How Can You Invest In Crowdfunding Platforms in Singapore?
As more and more entrepreneurs are constantly innovating, fresh new apps are sporadically being introduced to the public, it is no surprise that the number of crowdfunding platforms in Singapore are gradually increasing as well. The ideal scenario that every investor would want to be in, is to be able to fund or provide financial support to the next Facebook, Uber, or Airbnb, and have the opportunity to support growing SMEs, which are the backbone of the economy (SMEs make up 99% of companies in Singapore).
Here in Singapore, the government would typically intervene as long as there is money involved. The Monetary Authority of Singapore (MAS) would be the official body to implement new policies and regulate these companies so as to ensure that money is being managed appropriately by these crowdfunding companies.
There are a couple of ways to invest in these crowdfunding platforms, but investors have to know what they are in for before making any monetary commitments.
Donation-based Crowdfunding – where investors and contributors will support an idea or product financially, and the returns could be intangible.
Reward-based Crowdfunding – where investors who contributed financially will receive a reward in a form of a tangible object or something that is of non-monetary benefit.
Debt-based Crowdfunding – this arrangement is quite similar to that of a loan. Where one or more investor will loan funds out and in return earn from the interest of the loan amount taken up.
Equity-based Crowdfunding – this arrangement is where investors who contributed financially would be regarded as a shareholder and be part of the company, owning shares. They will be receiving profits if the company appreciates or makes money.
What are some of the well-known crowdfunding websites?
Funding Societies is Southeast Asia’s leading peer-to-peer financing platform, and the first to crowdfund more than SGD 130 million, the largest crowdfunded SME loan amount in the region that too in about 2.5 years. Besides having a solid track record of credit underwriting which is reflective in the low default rate, Funding Societies also has one of the strongest financial backing amongst peer-to-peer financing platforms in Southeast Asia.
They are also the first debt crowdfunding platform in Singapore to introduce e-signing of contracts. For the busy and passive investor, a simple way to diversify one’s portfolio within Funding Societies is to set up Auto-Invest. Whenever an investment opportunity comes along and falls within the Auto-Invest parameters set by the investor, the algorithm will allocate the desired amount to be invested on the loan without having to manually queue and invest. Majority of our investors have activated their Auto-Invest function.
A Funding Societies mobile app is available too for anytime and anyday use. As an investor, you can do most things on the app – review your portfolio, invest, manage Auto-Invest settings, and even speak to someone on live chat. Behind the live chat is Miyu, a friendly chatbot, and Funding Societies’ CX heroes (the humans backing up. Fret not if you are in a different time zone or are too busy during business hours, Miyu can get your queries promptly answered 24/7.
Kickstarter would be one of the more reputable crowdfunding sites if you are looking for a platform which has lots of ongoing campaigns and projects for an investor who is looking to fund and be part of a project they see a potential in.
Above would be a sample campaign where investors are able to “back this project” which simply equates to funding the project financially. Upon clicking on the page, potential investors would be redirected to the funding page where they would be able to know what type of crowdfunding or returns they will be able to get.
After clicking the “back this project” button, investors will be taken to this page where they would be able to find out the type of crowdfunding they are in for. For most of the product projects, it would be a reward-based crowdfunding where users would be able to receive a reward or a product of the funded project based on the amount that they are financially supporting.
If there are still questions that are unanswered, there would be an FAQ at the right corner of the screen with a series of commonly asked question where you may find an answer there.
Till date, kickstarter has successfully funded some 138k projects with close to 3.5 million dollars worth of funding. It is no wonder that kickstarter is one of the more globally recognised crowdfunding platforms today.
Below are some local crowdfunding sites where you can simply access via a simple Google search – “Crowdfunding platforms Singapore”
Fundedhere is another local crowdfunding platform where local investors are able to dive deeper to take a look into their current campaigns. Above would be a good example of an equity crowdfunding website. In order to view the amount they are asking for, in return of an Z% equity of the company, investors will also have to be qualified through a series of questions and will be curated by the platform before releasing the necessary information from the fundraisers.
What You Should Know Before Putting Money Into A Crowdfunding Platform
Like any investment, potential investors should research on crowdfunding and understand how it works.
Funding Societies believes that a good way to start is to speak directly with the platform and the team. “SME loan investment is only as good as the platform you invest on. Learn the basics of 5Cs of credit underwriting (Google it!), pierce through the glitters of ‘X years of banking experience’ and ask tough questions,” said Kelvin Teo, CEO and co-founder of Funding Societies, the only platform with a FinTech Award from the Monetary Authority of Singapore (MAS) to its name.
How can you mitigate risk?
Funding Societies has four tips for managing risk when investing in a crowdfunding platform.
Firstly, choose a platform that has good credit management reflected through their track record. While a track record does not forecast future performance, it gives clarity on the prudent due-diligence practices a platform has to actively filter out potentially bad quality loans. In terms of managing repayments and defaults, the platform should be able to articulate the reasons for late repayments and interventions taken against the companies and guarantors when a loan becomes delinquent or defaults.
Secondly, to minimize one’s exposure to a specific investment, a good way is to diversify extensively in terms of the number of loans, loan amount, industry and loan products. In this way, a single/or a few defaults will not impact the overall portfolio performance excessively.
Thirdly, investors should invest with stable platforms so that they can focus on their investments and not worry about the financial stability of the platform.
Lastly, know your risk appetite before investing. Ensure that the platform is pricing the risk properly and your returns are commensurate with the risk that you are taking.
Check the credibility of the crowdfunding platform
It is always useful to browse through the crowdfunding site and keep a look out for a CMS (Capital Markets Service) license number that you can cross reference with MAS’s platform.
All of us would want to know that our money is being used for the right intended purpose. Companies that are found under the MAS list are regulated and would comply to the Monetary Authority of Singapore when it comes to compliance and regulations.
It is important to note, however, that the CMS license requirement currently only applies to platforms dealing with debt and equity, but not for platforms operating with other business models. At the same time, licensing mainly provides guidelines for the conduct of platforms, and such licensed platforms can still have bad credit underwriting and eventually have bad loans listed on their platforms. So always do your due diligence.
It is also wise to read up the common FAQs of Crowdfunding which can be found from MoneySense, a government website to understand more about Crowdfunding. An investor should also practice their due diligence if they are likely to make investments in these crowdfunding platforms.
Local crowdfunding platforms are growing by the numbers, do take note of what type of crowdfunding the fundraisers are asking for, and know where your money is being funded to. It may be for a cause, to fund a prototype product and see it completed, or to fund an idea. Whichever it may be, an investor should take some time out to read through the terms and conditions before committing an amount.
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