Crowdfunding is a concept that has been in existence for several decades. The Statue of Liberty was completed in 1885 by the assistance of more than 160,000 donors who each pitched in following the charismatic campaign of Joseph Pulitzer. In recent years, crowdfunding has been used as an alternative to traditional sources of financing, such as banks or angel investors, by start ups as well as small and medium sized enterprises (SMEs) to raise capital, especially via the internet.

There are hundreds of crowdfunding platforms available today with each platform offering its unique angle. The appeal of this concept is that the investment is not always based on financials or the feasibility of the product. It is sometimes the purpose of the entrepreneur that draws likeminded individuals to unite behind his or her cause.

There are various forms of crowdfunding including donation-based, rewards-based, lending-based and equity-based. Usually, donations-based crowdfunding is where individuals pool their resources to support a charitable cause; rewards-based crowdfunding allows individuals to give money to a company in return for a future reward; lending-based crowdfunding acts like a loan to the company; and equitybased crowdfunding allows individuals to purchase shares in the company and receive a share of profits.

The three main reasons the public or the “crowd” is drawn to crowdfunding are:

  1. They connect to the greater purpose of the campaign or endeavour.
  2. They connect to a physical aspect of the campaign or endeavour like the rewards derived therefrom.
  3. They connect to the creative display and presentation of the campaign’s or endeavour’s presentation.


Due to this growing global trend, one can see the pitfalls that await a naïve or inexperienced participant in a crowdfunding platform who may become a victim of fraud or misrepresentation. Hence there is now the need to implement some form of legislative framework to regulate crowdfunding activities in Singapore, and the Monetary Authority of Singapore (the MAS) issued a consultation paper in February this year to seek the views and comments on measures to facilitate and regulate one form of crowdfunding – securities-based crowdfunding (the Consultation Paper). While these proposed regulations are not expected to cover crowdfunding based on donations or rewards as they do not involve the prospect of financial returns or an offer of securities, they will nevertheless form the basis for crowdfunding legislation in Singapore in time to come.

The Consultation Paper proposes that securities-based crowdfunding be restricted to accredited investors and institutional investors. With this proposal in mind, the MAS will eventually have to balance the spirit of crowdfunding, which has historically involved the masses and allowed them to unite behind a common objective or goal, against the need to protect the population against the possibility of fraud. The MAS will certainly be looking at the legal framework in other jurisdictions when determining the regulatory model to implement in Singapore.

In time, the MAS may possibly need to expand the regulations applicable to securities-based crowdfunding to cover potential participants who may not qualify as accredited investors and institutional investors. We envisage that this aspect of the crowdfunding landscape will be the most challenging to regulate given the necessity to balance entrepreneurship against the need for safeguards. We have seen from the numerous litigation cases involving banks since the last financial crisis that, despite numerous restrictions on the financial instruments available to the public, even sophisticated investors fall victim to schemes that offer attractive gains but also carry equally high risks. Similarly, the various crowdfunding platforms also carry significant risks such as zero return on investment in the event that the start up fails. It may be very likely that Singapore will look to overseas models to ascertain the best fit for Singapore.

For example, Britain has adopted certain safeguards which Singapore might find familiar as they resemble the Total Debt Servicing Ratio scheme which restricts the ability of someone to take on debt relative to their annual income. In Britain, first-time investors are required to limit their initial two investments to less than 10% of their net assets. These net assets will exclude their housing status, pension or life insurance. Given the historical ties between the British and Singapore legal systems, such a framework may feature in the proposed regulations eventually should the MAS decide to expand the crowdfunding regulations to cover the public sphere.

As mentioned above, crowdfunding often attracts investors due to an emotional response as well as financial gain being the objective. Limiting this platform to experienced investors and financial institutions may defeat the purpose behind this method of raising capital as investors would only be left with donation-based or rewards-based approaches which will offer no potential financial gain.

As the crowdfunding industry grows, the masses or retail investors who find a proposal too risky or uncertain are likely to pass on those opportunities which would leave room for the venture capitalists and other experienced investors to pursue these companies. Therefore, given sufficient time, the market may be able to self-regulate the riskier enterprises.

The MAS may also focus on regulating the base-capital requirements for companies that rely on security-based crowdfunding. There could be guidelines which dictate that a certain proportion of funds received must be set aside as base-capital. This amount could then be used to pay shareholders in the event of litigation or disputes.

Established Corporations

Apart from start ups and SMEs, crowdfunding can also be beneficial to established corporations which may wish to explore a certain niche area of business, i.e. new ventures, which may not receive support from existing shareholders. This alternative form of fund raising could essentially change the manner in which corporations have traditionally conducted their business, i.e. via raising funds from their shareholders.

Growing Sector

Crowdfunding is a growing industry especially due to the internet offering access to millions of potential investors across the globe. In 2012, the overall crowdfunding industry had raised US$2.7 billion1 . In 2013, this amount was US$5.1 billion2 . It has and will continue to help areas like the arts, social enterprises and philanthropy which are segments of the economy that receive the least attention.

Due to the fact that the majority of crowdfunding is done via the internet, there will be many jurisdictional issues for governments in attempting to control and regulate crowdfunding as well as practical issues in terms of enforcement. Countries will only be able to place restrictions on crowdfunding that takes place in their own soil. With the exponential growth of this industry, Singapore should embrace the opportunity this presents. The infrastructure and laws that are in place here make Singapore an attractive location for investment. They form the bedrock for the growing number of companies that rely on crowdfunding to attract capital.

With the proposed implementation of the regulatory framework for securitiesbased crowdfunding, Singapore is definitely headed in the direction of developing the crowdfunding landscape.