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 become 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 or potential to exit, either on initial public offering or sale of the business to a third party.
Investing in startups and growth stage companies was previously exclusive to wealthy individuals, venture capitalists, and business angels. ECF stands to democratise the investment process both ways: opening the door for Issuers to alarger pool of potential investors via crowdsourcing, and making the once-exclusive opportunities of startup investments accessible to the public.
Although investing in an early stage company is very risky, ECF investing also means that you are participating in a company’s journey at 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 crowdfundingcan be much more rewarding as you are investing in a company which aligns with your vision and views.
Some companies may also choose to reward its early investors through credits, products, or discounts.
Just like any other investment schemes, there are always risks involved. As an investor, you are required to conduct your own independent assessment ofany 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 not 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 aboutthe 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 companieswill 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).
1337 Ventures Sdn Bhd is a SC registered venture capital fund management company, that invests in early stage companies. 1337 Ventures is also a technology accelerator which runs startup programmes like Alpha Startups pre-accelerator programme, 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.
Everyone is eligible to invest so long as they have been verified as an investor by completing our registration process. This includes 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 asa verified investor by furnishing your application with more details.
Investors are classified into three categories, namely retail investors, angel investors, and sophisticated investors. Depending on your classification, you mayhave certain limitations set on your investment limit.
According to Guidelines set by the SC, your investor category will depend on your net worth and income.
The 3 types of investor categories are:
Sophisticated Investor: A sophisticated investor may refer to a High-Net-Worth Individual, High-Net-Worth Entity, or an Accredited Investor.
A High-Net-Worth Individual refers to an individual whose total net personal assets, or total net joint assets with his or her spouse, exceeds RM3 million or its equivalent in foreign currencies, excluding the value of the individual’s primary residence OR whose gross annual income exceeds RM300,000 or its equivalent in foreign currencies per annum in the preceding 12 months.
A High-Net-Worth Entity refers to a corporation with total net assets exceeding RM10 million or its equivalent in foreign currencies based on the last audited accounts.
Angel Investor: An angel investor refers to an individual whose total net personal assets exceed RM 3 million or its equivalent in foreign currencies, OR whose gross total annual income is not less than RM 180,000 or its equivalent in foreign currencies in the preceding twelve months, OR who jointly with his or her spouse, has a gross total annual income exceeding RM 250,000 or its equivalent in foreign currencies in the preceding twelve months.
Retail Investor: A retail investor is someone that does not fall under the categories of either sophisticated investor or angel investor.
Based on the investor classification above, theSC 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 500,000 within a 12 months period.
Sophisticated investors - no limit.
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 targetted amount has been met and otherconditions satisfied - like no material adverse change during the offer period and cooling off period of six (6) business days have expired.
You will be given a cooling off period of six (6) business days during which you may request a refund.
A nominee structure is a method to facilitate investment into a company. Under the Companies Act 2016, a Malaysian private limited company e.g. Sdn Bhd is allowed to have up to 50 shareholders at any time. This may not be suitable in the case of equity crowdfunding since it generally attracts a large number of investors.
To facilitate the investment, we have designed a nominee structure which allows us 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 thenominee structure by agreeing to the nominee agreement.
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.
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 thereis an IPO or a trade sale.
You may realise your investment returns in several ways:
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(s) when you want to.
To avoid conflict of interest, the platform (including its individual directors and shareholders) will disclose to the public on our platform if:
Any locally incorporated company from various sectors and stages - whether a start-up, growth stage company, or even social enterprise - all are welcome to host their company on the platform.
However, the SC has set forth several requirements that companies must complywith prior to hosting:
Companies that can raise funds through ECF:
Companies that are prohibited from raising funds through ECF:
An issuer may only raise, collectively, a maximum amount of RM20 million through ECF platforms in its lifetime, excluding the issuer`s own capital contribution or any funding obtained through a private placement excersize.
To raise through Equity Crowdfunding, companies have to provide Leet Capital information on their business, shareholders and 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, the SC has several guidelines that mandate 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:
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.
Once you agree to host on our platform, we will charge a one time administrative fee of RM 2,000.
In addition to the above, we will charge a fundraising fee of between 5% 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.
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 Agreementwith Leet Capital which sets out the agreed fee and other terms and conditions required for you 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.
As a platform, we are required by the SC to carry out a due diligence exercise onprospective issuers planning to use our platform. We will perform the necessary due diligence (see below) to ensure that all disclosed documents and informationsubmitted by the issuers are verified and accurate. The companies that host on our platform will undergo several checks against public information and databases e.g. 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:
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, investorswill be allowed to withdraw theirinvestment. After the expiry of the cooling off period above andyou, the issuer, have satisfiedall the disbursement conditions, we will instruct the custodian to disburse the funds raised to you.
As an issuer, you may only host one crowdfunding campaign at a time e.g. on one ECF platform at a time. This requirement is imposed by the SC under the Guidelines.
To encourage more individual investors to participate in ECF, the government had announced in Budget 2021 that a qualifying individual who invests in ECF would be entitled to an income tax exemption, subject to conditions as stipulated in the Income Tax (Exemption) (No. 4) Order 2022 [P.U.(A) 142] (“Tax Exemption Order”).
For more information, please refer here
The investment made through ECF must be on or after 1 January 2021 but not later than 31 December 2023.
No, only qualifying individual investors can apply for the ECF tax exemption.
Definition of “qualifying individual” can be found under paragraph 2 of the Income Tax (Exemption) (No. 4) Order 2022 [P.U.(A) 142] (“Tax Exemption Order”).
For more information, please refer here.
The investment made through ECF is not disposed of, either in full or in part, within 2 years from the date the investment is made. Please refer to the following illustration:
|Year of Investment Is Made
|Year of Assessment in respect of Exemption of AggregateIncome
|Date to file BNCP (Borang Nyata Cukai Pendapatan) for qualified individuals
*Deadline is in accordance with national tax filing timeline
Date of investment refers to the closing date of the issuer’s fundraising campaign on the ECF platform. However, if the investor exercised his cooling off rights, the investor will not be entitled to apply for the tax exemption.
You may make multiple investments in different ECF platforms in a year. The exemption shall be:
Yes, you are eligible for the tax exemption (subject to conditions stipulated in the Tax Exemption Order), provided the nominee company is:
By investing in equity crowdfunding, you will be investing into early-stage companies, which carries a huge risk as they may or may not do well.
As an investor, you may lose all of your investment and may not be able to sell any investment you purchase due to illiquidity.
You are advised to spread your risks by diversifying your portfolio across different asset classes. We strongly advise that you seek independent advice and conduct your own due diligence and research before you decide to invest.
For more information, read our Warning Statement.