Crowdfunding phenomenon is coming to Hong Kong
Hong Kong-based entrepreneurs Simon Karner and Mathias Krostewitz are poised to launch fund2.me, a crowdfunding site that will open for business on December 1.
Readers will doubtlessly have heard of crowdfunding - the new big thing for raising capital. It involves using the web to raise funds by getting relatively small amounts of money from a large number of people.
According to a report by US research firm Massolution, about US$2.7 billion was raised from crowdfunding globally last year involving more than a million projects. This year, the amount is likely to exceed US$5 billion. A recent World Bank report said that by 2025 there could be US$93 billion available annually for crowdfunding, with US$50 billion coming from mainland China alone.
Currently, most crowdfunding occurs in the US and to a lesser extent in Europe and Australia. There are a handful of sites in Hong Kong. Fund2.me, which is both the name of the company and its website address, aims to service Hong Kong and the mainland.
"We expect most ideas to come from Hong Kong and from expatriates in China looking to set up businesses there," says Krostewitz.
Not all crowdfunding sites operate in the same way. Fund2.me offers three forms of funding. The most basic is "backing", which means that in return for committing, say, US$50 to a start-up, investors receive a service from the company or a product. Typically, this form of funding is for less than US$100,000.
Companies may also offer their stock directly to accredited investors in exchange for funding commitments. This may include options for convertible debt and debt funding.
A third form of funding arises when an inventor has an idea that he may have patented but doesn't want to develop as a business. Instead, he wants to sell the business rights or franchise it.
Sites vary as to the amount of project details they show. One of the interesting aspects of fund2.me is the extensive support that is being built into the site for entrepreneurs.
In the first place, there are strict guidelines for what can and cannot be submitted. So there's no porn or get-rich-quick ideas or those involving money laundering. Every funding campaign that is launched on the site requires pre-approval from the operators. Getting this requires a serious amount of work in providing a business plan, marketing strategy, competitor analysis and so on.
"We don't say whether the project is good or bad, but we insist that we see evidence of work that shows it is a serious project," says Karner.
There is plenty of support on the website for aspiring entrepreneurs. There is a "fundwiki" section, which spells out the process and over time will be added to by knowledge from other forums on the site.
Another interesting aspect of the site is that in addition to entrepreneurs and investors, there is a third category of participants - supporters. These include lawyers, business consultants and other industry participants. They will be expected to offer a certain amount of free guidance and advice to the entrepreneurs. In return, they can get "endorsed" for their advice and are able to promote themselves. At the same time, there is the prospect of cultivating future customers.
In this way, Karner and Krostewitz hope to develop a social network of collaborative knowledge and expertise - what they call "crowdpower". Indeed, 135 industry participants have already signed on.
This "crowdpower", together with assistance from the two owners of fund2.me, will help entrepreneurs improve the quality of the pitch and the chance of successful funding.
Fund2.me takes a 5 per cent commission for every successful funding.
But is there a demand for this kind of funding in Hong Kong? The owners say they have been to many start-up events in Hong Kong organised by venture capitalists from the US or by InvestHK. "There are lots of people with ideas in Hong Kong looking for funding," says Karner. There are apparently also lots of investors particularly from the US and Europe who want to invest in this region but don't have a good overview of the ideas and entrepreneurs in Hong Kong. So far, two projects have signed up, and when fund2.me goes live in December, there should be five projects for investors to consider.
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