Sometimes raising capital for a business can be challenging. This is where crowdfunding comes in. It makes it easy for budding entrepreneurs to start their businesses even when they do not have capital. Crowdfunding involves a group of people raising capital for your business venture.
It involves pitching your business idea to a mass of people. Those who will like the idea will contribute small amounts towards your capital. Crowdfunding is a good way for an entrepreneur to assess their idea’s demand before starting with production.
What Is Crowdfunding and How Does It Work?
Crowdfunding involves getting a small amount of capital from a group of individuals to help finance your business idea. It uses the vast networks of people on the internet through crowdfunding websites and social media. These fundraising companies have websites that help bring entrepreneurs and investors together.
Crowdfunding helps entrepreneurs expand their pool of investors beyond traditional investors and venture capitalists.
How It Works
In some jurisdictions, there are restrictions on applying for a new business and the amount they are allowed to contribute. They are almost the same restrictions on hedge fund investing. These regulations are meant to protect lower-income investors from putting most of their savings at risk.
There are chances that the new business venture might fail, which means that the investor stands a chance of losing their investor’s monies.
Fund-raising companies in Singapore creates an opportunity for entrepreneurs to raise thousands to millions of dollars from the people willing to invest in their idea. They also provide crowdfunding platforms for any person with an idea to pitch their idea in front of their investors.
Investors can choose from hundreds of projects and investors little as S$10 on a business. Crowdfunding generates its income from the funds raised from the investors. There are generally three types of crowdfunding. They include:
- Donation-Based Crowdfunding: Individuals pool their funds together to support a charitable cause.
- Rewards-Based Crowdfunding: Individuals give a company their money. In return, they get a reward which is usually a product the company is launching.
- Security-Based Crowdfunding: This is further divided into equity-based Crowdfunding and lending-based Crowdfunding. In equity-based crowdfunding, individuals invest in shares sold by a company and receive a share of profits based on distribution or dividend.
On the other hand, lending-based crowdfunding is where individuals lend money to a company, and the company commits to repaying the money at predetermined interest rates and intervals.
Things To Consider Before Getting Into Crowdfunding
1. Government Regulation
For security-based crowdfunding in Singapore, the platforms are regulated and licensed by the Monetary Authority of Singapore (MAS). The platforms are also granted a Capital Markets License (CMSL) under the Securities and Futures Act.
The MAS required all platforms to be licensed to ensure proper segregation of the investors and; to find and keep proper records of all the transactions; if there are any breaches of the regulation, the Authority takes supervisory measures, including revocation of the license or audits.
The MAS warns investors against investing in SCF platforms and constantly evaluates the key risks before investing. They should evaluate the loss of capital and the lack of opportunities to liquidate the investment in case of fraud or closing down of the online crowdfunding platform.
2. Proof of Concept
The most crucial factor for a potential investor in any market is the proof of concept. You will need it to gauge the demand for a product, but it is important to note that the market demand can be hard to estimate at times.
Running a campaign allows a company to gauge the demand for its concept while they raise money. The number of people willing to invest in a concept indicates the potential success of a concept in the market.
The platforms also have successful entrepreneurs who will offer valuable feedback for the business idea.
3. The Potential Idea of Theft
Since the crowdfunding platforms are very public there, it means that the concepts and fledging concepts are out in the open. If you are considering running a crowdfunding campaign, you must consider the potential theft of your idea.
This is a considerable concern got startups and companies that want to launch a new product. These ideas that are yet to be developed and established in the market are vulnerable. If you do not have a copyright or patent for your preposition, it is easy to replicate and launch by other organizations.
4. Business Concerns
Every online platform has a different model for how they layout the pledge process and how to attract different types of investors. The platforms also take a certain percentage of the funds from the campaign. Different platforms have different processing fees. You, therefore, need which platform is best suited for your campaign based on the fees and the business model.
6 Platforms for Crowdfunding in Singapore
Here are some of the crowdfunding platforms you can consider:
1. Kickstarter
Kickstarter is one of the biggest crowdfunding platforms in Singapore. It is a massive hub for reward-based crowdfunding. The platform has launched very many projects it’s hard to keep count. They have launched projects in different industries, from games and films to creative projects.
Some of the most popular projects launched on the platform include Coolest cooler, Travel Tripod, Fidget cube, and the Exploding Kittens card game.
Kickstarter platform has an all-or-nothing business model where your backers will not be charged until your campaign reaches its goals. The platform charges a 5% fee of the total amount raised.
2. IndieGoGo
Second on the list is Indiegogo. It is also a popular crowdfunding platform that is a big rival to Kickstarter. That platform also offers flexibility for people looking to raise funds for their projects, but it charges higher fees when compared to other crowdfunding platforms.
Indiegogo lets you choose between keep-what-is-raised and the all-or-nothing models. With both models, you have to see the project to completion regardless of how much you raise at the end of the campaign. Indiegogo is popular with people who have projects in the tech field and creative works.
3. Patreon
Patreon is one of the unique crowdfunding platforms for artists, and creators, including bloggers, Youtubers, podcasters, musicians, and more. The platform helps fans support their favorite creators.
The platform allows fans to pay for content either per month or per creation to entice them to create more and improve on their content. On the other hand, creators offer their support all sorts of perks, including exclusive content based on the tier they have subscribed to. Other perks include shout-outs, sneak peeks, and branded merchandise.
If you are a person who creates content often and have a substantial online presence, it might be a good idea to create a Patreon to help boost your revenue. Patreon offers three types of plans, and they take a cut once you start earning on the platform. They also charge a processing fee.
4. Crowdfunder App – Shopify
If you own a Shopify store, you have direct access to your own Crowdfunder App. You have control of the whole process from start to finish. The app work even when you want to launch limited-edition versions of the best-selling products, offer preorders, or test new products.
You can use the Crowdfunder App to gauge the demand for your product. The App is also a great platform to raise funds for a particular cause. A monthly fee for the App applies.
5. Fundedhere
Fund here is a crowdfunding platform, meaning that the MAS regulations will apply when you use the platform. The regulations will affect early-stage startups. Here you can choose to have either the business term loans or equity as your preferred funding option.
Here are some requirements you need to fulfill to use FundedHere to match your startup with potential investors.
- Your new startup must be a Singapore-incorporated entity that has operated for at least three months.
- Minimum paid-up capital of $50,000.
- One of the founders and beneficial owners of the startup must be a Singaporean.
Fundedhere charges a success fee of shares and cash of equal valuation. It also has a minimum investment of $5,000 for every investor for 12 months. The investors then receive equity in the company or semi-annual interest payments.
6. Fundnel
Fundnel is a crowdfunding platform that is ideal for bigger startups in Singapore. The MAS also regulates the platform. Fundnel also lets startups choose between equity and business loans.
The platform receives candidates’ applications and takes about two weeks to screen candidates. Fundnel has a stringent selection process, so you can try to apply in later stages if they reject you.
Also, check out similar articles like a guide to best business loan in Singapore and how to manage business debts with SME loans in Singapore.
Closing
Raising business capital for a startup can be hard sometimes. If you are a new entrepreneur determined to make it work, crowdfunding is an excellent area to venture in. You have different options with different regulations. However, before you choose any platform, it is essential to ensure that you perform your due diligence.
Key Takeaways
- Crowdfunding allows investors to select a project that they want to invest in.
- Some regulations apply to investing in startups and the people who can invest in the projects.
- Indiegogo and Kickstarter are the most preferred crowdfunding platforms in Singapore.
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