What is Equity Crowdfunding?
Equity crowdfunding (“ECF”) is the process whereby the people (the ‘public’) (“Investor”) invests in an early-stage and unlisted company in exchange for shares in a company hosted on an ECF platform (a “company” or “issuer”). These investors in turn becomes shareholders in the company, having certain agreed ownership of the company.
As an investor, you stand a chance to profit if the Issuer does well like entitlement to dividends and potential to exit either on initial public offering or a sale of the business to a third party.
Investing in startups and growth stage companies was previously exclusive to the wealthy individuals, venture capitalists, and business angels. ECF stands to democratise the investment process both ways: opening the door for Issuers to a larger pool of potential investors via the crowd, and democratising the once exclusive opportunities of startup investments accessible to the public.
What are the potential returns of investing in equity crowdfunding?
Although investing in an early stage company is very risky, ECF investing also means that you are participating in a company’s journey in an earlier stage. A famous adage would be, “If you invested RM 10 in Facebook during its seed round, your RM 10 will be worth RM 1 million today!”. Though returns from investing in early stage companies can be very rewarding, successful exits can take anywhere from 5 to 10 years.
Other than monetary return, investing in businesses through equity crowdfunding can be much more rewarding through investing in a company which aligns with you vision and views.
Some companies may also choose to reward its early investors through credits, products, or discounts.
How risky is investing in equity crowdfunding?
Just like any other investment schemes, there are always risks involved.
As an investor, you are required to conduct your own independent assessment of any crowdfunding campaign hosted on Leet Capital. While we may have carried out the necessary due diligence as imposed on us by the SC, please take note that you may not be given all the financial, business or other information of the issuers which may or could be relevant for an investment decision.
Unlike public listed companies , companies hosted on Leet Capital are early to growth stage startups. Because of this, investments in these companies can be highly risky. In the worst case scenario, you may lose your entire investment.
A rule of thumb for all investors is that investment in ECF should be diversified to spread risks. In other words, you are not advised to put all your investment in ECF campaigns. Do not put all your eggs into one basket.
Also, you are strongly encouraged to do your own research prior to investing into the companies. If you have any questions to the management of the issuer , you can do so by accessing the issuer’s campaign site on our platform and asking directly in the discussion section.
In the case of any adverse material changes (see more below), these companies will be required to make it known to the investors.
For a detailed list of risks in investing in an issuer, please refer to the warning statement (here).
Is raising funds via an ECF Platform legal in Malaysia?
Yes, equity crowdfunding is one of the new fundraising methods permitted by the Securities Commission of Malaysia (“SC”) regulated under the Guidelines of Recognised Markets (“Guidelines”) since 2015.
However, only equity crowdfunding platforms approved by the SC may host issuers on their ECF platforms to raise funds from the public.
Is Leet Capital licensed and regulated?
Yes, Leet Capital Sdn Bhd is an approved equity crowdfunding operator (“ECF Operator”) in 2019 under the Guidelines and regulated by the SC since 2019.
What is the relationship between Leet Capital and 1337 Ventures?
1337 Ventures Sdn Bhd is registered venture capital fund management company by the SC that invests in early stage companies. 1337 Ventures is also a technology accelerator company and which runs startup programmes like Alpha Startups pre-accelerator programme and 1337 Accelerator and other corporate programmes.
Leet Capital Sdn Bhd is an approved ECF Operator regulated by the SC and a special purpose company formed by the promoters of 1337 Ventures Sdn Bhd to undertake the ECF operator business.
Who can invest?
Everyone is eligible to invest so long as they have been verified as an investor by completing our registration process by filling up their personal particulars and satisfying our internal AMLA and KYC screening tool.
You can register as an investor simply by signing up on our website.. During this period, you can proceed to explore our existing crowdfunding campaigns.
However, if you wish to invest, you need to complete your registration process as a verified investor by furnishing your application with more details.
How do I know what type of investor I am?
Investors are classified into three categories, namely retail investors, angel investors, and sophisticated investors. Depending on your classification, you may have certain limitations set on your investment limit.
According to Guidelines set by SC, your investor category will depend on your net worth and income.
The 3 types of investor categories are:
Sophisticated Investor: An individual with a total net personal assets exceeding RM 3 million or its equivalent in foreign currencies OR corporations with total net assets exceeding RM 10 million or its equivalent in foreign currencies based on the last audited accounts
Angel Investor: An angel investor is someone who has an income of at least RM 180,000 per year, and has been accredited by the Malaysian Business Angels Network (MBAN) as an angel investor. To be eligible to invest as an angel investor on our platform we will require a valid MBAN ID for verification.
Retail Investor: A retail investor is someone that does not fall under the categories of either sophisticated investor or angel investor
What are the investment limits?
Based on the investor classification above, SC has set certain investment limits on investors.
Retail investors - Up to RM 5,000 per issuer, with a maximum of RM 50,000 investment within a 12 months period.
Angel investors - Up to RM 50,000 within a 12 months period.
Sophisticated investors - no limit.
How is my investment funds protected?
Any investment monies made to any issuer will be deposited directly into a separate trust account.
The trust account is administered by an independent registered custodian and we have engaged Universal Trustees (M) Bhd as our licensed custodian. The funds are to be released only when the targeted amount has been met and other conditions satisfied like no material adverse change during the offer period and cooling off period of six (6) business days have expired.
Can I change my mind after investing in an issuer?
You will be given a cooling off period of six (6) business days which you may request a refund.
What is a “material adverse change”?
Under the Guidelines, a “material adverse change” concerning the issuer, may include any of the following matters:
- the discovery of a false or misleading statement in any disclosures in relation to the offer
- the discovery of a material omission of information required to be disclosed in relation to the offer
- there is a material change or development in the circumstances relating to the offering or the issuer
As a platform, we will notify you if there is any material adverse change to the issuer’s campaign disclosures or information.
What is a nominee structure?
A nominee structure is a method to facilitate investment into a company. Under the Companies Act 2016, a Malaysian private limited company eg Sdn Bhd is allowed to have up to 50 shareholders at any time. This may not be suitable when equity crowdfunding generally attracts large number of investors.
To facilitate the investment, we have designed a nominee structure which allows us to act as a nominee to hold the shares on your behalf as a nominee.
Note that before being allowed to invest in a company, you must first agree to the nominee structure by agreeing to the nominee agreement. You may access the nominee agreement here
To illustrate, once your investment in a company is successful, the company will instruct its company secretary to issue and allot shares to the nominee. To view your shareholding position, you can access your investor dashboard on the platform.
How do I get more details and clarification from the potential company that I wish to invest?
Once registered as a verified investor, you may view the ongoing campaigns on our platform. You can access the discussion section which allows you to ask any questions directly to the company’s management team.
How do I lodge a complaint?
If you have any complaint regarding the platform, you can do so by filling up our complaint form here
What are the exit options for my investment?
When you invest in growing companies and startups, you are investing for the time when the company may potentially grow larger and you may exit when there is an IPO or a trade sale.
You may realise your investment returns in several ways:
- when a company chooses to distribute dividend from a portion of the company’s earnings to shareholders
- when you sell your shares for a higher value than when they were purchased. This can happen through:
- A trade/sale when you find an interested buyer or through a secondary market
- acquisition or purchase by another company
- the company decides to go for public listing/IPO eg your shares are publicly traded on a stock exchange
Since you are investing in an early stage company, the failure rate is high and there is no guarantee that you will have the opportunity to liquidate or sell your share when you want to.
Will I need to pay any fees?
Investors do not have to pay any fees when they make an investment.
Issuers pay a fee to Leet Capital to utilise the platform, and will be charged a fee for a successful campaign.
Managing conflict of interest between platform and the issuer
To avoid conflict of interest, the platform including its individual directors and shareholders will disclose to the public on our platform if:
- we hold any shares in any of the issuers hosted on its platform; or
- pay any referrer or introducer, or receives payment in whatever form, including payment in the form of shares, in connection with an issuer hosted on our platform.
What happens if a campaign fails?
If a campaign fails to achieve its minimum target raise amount, the campaign will be considered a failure and all funds will be returned to investors in full. For example, if a campaign where you invest RM 5,000 in fails, you will receive the full RM 5,000 back.
Which businesses can raise money through equity crowdfunding?
Any locally incorporated company from various sectors and stages, be it a start-up, growth stage companies, or even social enterprises, are welcome to host their company on the platform.
However, the SC has set forth several requirements that companies must comply to prior to hosting:
Companies that can raise funds through ECF:
- Locally incorporated private companies eg Sdn Bhd
- Limited liability partnerships (excluding exempt private companies) eg LLP
Companies that are prohibited from raising funds through ECF:
- Commercially or financially complex structures (i.e. investment fund companies or financial institutions.
- Public-listed companies and their subsidiaries
- Companies with not business plan, or business plan to merge or acquire an unidentified entity (i.e. blind pool)
- Companies that are proposing the use the funds raised to provide loans or make investments in other entities. (except a microfund)
- Companies with paid up share capital exceeding RM 5 million (except a microfund)
- Any other type of entity that is specified by SC
How much can companies raise?
A company can raise up to RM 3 million over a 12 month period.
The maximum a company can raise through equity crowdfunding is RM 5 million.
What requirements do companies have to meet?
To raise through Equity Crowdfunding, companies have to provide Leet Capital information on the business, shareholders, and its directors. The companies also have to clearly state the allocation of the funds, and why it is required, which should be shown in relevant business cases and projections.
Most importantly, SC has several guidelines that mandates for various levels of audited and certified financial information depending on the amount of money intended to be raised.
As a company seeking to be hosted on our platform, you are required to provide the following:
- information that explains key characteristics of the company
- information that explains the purpose of the fund raising and the targeted offering amount
- information relating to the business plan of the company
- Financial information relating to the company eg audited financial statements or certified financial statements or information by the company’s management (if the company is newly established)
A company proposing to be hosted on our platform shall ensure that all information submitted or disclosed to an ECF operator is true and accurate and shall not contain any information or statement which is false or misleading or from which there is a material omission.
What are the fees and charges to be hosted on Leet Capital?
Once you agree to host on our platform, we will charge a one time administrative fee of RM1,500 which will be deposited into the trust account.
In addition to the above, we will charge a fundraising fee of between 4% to 7% for funds successfully raised.
The fee will cover the charges for setting up a crowdfunding campaign on our platform, roadshows and effecting a nominee arrangement for one year.
What happens if my fundraising is unsuccessful?
If your fundraising is unsuccessful, all the funds will be refunded to the investors.
As there may be certain shortfall due to transaction and banking charges incurred by the custodian and the investors respectively, we reserve the sole and absolute discretion to deduct the ‘shortfall’ amount based on the administrative fee to ‘top up’ for the ‘shortfall’.
How long is the fundraising process?
A company seeking to raise money on Leet Capital has to apply and undergo a due diligence process by Leet Capital.
If your application is approved by Leet Capital, you will sign an Issuer Agreement with Leet Capital which sets out the agreed fee and other terms and conditions required for you to comply to be hosted on our platform.
After that we will assist you in creating a crowdfunding campaign site on our platform and help you launch your campaign, which typically runs for around 30-60 days.
Why is due diligence necessary?
As a platform, we are required by the SC to carry out to carry out a due diligence exercise on prospective issuers planning to use our platform. We will perform the necessary due diligence (see below) to ensure that all disclosed documents and information submitted by the issuers are verified and accurate. The companies that hosts on our platform will undergo several checks against public information and databases eg CTOS, bankruptcy search relating to the company and its directors and senior management.
It is a requirement that we ensure the issuer’s disclosure document lodged with us is verified for accuracy and made accessible to investors through the platform
Additionally, the scope of the due diligence exercise by our platform shall include taking reasonable steps to:
- conducting background checks on the issuer to ensure fit and properness of the issuer, its directors, senior management and controller; and
- verify the business proposition of the issuer
What happens if a crowdfunding campaign is successful?
If the funds are successfully raised, the campaign will undergo a cooling-period of six (6) business days, before the execution of agreements between all shareholders.
During the cooling period, you will be allowed to withdraw your investment. After the expiry of the cooling off period above and the issuer has satisfied all the disbursement conditions, we will instruct the custodian to disburse the funds raised over to the issuer.
What happens if a crowdfunding campaign is unsuccessful?
If a campaign is unsuccessful after the campaign period, the campaign will be closed and all monies will be returned to the investors.
Can companies raise funds on multiple platforms simultaneously?
As an issuer, you may only host one crowdfunding campaign at a time eg on one ECF platform at a time. This requirement is imposed by the SC under the Guidelines.