The rapid development of Equity/ Securities Crowdfunding is considered to be an alternative source of funding that is fast, easy and cheap for the younger generation and SMEs who are not yet bankable, to develop their businesses.
Crowdfunding, also known as crowdfunding investment institutions, refers to the collection of money or funds from individuals to finance projects or businesses. There are benefits and risks in investing through crowdfunding schemes and it is always prudent to understand them.
Funds are mostly collected from online forums, social media, and dedicated crowdfunding sites. The person who participates in raising funds through crowdfunding gets ownership according to the amount they have given. This method of financing is a viable alternative to the more traditional methods of generating business capital such as borrowing money from banks, relatives, or using personal funds.
The business advantages of crowdfunding schemes include among others:
Huge Refund Potential:
The higher the risk, the greater the profit. The story of Facebook’s USD 2-billion acquisition of crowdfunded virtual reality headset maker Oculus Rift in 2014 is now legendary. Oculus Rift raised USD 2.4-million via crowdfunding portal Kickstarter based on donations from 9,500-people.
Opportunities to Invest Like an Accredited Investor:
Before the advent of crowdfunding, only accredited investors could participate in early-stage speculative ventures that promised high returns and equally high risk. Accredited investors are high net-worth individuals who hold certain high levels of income or assets. However, crowdfunding allows the average investor to invest much smaller amounts in such ventures. In that respect, it has leveled the playing field between accredited and non-accredited investors.
Level of Satisfactory Investment:
The level of satisfactory investment through crowdfunding is higher than in a blue-chip company. Investing through crowdfunding can focus on businesses or ideas that resonate with, or those that engage with causes in which investors have deep faith. For example, an environmentally conscious investor may choose to invest in a company that is developing more effective methods of measuring air pollution. Crowdfunding may offer more avenues for such targeted investments than public companies.
Business and Greater Job Creation:
This investment allows easier access to investor capital for businesses that would otherwise be difficult to obtain. Crowdfunding can stimulate local and national economies through the formation of new businesses and lead to more job creation, which generally results in investors feeling good about their contribution. The opportunity to invest also means the opportunity to start a business and create jobs.
The trend of investment through the Equity/ Securities Crowdfunding platform increased in Indonesia by 319.56-percent, where the ratio of the number of investors on the Equity/ Securities Crowdfunding platform in 2020 was 22,341 to 93,733 in 2021.
The increase in the number of investors was also accompanied by the birth of more publishers listing their businesses through a crowdfunding scheme. As many as 193-publishers have successfully listed on 7-Equity/ Securities Crowdfunding platforms in 2021, which means there has been an increase of almost 50-percent from the previous year.
The Ministry of Communication and Information of the Republic of Indonesia (Kemenkominfo RI) has issued Regulation of the Minister of Communication and Information (Permenkominfo) RI Number 5 of 2020 concerning Private Scope Electronic System Operators. Furthermore, the Financial Services Authority has issued Financial Services Authority Regulation (POJK) Number 16/POJK.04/2021 concerning Amendments to Financial Services Authority Regulation Number 57/POJK.04/2020 concerning Securities Offering Through Information Technology-Based Crowdfunding Services (Securities Crowdfunding.)
OJK (Otoritas Jasa Keuangan/Financial Service Authority Body) also issued SEOJK concerning the Application of Risk Management in the Use of Information Technology by Non-Bank Financial Services Institutions as a derivative of POJK Number 4/POJK.05/2021 concerning the Application of Risk Management in the Use of Information Technology by Non-Bank Financial Services Institutions. This provision is regulated in more detail and equipped with a minimum standard format for the procedure for submitting reports on certain conditions, requests for approval for the placement of data centers and/ or disaster recovery centers outside the territory of Indonesia, and reports of critical events.
Currently, to meet the long-term funding needs of SMEs, Securities Crowdfunding (SCF) exists so that investors and parties who need funds can easily be seen through an online platform (information technology-based application system). Investors will get profits in the form of dividends or profit sharing from the business profits which are distributed periodically.
If you’d like to learn more about how you can either support a business and start up or use Crowdfunding platforms to grow your business get in touch with Ridwan today via ridwan@sevenstonesindonesia.com
