In our newsletter last week, we continued our series on Crowdfunding and gave a brief summary of the proposed rules on Crowdfunding exposed by the Securities and Exchange Commission to the public.
The concept behind Crowdfunding was for businesses to access funds and Investors without plying the traditional routes of sourcing from banks, stock exchanges, and venture funds; and specially to avoid the stringent clauses and interest rates that came with these funds.
In this week’s edition on crowdfunding, we shall be highlighting the advantages of Crowdfunding for the Micro, Small, & Medium Enterprises (“MSMEs”) especially for those seeking to raise patient capital because whether it is a start-up project or needing a little more push for your business, Crowdfunding is beneficial for every level of business and investors.
How does Crowdfunding benefit an Investor?
Investing in a MSME carries no assurances, and private company valuations, especially in the seed-stage, are pure estimates. There is a very real and explicit risk that an investor can lose all investments, though by contrast, those holdings could compound enormously if the business is successful. High-risk, high-reward.
Crowdfunding is an Investment opportunity for an Investor. MSMEs seeking to raise capital on a SEC regulated Crowdfunding Portal are obligated to provide the Investor with verifiable information before arriving at a decision; this opportunity also avails an Investor the opportunity to become savvy in the Investment world.
Investors have an integral role to play in the development of our Nation’s economy. Without investing in MSMEs, chances are these businesses will fail despite having the potential for greatness. The benefit of this for an investor, is usually high returns when the business scales up.
Crowdfunding allows an Investor to have a diversified portfolio by spreading investments across multiple businesses. So even if one business doesn’t take off, there are other ones to fall back on.
There are also tax benefits accruable to an Investor as profits made from investments are free of tax.
Overall, the proposed rules for Crowdfunding released by SEC makes provision for the protection of the general public when investing in these companies by establishing limits to which Investors can invest in an MSME.
How does Crowdfunding benefit MSMEs?
We are all aware of the imminent risks that comes with starting up a business especially in the Nigerian economy. The search for patient funds while validating yourself within the market can be strenuous for a start-up company. Raising funds via Crowdfunding, is not only better suited for an MSME, it also avails the business an opportunity to establish its worth and get market validation. This also assists MSMEs in determining whether their target market will like the product/service they are offering. It is an excellent learning experience for the business as you learn to position your business in an attractive manner for potential Investors.
Crowdfunding is also a way for a business to start marketing themselves. They need to make an excellent pitch/campaign to potential investors to get them to invest in their business. MSMEs also become technology driven, using social media and other ways to direct traffic to their business.
NASD Crowdfunding Portal is designed to facilitate a simple feedback loop, making it as easy as possible for Investors to find a business and finance it until their prize-reward is delivered.