TUESDAY'S commentary ("High risk, high reward in new funding option") made a compelling case for why equity crowdfunding should be considered a viable, alternative asset class for investors and a funding option for businesses.
As pointed out, equity crowdfunding is a high-risk investment, since the investment is in start-ups that have little or no track record.
Should the start-up fail, equity crowdfunding investors could potentially find their claims subordinate to those of equity shareholders.
Besides the various measures to protect retail investors in equity crowdfunding mentioned in the commentary, Singapore's regulators could consider adopting venture capital mechanisms to safeguard investor interests.
These could include releasing equity crowdfunding investors' money in tranches upon the fulfilment of specific covenants, such as generating a certain amount of revenue or positive cash flow by Year X after starting operations.
The start-up could also be required to compensate founders primarily by way of stock options in the initial years of operation, to align the founders' interests with the start-up's profitability.
This could go some waytowards turning equity crowdfunding into a more properly risk-managed investment product.
Perhaps more than anything else, would-be equity crowdfunding investors should go in with their eyes wide open, and appreciate the bigger picture: That they are helping to create an ecosystem in Singapore to empower innovators and entrepreneurs.
They should, therefore, be committed to this for the long haul and adopt a long-term view of the investment.
In this context, Singapore's regulators, platform operators and other equity crowdfunding players should participate in educating and engaging the larger crowd.
Woon Wee Min
As pointed out, equity crowdfunding is a high-risk investment, since the investment is in start-ups that have little or no track record.
Should the start-up fail, equity crowdfunding investors could potentially find their claims subordinate to those of equity shareholders.
Besides the various measures to protect retail investors in equity crowdfunding mentioned in the commentary, Singapore's regulators could consider adopting venture capital mechanisms to safeguard investor interests.
These could include releasing equity crowdfunding investors' money in tranches upon the fulfilment of specific covenants, such as generating a certain amount of revenue or positive cash flow by Year X after starting operations.
The start-up could also be required to compensate founders primarily by way of stock options in the initial years of operation, to align the founders' interests with the start-up's profitability.
This could go some waytowards turning equity crowdfunding into a more properly risk-managed investment product.
Perhaps more than anything else, would-be equity crowdfunding investors should go in with their eyes wide open, and appreciate the bigger picture: That they are helping to create an ecosystem in Singapore to empower innovators and entrepreneurs.
They should, therefore, be committed to this for the long haul and adopt a long-term view of the investment.
In this context, Singapore's regulators, platform operators and other equity crowdfunding players should participate in educating and engaging the larger crowd.
Woon Wee Min
