How do Asia Crowdfunding platforms compare to their Western counterparts?

Crowdfunding is a burgeoning field in many parts of Asia. In comparison, crowdfunding in places like the United States has been around for a longer period. While the United States relaxed regulations on returns-based crowdfunding in 2012 (via the JOBS Act), rewards-based sites like Kickstarter and Indiegogo have been around since the late 2000s.

In the recent months, countries in Asia are slowly catching up; especially when it comes to returns-based crowdfunding regulations. For example, India and Malaysia have recently circulated some crowdfunding consultation papers to gather feedback from stakeholders. In May 2014, Hong Kong’s Securities and Futures Commission (SFC) also released a circular on the risks as well as potential regulatory issues that crowdfunding has. In addition, there is speculation that the Singapore government will be soliciting feedback on returns-based crowdfunding in the coming months. Hence, all these seem to suggest that many Asian countries are starting to realise the potential (as well as risks) that crowdfunding have, and some are hoping to get in on the action.

With growing interests in crowdfunding, I thought that it would be timely to do a simple comparison and see how some Asia crowdfunding sites compare against those in the West. While I generally focus on real estate related research, I thought of giving a more holistic view by expanding the scope of this article to include the other types of crowdfunding sites.

Limitations in the analysis

But before you read further, I would like to emphasize that this is not intended to be a comprehensive research article. This is because there is presently not much data available online. Apart from established sites like Kickstarter and Indiegogo, not many other crowdfunding sites share their statistics online. In addition, there is no standard definition on what constitutes a successful or unsuccessful crowdfunding deal, conversion rates, etc.

Nonetheless, with whatever data that is available, I will be attempting to provide readers with a sense of how this new sector is evolving. To provide a sufficiently diverse view, platforms from the different countries, focus sector and crowdfunding types have been selected. To ensure relevance, the latest data that could be found online were also used for the comparison table (showed in Figure 1).

Key takeaway from the comparison

The companies are listed by region in alphabetical order. Based on the comparison table, some of the takeaways are as follows:

1. Takeaway 1: Crowdfunding platforms in the West currently have more traction. Based on the table, it can be clearly seen that crowdfunding has more traction in the Western countries. In terms of members, viewership rates as well as Alexa ranking, they are significantly more than their Asian counterparts. Putting things into perspective, this is not surprising as some of the more prominent crowdfunding site there have been around for a longer period of time. For example, Kickstarter and Indiegogo have been around for more than 5 years while Fundedbyme, a Swedish crowdfunding platform, has been around for more than 3 years. In comparison, one of the more prominent and established crowdfunding sites in Singapore, Crowdonomic, has only been around for less than 2 years.

2. Takeaway 2: Amount pledged via Western crowdfunding platforms is significantly more. While it does not come as a surprise that Western crowdfunding platforms are able to secure more funding, what is interesting to note is the quantum. Based on statistics from Kickstarter, more than US$99million was pledged in 2011. The 2011 figure was used, as data for 2012 and 2013 were not available, nonetheless this shows the magnitude of funds that could be raised via an online crowdfunding platform. It also provides a glimpse of the growth potential that crowdfunding sites in Asia have.

3. Takeaway 3: Similar charging model – sites typically charge around 5%. Two of the most “expensive” crowdfunding sites in the analysis are FundedByMe and Crowdonomic, which charge up to 12% and 9.5% respectively. However, the rest of the sites charge about 4% to 5%, which shows that fees between Asian and Western crowdfunding sites are comparable.

4. Takeaway 4: Similar user conversion rate of more than 2%. Based on an article on Compete.com, it is interesting to note that the conversion rate for Kickstarter and Indiegogo is slightly more than 2%. While there is limited information on user conversion for Asian sites, if we use statistics from CoAssets as an indication, the user conversion rates for Asian sites are inline with those of their Western counterparts.
Conclusion

Putting things into perspective, it should not come as a surprise that crowdfunding sites in the West are currently doing better than those in Asia. This is because those sites have been around for a longer time; hence it is only natural that they have more users and traction.

Based on a report by International Organisation of Securities Commissions (IOSCO), it highlighted that the financial rewards for the crowdfunding market was worth more than US$1billion in the US, UK and China. Looking at how things are evolving in places like the United States and Europe, it clearly shows that there is a lot of potential in the field of crowdfunding in Asia. For the savvy entrepreneurs, this could be the next modern day “gold rush”.

Source of data for the table

1: http://crowdfundbeat.com/grow-vc-group-makes-strategic-investment-in-crowdbaron/

2: Based on www.CoAssets.com, more than S$30million worth of deals were pledged. However, excluding the S$20million from EPIC 2014 (https://sg.news.yahoo.com/20m-deals-done-epic-event-094211376—sector.html) the online funding amounts to S$10million.

3: https://www.crowdonomic.com/searches/searchall (6 successful deals out of 49 as at 15 Sep 2014)

4: http://www.slideshare.net/lopeztruji/fundedbymecom-mult

5: https://www.kickstarter.com/blog/2011-the-stats

6: https://www.realtymogul.com/anniversary-infographic

7: Counted from the website (as at 15 Sep 2105)

8: http://techcrunch.com/2013/08/30/kickstarter-owns-indiegogo-with-around-6x-more-total-dollars-raised-average-success-rate-much-higher/

9: Based on the 6 successful deals listed on the site. Stop the Killing ($21,346 by 151 funders), From Beta to the Store ($3,000 by 51 funders), S’pore Skyfilm Society (%500 by 9 funders), Take WAM’s office to the next level ($216 by 4 funders), Garden by the Roof ($1,130 by 19 funders) and PixBento ($3,220 by 21 funders)

10: https://www.kickstarter.com/year/2013/?ref=footer#1-people-dollars (it was reported that in 2013, 3million people funded $480million worth of projects).

11: http://go.indiegogo.com/blog/2012/03/indiegogo-insight-average-contribution-amount-through-email-is-higher-than-other-referral-sources.html

12: https://blog.compete.com/2013/10/30/conversion-rates-crowdfunding-kickstarter-vs-indiegogo/

 

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3 takeaways from the Brazilian Social Housing investment fallout

In the recent weeks, a particular Brazilian Social Housing project has been in the media with a series of negative news ranging from the closing of the Singapore representative office to the denial of government links from the Brazilian embassy.

At the peak in 2012, that particular developer was reported to be the largest single overseas property investment, with up to 1,000 Singapore investors paying S$46,000 per unit.  This works out to be more than S$46million raised for that development.

For those who have invested, it will be a nerve-wrecking wait and it could take time before this issue is fully resolved.  As casual observers, we sympathise with those who invested and hope that there will be a happy ending to it.  Nonetheless, this incident serves as a reminder on the risks of investment schemes and here are 3 takeaways that investors should look out for.

Takeaway 1: “Established” companies should not be raising large sums directly from the public

When the project was first launched in 2012, some market stakeholders were quick to endorse the project.  They cited that the developer was credible as it had links to the Brazilian government due to the nature of the project – social housing.

On the surface, this seems like a plausible and attractive proposition.  However, if you think hard, would it not appear strange if these “established” companies want to raise large amounts of funds directly from retail investors, instead of going through financial institutions?

To give you some perspective, there are presently many financial institutions like sovereign wealth funds, hedge funds, private equity funds, etc. that are on the constant look out for worthwhile investments.  Hence, if there was something as attractive as a “guaranteed 20% returns” that would pay out within 12 months, would these big investors not be approached first?  From the developer’s stand point, would it not be easier for them to deal with a single entity (i.e. bank or financial institutions) instead of having to manage hordes of retail investors?

Just as it is unlikely for established developers like CapitaLand or Far East to raise huge sums of money from overseas retail consumers, it would be quite fishy if overseas developers came to Singapore and fund raised tens of millions from the folks-on-the-streets.

Takeaway 2: Checking the company background

In an article from CoAssets in 2013, it was highlighted that one thing investors should check is the developer’s financial strength (https://sg.news.yahoo.com/spot-overseas-property-scams-131730522.html).  To do that, a good place to start would be the company’s registration (i.e. ACRA for Singapore incorporated companies).

Had any investors done a search on the company, they would have found that the companies that are associated with the Brazilian social housing project have only a minimum paid up capital of S$1.

To give you some comparison, companies that wish to apply for a developer (no sale) license in Singapore will need to have a minimum paid up capital of at least S$100,000.  Not having a well-capitalised company is understandable if the developer is just starting up.  However, considering that the seemingly “established” developer was trying to raise several tens of millions for their development in Singapore, what sort of financial strength is the developer showing by incorporating just a S$1 company?

Some may opine that the Singapore representative office is not directly involved in development work and solely meant to acquire and service clients.  While there is currently no minimum paid up capital for real estate agencies, firms that wish to do investment/financial advisory work will need to have a minimum paid up capital of S$150,000.  At this juncture, we must emphasize that a well-capitalised company does not automatically mean that it is credible.  However, the ultimate question is whether some of the investors would have proceeded had they known that they were dealing with a S$1 shell company – our sense is unlikely.

Takeaway 3: Invest in what you can afford to lose

While this may be something intuitive, many investors tend to overlook this in their moment of greed.  Ultimately, investing is all about battling averages, as even the savviest of investors will make some losses.

A case in point is Long Term Capital Management (i.e. LTCM).  This investment fund that was founded in 1994 and Myron Scholes and Robert Merton, Nobel Prize winners in Economic Sciences, were on the board of directors.  Given their illustrious track record and in-depth understanding of the markets, it was unfathomable that their fund would collapse – which it eventually did in 1998.

This means that even “experts” do make mistakes from time to time, hence prudent investors would do well to not over commit in any form of investment and only risk money that they can afford to lose.

Conclusion

It is never a pleasant experience for stakeholders when deals go sour. However, to put things in perspective, not all overseas property deals are scams as it is only the big fall out that gets reported in the media.  Unfortunately, successful deals typically do not get reported, as they are not deemed to be news worthy enough.

Hopefully, all the affected parties will be able to come to an amicable resolution.  For the rest of us, it serves as a reminder that there is no such thing as a “free lunch” when it comes to investing and the takeaways in this article will be able to help readers better differentiate the good deals from the bad.

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