Equity crowdfunding: Now in the Philippines

Last week, I attended the official launch of the Round One crowdfunding platform.

During its launch, it featured nine companies, namely:

Raven Global-an enterprise platform that focuses on providing an end-to-end customer experience in managing properties and vital assets.

Cocotel-a property management, sales and marketing company with over 70 independent hotel and resort properties in 50+ locations.

Tipaklong-a company that aims to provide affordable and environment-friendly mobility to customers through bike rentals.

Unawa-a company that offers technology solutions that accelerate digital transformation for its users, making compliance and legal business transaction easier and more accessible for all.

Burket-a company that provides business-to-business (B2B) procurement and selling applications that are accessible, affordable and easy to use for businesses of all sizes.

LGUSuite-an all-in-one package that provides policymakers and program implementers with trustworthy information base for tracking the impacts of macroeconomic reforms and various policy externalities.

IOL Inc.-a systems development company building modern web-based systems solutions for organizations.

Alaga Health-a digital health marketplace and service hub.

FILIPAY-an Automatic Fare Collection System for cashless and contactless fare collection with reduced cost operating nationwide in the Philippines.

Crowdfunding is relatively new in the Philippines, with the Securities and Exchange Commission approving the first crowdfunding platform in January last year.

Crowdfunding uses small amounts of capital from many investors to finance new business ventures.

And although there are several crowdfunding platforms in the Philippines, Round One is the first platform that allows small businesses to raise capital by selling shares in their company. In contrast, other popular crowdfunding platforms like Investree and Seedin are focused on lending working capital to small businesses that don’t have access to bank loans.

Although startups can raise equity capital by tapping private equity or venture capital firms, crowdfunding platforms might be more suitable for some because of their small funding requirements.

Startups might also prefer to raise capital through crowdfunding platforms because they don’t have to give up a controlling stake in their company, which is what a lot of big investors require before they invest in a business.

Meanwhile, small investors might want to invest in businesses found in crowdfunding platforms because of the potential to earn higher returns, like those enjoyed by larger investors who have access to private equity companies or venture capital firms.

Others might just want to give back and support entrepreneurs in social enterprises such as companies focused on improving health and education, or environmental protection.

Because of these benefits, crowdfunding platforms provide a win-win solution to both small businesses and investors.

However, despite the potential to earn significant returns, investors who fund businesses in crowdfunding platforms also face risks.

For example, although investors could more than double their money by investing in a startup that eventually gets listed on the stock exchange or gets bought by a big multinational company, they could also potentially lose big since most start-ups fail to succeed. According to a report by Startup Genome, 9 out of 10 startups fail, with 10 percent of startups failing within the first year of operations.

To manage risks, investors who participate in crowdfunding must do their due diligence and invest in several companies instead of just one. Investors should also limit the size of their investments to only a small portion of their total portfolio.

Although crowdfunding is new in the Philippines, it is a space worth watching given its potential to help exciting new businesses succeed in the future.