A Matter of Trust
The potential of applying blockchain technology into the online crowdfunding space is enormous and it fits crowdfunding’s principle of transparency on the use of funds. In the first issue of In Focus magazine, Su Aziz asked the ATA Plus team on benefits of equity crowdfunding and blockchain.
Let’s take the bull by its horns and get to the bottom of this current thing perceived as digital ledger. Despite the many, many things written on blockchain, many still only have a vague understanding of it.
So, the team at ATA Plus, an online equity crowdfunding platform operating out of Kuala Lumpur, put it simply, ‘Essentially, a blockchain is a new way of arranging data making it secure. Which means it’s nearly impossible to change the data without the approval of everyone in the network and it’s transparent too. So, everyone in the network gets to see what’s being changed to the digital ledger – it’s much like an online game, where everyone’s scores are visible to the game’s community.’
These two aspects of security and transparency, combined, results in trust and with an underlying technology, that empowers every actor in the system to decide the future of how it’ll grow and due to this, the potential applications of blockchain in the crowdfunding industry are huge.
Explaining Blockchain Technology in Crowdfunding
Right now, especially in equity crowdfunding, that responsibility of protecting businesses and investors is taken by the regulators. Regulators create the rules, assign licenses, monitor the crowdfunding platforms and enforce the law whenever it’s necessary.
Know that there are four different types of crowdfunding: debt, reward, donation and equity based crowdfunding. Implementing some of the use cases shown below, where investors place trust in the project owner to fulfil the promises of the campaign, makes blockchain a powerful tool that replaces the intermediary between these two parties.
ATA Plus team explain a few of the possible use cases for blockchain are geared towards equity crowdfunding applications:
Trustees and Escrow
Blockchain can remove the need for trustees to withhold the funds during the fundraising campaign. Cryptocurrency based pledges (or valuable tokens) can be designed to be disbursed ‘automatically’ to project owners with the clever use of smart contracts and multi-signatory escrow.
Decentralised Autonomous Organisation
Rather than project owners initiating the fundraising exercise, a group of investors can pool funds and collectively decide which investments or project to undertake. Smart contracts and voting system can be built through a blockchain based infrastructure ensuring transparency in decision-making as well as an efficient investment vehicle managed and maintained by its own stakeholders.
Tokenisation and Tracking of Funds
Crowdfunding can be a huge exercise, harnessing thousands of supporters with millions worth of funding target. Managing this can be daunting for project owners who’s accountable for achieving specific milestones. Blockchain allows funds to be tokenised (a digital asset backed by fiat currency) and track usage of the funds disbursed. Tokenisation can also be used to incentivise the crowd by assigning additional values to it such as rebates, discounts, or coupons.
Those use cases can help take some responsibility away from the regulators a plus for regulators. Which in turn will increase efficiency and reduce cost. A majority of SMEs in Asia, in particular, Malaysia, are entities which can be considered micro organisations. Many find fundraising a costly and time-consuming endeavour. Blockchain can reduce much of the costs and friction currently experienced in crowdfunding efforts by eliminating many of the intermediaries involved.
Blockchain technology can significantly reduce the period required for fundraising by allowing all parties a common view of all data, it can verify identity which could allow for other non-private limited organisations to fundraise and it can boost the appeal of crowdfunding with retail investors by tokenisation of shares which can be easily traded on a secondary market.
Blockchain technology can make crowdfunding simpler. It facilitates digitisation of many of the processes involved in crowdfunding, thus removing friction and intermediation allowing for ‘true’ peer-to-peer transactions as well as driving greater inclusion from both issuers (peers) that lowers cost for smaller fundraisers and investors. This allows smaller investment amounts to be made.
Now, apply all that information and technology to achieve funding goals while still using a peer-to-peer network. Imagine its benefits for the receiver and giver of the fund.
Benefits for the One Receiving the Fund
The ATA Plus Team explain that businesses that want to raise funds via equity crowdfunding platform benefit as below:
Businesses can pick on the market’s curiosity or test out new products and services by launching it in conjunction with the fundraising exercise.
Business and Brand Visibility
Crowdfunding exercise would typically garner the attention of the wide public. Businesses can tap in an extensive range of audience, potential customers as well as brand evangelists that’ll help escalate brand visibility during the fundraising campaign.
Access to Wider Pool of Investors
Through online crowdfunding, businesses yield the centre stage and simultaneously able to engage with a pool of individual as well as organisational investors, which is more effective.
Efficient Management of Investors
Crowdfunding platform allows for business owners to engage and manage large numbers of investors.
Benefits for the One Dispersing the Fund
From the equity crowdfunding point of view, according to the ATA Plus team, businesses who want to raise funds via the platform can enjoy the following benefits:
High Returns of Successful Investments
Investing through crowdfunding is a high risk and high return game. Investors have the opportunity to invest in young and thriving startups and growth stage companies which could potentially be the next Uber or Facebook.
Invest in Brands
For many investors, equity crowdfunding isn’t just about investing to make a profit; it’s also about getting involved with a brand you’re passionate about. Investments can be more than just making a profit, it’s about owning a part of a business they believe in.
Low Barrier to Entry
With crowdfunding, investing is no more an exclusive right held by licensed investors, brokers or institutions having privy to innovative and exciting businesses. Open to public, well-curated businesses are accessible to anyone with the fund, leveraging on the power and wisdom of the crowd to evaluate and assess the business listed.
ATA Plus team notice that people tend to invest with their emotion – people tend to like companies that have a social element to their business also known as ‘social enterprises’. A glaring example of this is Skolafund which is a social enterprise that has a digital platform designed to crowdsource alternative sources of funding for tertiary education scholarships. It’s a new concept but they were the first social enterprise to successfully crowdfund in Malaysia.
Looking at the whole crowdfunding market in general rather than just the Malaysian market, ATA Plus observe how the top 10 crowdfunded businesses, in US dollars, are all technology companies. They believe as the industry grows and equity crowdfunding gets recognised more as an alternative investment tool – rather than just a mode to get your hands on that new exciting piece of technology – more companies with great business models will succeed in raising funds through crowdfunding.
Crowdfunding Benefits for Startups
According to ATA Plus team, generally, crowdfunding is a great alternative fundraising method for startups. However, crowdfunding has to fit within the company’s strategies and goals and shouldn’t be looked upon as just a last effort to raise funds when all else fails. In addition to the benefits already mentioned, crowdfunding can help startups achieve:
About ATA Plus
ATA Plus started in June 2015 and is a blockchain enhanced equity crowdfunding platform that allocates the process of matching investors with Malaysia’s exciting businesses in return for shares in the company. Based in Kuala Lumpur, it was formed according to the Malaysian laws and regulations. They assist companies to raise funds and investments are made into companies rather than products.