UPDATE: Less than two weeks after MeTech listed via FundedHere, the company is fully subscribed to its US$2 million bond offering. 23 accredited investors took up the offer.
“The successful fundraising by Metech over such a short span of time underscores the relevance and attraction of our platform. We have received queries from other Singapore-listed companies and expect to issue more ListCo Bonds in the coming months,” said FundedHere CEO Michael Tee.
The original article and overview of the fundraising effort can be read below:
A major happening in Singapore’s fintech industry this year was the legitimisation of equity-based crowdfunding as a legal, regulated, means by which companies can raised capital.
For example, before the MAS loosened regulations in June and lowered the hurdle for startups to receive Capital Markets Licenses (CMS), we at e27 would rarely write the term ‘equity crowdfunding’ (and on the occasion we did, it was usually met with resistance).
The reason was the term ‘equity crowdfunding’ had legal implications most companies worked hard to avoid. However, since June, once a company receives a CMS license, they can openly market themselves as an equity crowdfunding company.
But ‘equity-based crowdfunding’ is a faily vague term. How do the specifics actually work? And how does it manifest itself into the day-to-day world of business?
Today, in an announcement from Singapore’s equity-based crowdfunding platform FundedHere and Metech International Ltd. (a Singaporean e-waste solutions provider), we were given an opportunity to look at a case study of how exactly a company might pursue equity-based crowdfunding as a strategy.
Metech announced today that it is issuing S$2 million (US$1.4 million) worth of short-term bonds (called ListCo Bonds) to raise funds and will be using FundedHere as the facilitator.
Four months ago, the crowdfunding startup was granted permission to allow SGX-listed companies to raise money by listing ListCo bonds on its crowdfunding platform. This is the first time a company actually utilised the service.
The Metech bonds will have a 24-month-long tenure at an annual coupon rate of 8 per cent.
If another company wants to follow suit, the bonds should be short-term, with a tenure of one to two years depending on the individual case and pay out 8 to 9 per cent quarterly for the duration. The limit a company can raise through this strategy is S$5 million (US$3.5 million).
What happens now is the bonds will be advertised on the FundedHere platform for 30 days and accredited investors (FundedHere does not allow mom-and-pop investors to participate in purchasing the bonds) will have the opportunity to subscribe.
Accredited investors are people with net personal assets (not including homes) of S$2 million (US$1.5 million) or an annual salary exceeding S$300,000 (US$210,000) per year. The must also go through an application process.
Technically an accredited investor could subscribe to as little as S$5,000 (US$3,500) per bond but FundedHere is targetting and average subscription of S$50,000 (US$35,000).
For the Metech account, FundedHere will use SGX’s Central Depository (CDP) as the depository (an institution that assists in trading securities) for the bonds.
This is the first time a private lending platform has used the CDP and lenders will receive interest payments in their individual accounts.
Why would a company engage in equity-based crowdfunding?
For Metech specifically, the company is raising money to expand its supply chain management business. As essentially a penny-stock, raising U$1.4 million by issuing shares may not be a realistic option (it is listed on the Catalist board).
“Due to the low share prices currently, it may not be practical or possible for some listed companies to issue new shares to raise capital. FundedHere provided us with a viable alternative, one that is simple and hassle free,” he said.
As FundedHere CEO Michael Tee explained, crowdfunding provides an alternative channel to raise money in an environment in which traditional means do not always work.
“It’s not easy for some listed firms to raise funds via other traditional channels given the current market environment. So we are extremely pleased to have the support of CDP as FundedHere becomes an alternative fundraising platform for these companies,” he said in a statement.
The final reason why companies may be interested in issuing short-term bonds via FundedHere is the network.
Offline networks are incredibly valuable, but can also be limited by proximity, industry and, frankly, randomness. Opening up an investment opportunity on a platform with broad reach allows Founders to extend beyond their network and possible find interested parties from surprising sources.
Equity crowdfunding (in this case, short-term bonds) is an alternative channel for companies across Southeast Asia to raise money, and hopefully this gives an idea of how it actually works.
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