Developments in Equity Crowdfunding (ECF) From Around the Globe

Malaysia

Malaysia was the first country in Asia to introduce a regulatory framework to facilitate equity crowdfunding in 2015, with six registered equity crowdfunding (ECF) platform operators to be fully operational this year.

In a review by the Cambridge Centre for Alternative Finance (CCAF), Malaysia was given high praise for its proactive regulatory approach. A report by CCAF showed that Malaysia was leading other Asian countries in alternative finance.

Figures for 2015 showed the country raising £2.4m, although most of this was via rewards and donation-based campaigns rather than equity crowdfunding. The next highest amount in this region was raised by Indonesia and this was well under half Malaysia’s achievement. No other country broke the £1m mark, so there is clearly some way to go yet.

India

A recent warning from the Securities and Exchange Board of India (SEBI) has highlighted the need for governments to get regulation policy sorted before they allow equity crowdfunding to take hold. India, it seems, might be making it up as it goes along…

SEBI issued the following warning at the end of August – ‘Electronic platforms facilitating fundraising on digital platforms are neither authorised nor recognised under any law governing the securities market. Such platforms, which are open to all investors registered with the platform, amount to a contravention of the Securities Contract Act and the Companies Act.’ 

It appears that SEBI has taken a blanket approach to all equity crowdfunding platforms and it remains to be seen what action will follow. Official figures state that around $50m has been raised for ~200 businesses using this channel in the past 18 months.

New Zealand

Despite there being quite a buzz about the New Zealand equity crowdfunding market, activity is still very low. In order to establish an equity crowdfunding platform here, firms have to apply to the regulatory board, the FMA,  for a specific licence to be active – unlike in the UK, where the licence granted is just a general FCA one.

To date, 7 platforms trade this funding channel. One, Crowdcube NZ, is an off shoot of the UK market leader but, here in NZ, its progress seems to be a little sleepy, with the platform only showing one pitch when I last looked.

The Americas and Brewdog’s US Campaign

The big question everyone is asking is – ‘when will equity crowdfunding be allowed to take off in the USA?’. To date, the enthusiasm and rapid growth seen in the UK and the EU has not been reflected in America.

The JOBS Act has been fully ratified but restrictions on the amount unqualified investors can invest, and the amount it will cost a company to set up a campaign, even for a small raise, have led to real equity crowdfunding (where the crowd can easily take part) being very limited.

The SEC has been duly cautious. It does not want to see another financial scandal.

If you take a look at the response to the Brewdog campaign here in the UK – and the currently live campaign for Brewdog US https://www.brewdog.com/usa/equityforpunks/live-updates - you can see the problem. Although the Brewdog campaign in the UK never reached the giddy heights the founders had hoped, it has to be said that is was a massive success in term of raising funding from the crowd.

On the webpage linked to above, you will see a very helpful map of the USA split into states and entitled Hot Spots for ‘Equity for Punks’ (Brewdog’s own name for its campaign), with plain white showing no interest and burgundy the highest interest. Blue shading basically implies a cold response and the map is either white (over 50%) or shades of blue. Only California and Ohio register into the red, which paints a pretty sorry picture. The campaign has now been going for some months.

Ohio is understandable as this is where Brewdog has plumped its brand new distillery and, California, well, anything goes in California...

Overall, it is looking like the target of $50m may be some way off.