What is Equity Crowdfunding?
Equity crowdfunding (ECF) gives investors access to a list of businesses looking for funding in exchange for their shares. You as an investor will pick the business that you believe have the potential to grow. You will then have a slice at the returns of a business when it succeeds, although bearing in mind that if the business fails, you may lose your investment.
What are the potential returns of investing on equity crowdfunding?
Participating in equity crowdfunding means that you are part of a revolution of the investment sector. Equity crowdfunding is still new in Malaysia and successful exits can take anywhere from 3 to 10 years. Having said that, it is the nature of equity crowdfunding that it attracts both high potential businesses as well as intrepid-and-willing-to-fund investors eager to diversify their investment portfolios. Returns on the business funded are therefore commonly larger than conventional investment instruments, with most investors looking to double their investment in 3-4 years. Apart from monetary returns, investing in businesses through crowdfunding has its charm compared to say, investing in a list of anonymous portfolios from a large-cap company or publicly traded companies. This is because you could choose which type of businesses or ideas to focus on and invest in which they may be in line with your passion or desires. Take for example, an investor who is an enthusiast in health may invest in a pitch that promotes health related products
How risky is investing in equity crowdfunding?
As in all investments, there are always risks involved. It is key that all stakeholders play a role in mitigating the risk factor(s), and that includes you as the investor, the entrepreneur, as well as the equity crowdfunding operator i.e. ATA PLUS.
The businesses listed on ATA PLUS include start-ups or rapidly growing ventures. Investment in these types of businesses can be speculative and carries high risks. You may lose your entire investment and must be in a position to bear this risk without undue hardship. A rule of thumb for all potential investors; investments made through equity crowdfunding should be in the effort to diversify one’s portfolio and to spread risks. Investors are highly advised to acquire as much information on the business they want to invest in order to derive an informed investment decision to carry on independent and individual due diligence.
Ask questions, read all information given carefully, and seek independent financial advice before committing yourself to any investment.
What protections are there from the risk of investing?
While risk can never be eliminated, ATA PLUS aims to identify risks to investors and help to reduce risk where possible. We have embedded key risk management strategies within our screening process to mitigate the associated risks, such as fraud and ensure the listing of quality deals (distinct product/services, high potential returns, sustainable business model, experienced management team with good track record).
- ATA PLUS reduces the risk of fraud through checking, against publicly available information, the identity of the company and information provided by the company relating to the identity and character of its directors and senior managers.
- We exclude any company from being listed if we are not satisfied as to the identity of the company or of the company’s directors and senior managers, if we have reason to believe that any of the company’s directors or senior managers are not of good character, or if we have reason to believe that the company is not likely to comply with the obligations imposed on it under the service ATA PLUS provides.
- We will exclude any company from our services that engages in conduct that is misleading or deceptive, or likely to mislead or deceive.
All businesses that intend to raise financing through ATA PLUS have to undergo a 2-level screening process.
Businesses MUST pass our Level 1 and Level 2 screening to be listed on the ATA PLUS portal.
ATA PLUS facilitates investors in obtaining clear and concise information to help them to decide whether to invest. In addition, investors can also ask entrepreneurs directly to clarify or provide additional information through the online forum available on ATA PLUS.
Investors have protections through company law and securities law. Investors also have additional and well-defined protection through a shareholder agreement relating to each business they invest in.
Having said that, additional risks for investors to consider before investing may include uncertainty of returns, lack of liquidity, dilution, materiel events and/or shareholder lack of control which is disclosed in our Risk Warning Statement.
A rule of thumb for all potential investors; investments made through equity crowdfunding should be in the effort to diversify one’s portfolio and to spread risks. Investors are highly advised to acquire as much information on the business they want to invest in order to derive an informed investment decision to carry on independent and individual due diligence.
- Level 1 screening looks into the the credit-worthiness of the business and the key management team (CTOS, CCRIS, DCHEQS). This reduces the risk of fraud. . ATA PLUS will exclude any company that engages in conduct that is misleading or deceptive, or likely to mislead or deceive.
- Level 2 screening focuses on the key products/services of the business, the USP, the business model, how much funds the business is trying to raise and will used for what purpose; and the potential gains and exit strategy for the investor.