What is Equity Crowdfunding?

Equity-based crowdfunding allows SMEs to raise funds from a pool of investors in exchange for ownership shares in the company. Small businesses can raise millions of dollars within a few months, without taking on debt.

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How Does Equity Crowdfunding Work?

Crowdfunding is the concept of raising money online from a large number of individuals. Individuals, charities, and businesses use various crowdfunding platforms to raise funds for their respective needs. Equity-based crowdfunding allows companies to sell shares of their company to a large pool of investors in exchange for funding. Previously, businesses could only obtain equity financing from venture capital firms or angel investors. With the nascence of online crowdfunding platforms, SMEs gained more options for equity financing.

How Can Equity Crowdfunding Help My SME?

Younger SMEs may have difficulty finding financing due to strict eligibility financial or operational requirements. Additionally, SME directors may be hesitant to take on debt due to the cost of interest rate payments. Equity crowdfunding platforms in Singapore allow startups to raise thousands, or even millions, of dollars without specific eligibility requirements and without going into debt.

What Are the Costs of Equity Crowdfunding?

Equity crowdfunding platforms typically charge a 5 - 8% fee for their service. This tends to be cheaper in terms of cash outlay than interest rate payments, which range from 9 - 20% for business loans.

While it has attractive characteristics, equity-based crowdfunding isn't a perfect fit for all small businesses. First, it requires giving up a share of ownership in the company. Depending on the size of equity financing and portion of shares sold, this could be a very expensive way to finance one's business that significantly dilutes the founders' ownership stakes. SMEs that are able to afford interest rate payments may prefer to finance their company through a business loan in order to maintain ownership.

Equity-Based Crowdfunding Platforms in Singapore

There are a handful of equity crowdfunding platforms for Singaporean SMEs to choose from. Fundnel offers SMEs access to the largest funding amounts (completed deals as large as $20 million) and charges the lowest fee (5%). It also offers a variety of financing options besides equity financing, which might be intriguing for SMEs that might require additional funding in the future. Fundnel is very selective in its application process, which may prevent some young, less financially sound SMEs from receiving financing through its platform.

FundedHere's platform also offers equity financing to early stage startups. The platform offers funding amounts up to S$1 million with cash disbursement as soon as 35 days. Additionally, given its focus on early stage companies, it is likely the best fit for early stage businesses seeking equity financing. The platform charges higher fees than Fundnel: 6% of total fund raised in cash, and an additional fee of 2% of the company's equity. Therefore, SMEs trying to avoid fees or with longer operational history might consider applying to Fundnel instead.

William Hofmann

William is a Product Manager at ValueChampion Singapore, helping consumers and SMEs find the best banking products through comprehensive analysis of data. He previously was an Economic Consultant at Industrial Economics Inc, where he conducted a variety of research and economic analyses. He graduated from University of Vermont with degrees in Economics and Psychology. His work has been featured on a variety of major media such as the Straits Times, the Business Times, the Edge, DailySocial, the Entrepreneur and more.

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