A small restaurant in Minneapolis offered people free beer for the rest of their lives if they invested US$1,000 in it, or 0.5% of its equity for every US$5,000 invested. Northbound Smokehouse & Brewpub managed to raise US$220,000 to secure a bank loan and 2 years later, it is still thriving – the investors did not drink them dry. Lifetime beer members rarely went to the pub to drink by themselves, but almost always ordered food and brought other people along with them. For the investors, it was about the sense of ownership – they ended up being a huge army of cheerleaders for Northbound.

What is Crowdfunding?

Crowdfunding is the raising of a small amount of capital from a large number of individual contributors to finance a specific project or business proposal, and may be done on an equity-based model (which involves the offer of securities), a lending-based model (which involves individual contributors making loans to project owners with promised interest returns), a reward-based model (which gives returns to contributors in the form of merchandise or other non- monetary rewards) or a donation-based model (which gives no returns).

Since the introduction of the Jumpstart Our  Business Startups Act (JOBS Act) in the U.S. in April 2012, crowdfunding has become an increasingly popular equity raising method in the U.S., and the trend is slowly starting to take root in other parts of  the world, including Singapore. Several notable Singapore-based online crowdfunding sites, such as ToGather.asia, Crowdonomic, Cliquefund and Crowdtivate, have sprung up to facilitate the raising of funds beyond the traditional sources of friends, relatives and venture capitalists. The potential for crowdfunding is huge, with the internet and social media in particular creating a global audience that can help many more individuals try out their ideas and become entrepreneurs.

Singapore Legal Framework for Crowdfunding

Unlike the U.S., crowdfunding is not specifically regulated under any particular statute in Singapore, but potentially falls to be caught under various general legal frameworks for fundraising.

Equity-based or debt-based crowdfunding may be deemed as a securities offering under the Securities and Futures Act (SFA) and unless an exemption applies, entities making an offer of securities to investors in Singapore are required to lodge and register a prospectus with the Monetary of Singapore (MAS). An overseas crowdfunding platform that solicits funds from investors in Singapore by way of a securities offering will be subject to the same restrictions.

It is worth noting that there are specific exemptions under the SFA for small offers of up to S$5 million within a 12-month period or offers to accredited investors, as long as they are not advertised. However, where the crowdfunding platform facilitates any securities offerings or provision of advice relating to the securities offerings, regardless of the offer size, it may be deemed as dealing in securities or advising on corporate finance, which consequently would be subject to licensing requirements under the SFA and the Financial Advisers Act. If the crowd funding platform becomes a place where offering of securities are regularly made on a centralised basis, it may also be regarded as a securities market under the SFA for which prior approval of MAS will be required.

Donations-based crowdfunding may be deemed as solicitation of money in public places under the House to  House and Street Collections Act (Cap 128) and unless an exemption applies, all such public fundraising activities are required to be licensed by the licensing division of the Singapore Police Force. An appeal for collection through the telephone or the media such as the internet and newspapers, or by way of letters sent by post, are exempted, but if the fund-raising appeal is conducted for any foreign charitable causes, a permit will be required from the office of the Commissioner of Charities.

Reward-based crowdfunding is not generally caught under any existing framework and is the model adopted by most Singapore crowdfunding platforms – in return for pledging cash to the start-up, investors are offered the chance to pre-purchase a product under development or get other rewards such as product-related services. However, the viability of such non-equity crowdfunding platforms is clearly limited as investors typically prefer to obtain legal and economic rights over the company.

Crowdfunding in the U.S.

Crowdfunding is expressly  permitted in the U.S. by  way of an exemption from securities registration under the JOBS Act, in view that the extensive requirements surrounding a public offering are too onerous,  time-consuming  and  expensive  for  start-ups  or  smaller enterprises. The legislation allows equity-based crowdfunding when such fundraising is conducted by a licensed broker-dealer or through a funding portal that is registered with the Securities and Exchange Commission, with limits on how much money an unaccredited investor can contribute based on certain income thresholds. Since the enactment of this legislation, many crowdfunding platforms have been launched to fill this rapidly evolving space. Established U.S.-based crowdfunding platform Kickstarter was getting more than US$100 million in project pledges every year and averaging more than US$2 million in pledges each week.

Crowdfunding in China

SeedAsia, an equity crowd-funding site based in China, was launched in 2013 and offers stakes in pre-screened early-stage Chinese and Southeast Asian technology startups to the public. SeedAsia allows investors to buy shares or convertible notes in a special purpose vehicle, which in turn invests in a startup company and investors are required to demonstrate that they are qualified investors in their home countries before they are accepted as members of SeedAsia. The minimum investment amount is set at US$2,000 per person and startups can apply to offer between US$50,000 and US$1.5 million in equity through SeedAsia’s platform.


MAS is closely monitoring the developments in other jurisdictions in relation to crowdfunding and looking into an appropriate regulatory framework for such new business models. The crowdfunding framework needs to strike a good balance between the benefits of crowdfunding and its risks to the public, if it is to provide a real impetus to innovation and entrepreneurship in Singapore. On the one hand, excessively restrictive rules will prevent crowdfunding from being effective but on the other hand, an overly lax framework could damage the market if investors and backers are swindled by fraudulent or irresponsible entrepreneurs. Given the borderless nature of the internet and the fact that many such crowd funding platforms do not have any presence in Singapore, there are also practical limits to enforcement of local requirements, so protection afforded under laws administered by MAS may be curtailed and investors must nonetheless exercise vigilance when participating in such offers.