perfect choice. MoolahSense is particularly well-suited for investors who are interested in putting their investment in SMEs while at the same time avoiding high fees and huge minimum outlay requirements.
MoolahSense makes a lot of sense because of its small charge of 1 percent investor fee on all incoming repayments. The platform also has a very low fee for long-term investments, outdoing Funding Societies in this regard.
FundedHere: Investors who want a crowdfunding website that promises the best startup equity financing should consider FundedHere. FundedHere helps investors invest in startups that are in their formative stages.
With FundedHere, investors can also invest their resources in buying the shares of firms that are publicly listed. With as little as 5,000 USD, investors get an opportunity to buy equity in startups. FundedHere also obligates early-stage businesses to meet certain income and operating requirements, which reassures investors with regard to the investment decisions that they make.
Fundnel: Investors who are looking for a crowdfunding website that guarantees the best late-stage equity investment opportunities can count on Fundnel. This crowdfunding platform makes it possible for investors to put their resources in a curated portfolio of early- and late-stage startups.
Investors can make their investments in the form of convertible bonds, equity, debt/bond structure or sharing of revenue. Fundnel requires startups that need financing to go through a rigorous application process, with only 10 percent of applications going through, and only 3 percent of the total number of applicants actually getting financed.
Investacrowd: Investors who seek to work with a crowdfunding platform that offers the best terms in real estate financing need look no further than Investacrowd. Investacrowd is the only crowdfunding site in Singapore that offers access to both long- and short-term debt and equity financing for real estate businesses at competitive rates. Investacrowd also offers investment opportunities in the real estate industry in advanced markets such as Singapore, the United States, Australia, the United Kingdom and Hong Kong.
This article first appeared as Everything You Need to Know About Crowdfunding and the Best Platforms for Investors in Singapore 2018 on Money Kinetics: Singapore’s definitive guide to financial literacy. Money Kinetics helps Singaporeans compare and evaluate loans, deals, cards and guide them to make their money work for them.
The article has been edited for concision and style with the permission of Money Kinetics.