Local Crowdfunding investment in SME

[CityFarmer]

AIs: $2 million investible asset to join the club. Not sure how many people are willing to disclose their net personal asset in exchange of a status that says "I have money/high income. I know the risk. I am ready/ok to lose".

For AIs who wanted to be an angel investor, FundedHere is simply another platform for equity and debt for start-ups. An interesting platform though if the minimum investment is as low as $5,000 compared to those $20k, $100k a pop kind of start up funding platform.

I believe it would help the start up environment in Singapore. Currently Government/Gov-linked is leading the startup funding. Some critics believe 10k, 50k of seed funding can be obtained too easily from school/government. 55k is a lot of money to waste on people who simply "do not want to work for other"; but too little for a team of 4-5 graduates who would spend the money carefully on their brain child - to the extend that they would have no money to see a doctor when sick. To get money from real venture capitalist these entrepreneurs have to get more business like: selling sensible execution plans instead of selling visions.

With the AI only exclusivity, Fundedhere is licensed and as "regulated" as other "AI-only" investments (read: high risk).
Unless FundedHere allows AI eligible individuals to "opt-out" as AI, and still invest in it - there's nothing new being offered to the investors.

http://www.mas.gov.sg/News-and-Publicati...stors.aspx

I am looking at the following aspects of the crowdfunding

It offers an alternative of start-up funding, to both fund raiser, and fund providers. Fund raiser, might benefit from freer market with more competition, rather than within a closed connected group, and probably shorter lead-time. Fund providers might benefit from lower barrier to participate, and ease of diversification. It is beneficial to smaller PE fund owners.

[weijian]

I am looking at the following aspects of the crowdfunding

It offers an alternative of start-up funding, to both fund raiser, and fund providers. Fund raiser, might benefit from freer market with more competition, rather than within a closed connected group, and probably shorter lead-time. Fund providers might benefit from lower barrier to participate, and ease of diversification. It is beneficial to smaller PE fund owners.

They say that Venture Capital look for the person to invest in, not the idea - because ideas can easily be copied, while the character cannot. As such, I tend to think that a successful unicorn founder would be above average. But above average founders don't need to look for average financiers, rather they will use their time wisely to seek out above average financiers for funds and tap their expertise. This most probably means that the average crowd funder would be left out of the cream of the crop. But such startup investing is only profitable on aggregate because it depends on a unicorn's multi-bagger gains to compensate for the rest of the flops' 100% loss.

The big boys with their big names will find the 'cream of the crop' founders at their doors, giving the sales pitch. While the smaller PE funds will joust with the retail mass for the average founders, it is never a good thing - but that could be just a by-product of this ultra long low interest rate environment that we are in, when we look back on hindsight in future.

[Big Toe]

Ideas on its own are almost worthless. How many times have you heard a colleague/friend saying he/she got a great idea that will bring in a lot of money? How many of them actually go about doing it? How many actually succeeded in doing it?

In short, if a person really wants to go about doing his thing, his savings should be enough to get something going. When things start to work out(may be multiple attempts), there should be free cash flow, enough to fund moderate expansion activities. Some founders are not even willing to open up any door to any investors as they know they have a thing going for them and do not wish to share the fruits with investors.

[Raks]

I am looking at the following aspects of the crowdfunding

It offers an alternative of start-up funding, to both fund raiser, and fund providers. Fund raiser, might benefit from freer market with more competition, rather than within a closed connected group, and probably shorter lead-time. Fund providers might benefit from lower barrier to participate, and ease of diversification. It is beneficial to smaller PE fund owners.

They say that Venture Capital look for the person to invest in, not the idea - because ideas can easily be copied, while the character cannot. As such, I tend to think that a successful unicorn founder would be above average. But above average founders don't need to look for average financiers, rather they will use their time wisely to seek out above average financiers for funds and tap their expertise. This most probably means that the average crowd funder would be left out of the cream of the crop. But such startup investing is only profitable on aggregate because it depends on a unicorn's multi-bagger gains to compensate for the rest of the flops' 100% loss.

The big boys with their big names will find the 'cream of the crop' founders at their doors, giving the sales pitch. While the smaller PE funds will joust with the retail mass for the average founders, it is never a good thing - but that could be just a by-product of this ultra long low interest rate environment that we are in, when we look back on hindsight in future.

I actually agree with CityFarmer and weijian. What I meant was there's still no truly "crowd funding" for the retail, mass market.  
Start-up funds for techies - Singapore already made a handful of young multimillionaires who did tech start-up. And every kids doing start-up seriously should be able to reach all this angel investors/mentors - there're many helps/guidance/network to link start-ups to venture capitalist and mentors. 

And guess who's taking up the Grade A offices in Raffles after banks moving out? Start ups. 

The "crowd fund" that I wish to see is something more humble and down to earth. Something similar to the micro-financing in India. Provide financing to a woman with no asset to buy a cow/sewing machine; and let her repay in years. 

These crowdfund business startup should be meant for something as humble as start up money to sell Wantoon noodles or a car-wash kiosk under PIE, the financing required could be $20k. 

The essence of crowfunding to me is; bottom of the pyramid (BOP) folks financing BOP folks for a win win situation. 
You are not Accredited Investor, can't invest in Uber? Lend me $1000 for my Chicken rice stall for 2 years and I will return you $1300 in 2 years. 

Or "crowd fund" a kid who has already gotten a scholarship to go overseas - he can't go because his poor family needs a bread winner now, not a scholar. This kid can securitize and sell 10% of his first 5 years net income after graduate, or payback the amount + prime lending rate, whichever is higher.  

Another thing I want to see is "crowd funding" for skill-upgrading. Gov subsidize many courses for Singaporeans, one needs to pay only, say $400 for a $5,000 dollars course. If a low income earner could attend this course, the increment he receive after the course would be very significant. However, a figure like $200, or $500 is still a hurdle that low income earners find it hard to cross; as ridiculous as it sounds to the median $9000 household income folks. 
For example, loan $200 for skill upgrade and let him repay in 24 months. That would be $10 per month instead of $200. This is significant for a worker who makes $1500 a month, before CPF.

These are not charity.

[Triple70]

I actually agree with CityFarmer and weijian. What I meant was there's still no truly "crowd funding" for the retail, mass market.  
Start-up funds for techies - Singapore already made a handful of young multimillionaires who did tech start-up. And every kids doing start-up seriously should be able to reach all this angel investors/mentors - there're many helps/guidance/network to link start-ups to venture capitalist and mentors. 

And guess who's taking up the Grade A offices in Raffles after banks moving out? Start ups. 

The "crowd fund" that I wish to see is something more humble and down to earth. Something similar to the micro-financing in India. Provide financing to a woman with no asset to buy a cow/sewing machine; and let her repay in years. 

These crowdfund business startup should be meant for something as humble as start up money to sell Wantoon noodles or a car-wash kiosk under PIE, the financing required could be $20k. 

The essence of crowfunding to me is; bottom of the pyramid (BOP) folks financing BOP folks for a win win situation. 
You are not Accredited Investor, can't invest in Uber? Lend me $1000 for my Chicken rice stall for 2 years and I will return you $1300 in 2 years. 

Or "crowd fund" a kid who has already gotten a scholarship to go overseas - he can't go because his poor family needs a bread winner now, not a scholar. This kid can securitize and sell 10% of his first 5 years net income after graduate, or payback the amount + prime lending rate, whichever is higher.  

Another thing I want to see is "crowd funding" for skill-upgrading. Gov subsidize many courses for Singaporeans, one needs to pay only, say $400 for a $5,000 dollars course. If a low income earner could attend this course, the increment he receive after the course would be very significant. However, a figure like $200, or $500 is still a hurdle that low income earners find it hard to cross; as ridiculous as it sounds to the median $9000 household income folks. 
For example, loan $200 for skill upgrade and let him repay in 24 months. That would be $10 per month instead of $200. This is significant for a worker who makes $1500 a month, before CPF.

These are not charity.

There are many ppl who need funding, but the reality is that investors need assurances that the investment is credible.
Due diligence cost $, legal recovery of bad debts is also costly. The fixed costs being so high.. naturally the amt loaned has to be pretty substantial to justify the risks.

Are there investors willing to invest based purely on blind faith? We can actually test this idea out. Anyone wanna try?
I really do need 700K for 2 years willing to pay a cost of capital (all in) of max 8% interest, no due diligence possible, and don't have any feasibility study to show. Any one keen to lend? Personal guarantee can be provided.

[CityFarmer]

Interesting views from VBs. It has facilitated my learning on crowd-funding.

@ weijian
I agree with your points, but I would like to view its user as a spectrum, rather than only few distinctive groups. There are many success cases, between the unicorn, and the average. I have heard many cases, where PEs are too-demanding, but founders have little options. Are these "below average" startups? I am not sure, and likely no one is very sure. No historical case for reference, because, many of them have been bought, before significant success were seen. 

@ Raks
Besides, the equity-based and lending-based crowd-funding, there are also reward-based and donation-based ones, which fit into the different scenario illustrated. Lending-based crowd-funding should be short-term i.e in months or at most 1 year, to work.

@Triple70
How about a new start-up, who can produce reliable rating on the "tiny" crowd-funding cases. A future Moody in the making? May be disruptive to Moody in the future? 

[Raks]

I actually agree with CityFarmer and weijian. What I meant was there's still no truly "crowd funding" for the retail, mass market.  
Start-up funds for techies - Singapore already made a handful of young multimillionaires who did tech start-up. And every kids doing start-up seriously should be able to reach all this angel investors/mentors - there're many helps/guidance/network to link start-ups to venture capitalist and mentors. 

And guess who's taking up the Grade A offices in Raffles after banks moving out? Start ups. 

The "crowd fund" that I wish to see is something more humble and down to earth. Something similar to the micro-financing in India. Provide financing to a woman with no asset to buy a cow/sewing machine; and let her repay in years. 

These crowdfund business startup should be meant for something as humble as start up money to sell Wantoon noodles or a car-wash kiosk under PIE, the financing required could be $20k. 

The essence of crowfunding to me is; bottom of the pyramid (BOP) folks financing BOP folks for a win win situation. 
You are not Accredited Investor, can't invest in Uber? Lend me $1000 for my Chicken rice stall for 2 years and I will return you $1300 in 2 years. 

Or "crowd fund" a kid who has already gotten a scholarship to go overseas - he can't go because his poor family needs a bread winner now, not a scholar. This kid can securitize and sell 10% of his first 5 years net income after graduate, or payback the amount + prime lending rate, whichever is higher.  

Another thing I want to see is "crowd funding" for skill-upgrading. Gov subsidize many courses for Singaporeans, one needs to pay only, say $400 for a $5,000 dollars course. If a low income earner could attend this course, the increment he receive after the course would be very significant. However, a figure like $200, or $500 is still a hurdle that low income earners find it hard to cross; as ridiculous as it sounds to the median $9000 household income folks. 
For example, loan $200 for skill upgrade and let him repay in 24 months. That would be $10 per month instead of $200. This is significant for a worker who makes $1500 a month, before CPF.

These are not charity.

There are many ppl who need funding, but the reality is that investors need assurances that the investment is credible.
Due diligence cost $, legal recovery of bad debts is also costly. The fixed costs being so high.. naturally the amt loaned has to be pretty substantial to justify the risks.

Are there investors willing to invest based purely on blind faith? We can actually test this idea out. Anyone wanna try?
I really do need 700K for 2 years willing to pay a cost of capital (all in) of max 8% interest, no due diligence possible, and don't have any feasibility study to show. Any one keen to lend? Personal guarantee can be provided.

What I mentioned is not blind faith and definitely not without due diligence/Risk management. 


Due diligence and risk management is never the amount of  money you have spent assessing. Some business is easier to asses than others

As the person giving out money expecting it back with interest, I will look at how can you pay back the money and how can I hurt you when you don't pay me back. That's my dd and rm. 

The example I gave, $10 repayment by someone with take home 1200, that's 120x coverage. What's the chance of default? In a "logical to someone else" manner, that's the someone having take home cash of $120,000 failing to pay his car installment. One characteristic of micro financing is very high interest rate, very low default rate. Debt-to-service ratio. 


700k for 2 years, personal guarantee doable if I know your earning power - interest we can talk later. If you have yet to earn/owe that in you whole life, your personal guarantee is very, very, not useful. What's the point of making you a bankrupt if you can't pay anyways. DD is done before giving out the cash. 
If 700k is your 10 months income, 8% interest upfront for 12 months; exceeding 12 months, 24% p.a..
If you want $70 to buy a book called "The fortune at the bottom of the pyramid", willing to repay me $100 in 12 installments, aye, lets do that as long as you are employed.

Corporate guarantee? That's worse, I can't even hurt you.

If you are able to owe enough money, the bank would not want you to go bankrupt. The bank would continue to provide you with financial support, loan you more money and even give you free business consultancy, if you owe them an amount that you can never repay by working 9-5. The bank will make sure you are successful so that they can recover as much as possible. 

There's this thread "if you're loaded, consider private equity" started in vb as early as 2011. 

Bottom of pyramid is most suitable to do in service, web2.0, manner. Operation cost such as distribution, management and marketing for Alibaba, AirBnB, eToro... would be prohibitive without technology. 
Startups before crowdfunding platform prefer 5 angel investors each giving 100k than 1000 people each giving $500 (have 1000 copies of contracts? manage 1000 accounts to pay the 5% interest of $500? Hire a investor relationship manager in startup? seriously?). 

Crowdfunding should have more variety than those "web version of the exclusive angel investor club". To me, Moolahsense has more "crowdfunding" spirit vs Fundedhere. 

If the choices remain "not-regulated by MAS" vs "regulated, for AI only", what has improved for crowdfunding?

[Raks]

Interesting views from VBs. It has facilitated my learning on crowd-funding.

@ weijian
I agree with your points, but I would like to view its user as a spectrum, rather than only few distinctive groups. There are many success cases, between the unicorn, and the average. I have heard many cases, where PEs are too-demanding, but founders have little options. Are these "below average" startups? I am not sure, and likely no one is very sure. No historical case for reference, because, many of them have been bought, before significant success were seen. 

@ Raks
Besides, the equity-based and lending-based crowd-funding, there are also reward-based and donation-based ones, which fit into the different scenario illustrated. Lending-based crowd-funding should be short-term i.e in months or at most 1 year, to work.

@Triple70
How about a new start-up, who can produce reliable rating on the "tiny" crowd-funding cases. A future Moody in the making? May be disruptive to Moody in the future? 

Due to me being skeptical, I have never participate in anything that give excellent return in a year. 

@Triple70. That's one great idea from City Farmer. Don't underestimate it. Web2.0, crowdfunding, crowdsourcing. Dont do everything by yourself. Get vbs/university kids to do the reliability rating on the tiny cases (much simpler to do DD on wantoon noodle stall, verify a person really exist etc vs DD before acquisition on Noble Group). Vbs/uni kids get their project/portfolio, the rest get the ratings. Another crowdsource/web 2.0 is Youtube. I am going there now. Happy holiday!

[Triple70]

There are many ppl who intentionally do not repay loans knowing that the cost of recovery is more than the debt itself. Thats the reality of SG laws n society. Thats why serious lenders do not bother with small quantum loans. In other countries, the shame culture is an effective deterrent. We need that in sg. If theres a start up biz to shame ppl, i be a big time investor. Anyone keen to do this start up?

[CY09]

There is a local blog that highlights any default on p2p and is not afraid to shame any such defaulting coy. The author does pretty good write ups on p2p loans

http://letscrowdsmarter.com/

On the issue of defaults, a lot of companies in Singapore are dependent on credit for survival. Look at many listed companies (Olam/Noble/Capitalacommercial/M1) many of them require the trust of banks to constantly roll over debts to sustain their payout/operations. Once this trust is lost, it is apparent from their cash flow statements, they are unable to pay the principal upon maturity; thus they will have to turn to other means to raise funds - debt/equity raising. P2p funding while is exorbitant, is a neccessary evil to embrace; the crux is that without any credit line, they would have folded.

To me, the probable reason is Epicentre has lost bank's backing and is relying on non conventional means to sustain/expand. IMO, i won't be surprised if other listed entities start tapping this segment, I am eyeing Ezra, Ezion and rickermers as potential candidates.