A Singaporean entrepreneur falls in love with Thailand, and creates the country’s first online equity crowdfunding platform
Small and medium sized enterprises (SMEs) make up 99.7 percent of all enterprises in Thailand, and account for 78.5 percent of total private sector employment and 42.2 percent of the country’s GDP. These SMEs typically use commercial bank loans for their financing needs: In 2017, SMEs had THB 4,220,624 billion (US$140,687 billion) in outstanding loans, which was equivalent to more than half of all outstanding business loans.
However, many SMEs face obstacles accessing bank loans due to insufficient collateral or a lack of credit history. SMEs also generally do not keep reliable financial statements, and as such young entrepreneurs have to take unsecured loans with high interest rates or sign personal guarantees that risked bankrupting them in the future.
Kwek Hong Sin, a Singaporean entrepreneur who founded crowdfunding platform Sinwattana to meet local capital-raising needs, explains thus:
“When a developing country faces economic challenges, it is difficult for residents to succeed in business when the government does not have a huge budget or sophisticated financing mechanisms. It's not because businessmen don't have talent, it's because they don't have resources. People who have skills and ideas are unable to gain access to funding. Many SMEs in Thailand are just waiting for help, and not knowing how to get help. Even when the government provides grant, these people cannot complete the application forms because they cannot communicate in English.”
Idea gestation
Kwek, who came to Thailand in 2005 to establish an office for her cybersecurity company Quantiq International, fell in love with the country and sold off her share in Quantiq in 2010. She attempted to help budding entrepreneurs through a consulting business but could not convince locals banks to fund her idea.
At that time, crowdfunding platforms were starting to proliferate. Indiegogo had been launched in 2008, followed by Kickstarter and Wefunder, which was facilitate by the U.S. Jumpstart Our Business Start-ups (JOBS) act in 2012. Kwek moved to America to study the crowdfunding concept and returned to Asia, running some crowdfunding events to gauge interest in the concept. After receiving a positive response, she decided to establish Sinwattana.
Kwek aimed to use Sinwattana to link Thai SMEs to international investors. It would vet local companies and offer local insights to international investors keen on local businesses. After an issuer has registered their interest in using the platform, the team would assess the business plan of the company. Kwek discusses the stringent company checks:
“When I evaluate the local Thai companies, I am very brutal, because I am answerable to the investors who I bring on to the business. We have certain criteria for SMEs to meet. So, if you're looking at investing to expand, we're always very interested in your track record. Typically, we look at companies that have been operating for two or three years. We look at the team members, we look at the cash flow, we look at the financial modelling, their business models, we look at the challenges that it faces. We look at how they acquire clients. We look at the strategy and their ability to execute that strategy.”
Details of viable projects would then be published online for potential investors to peruse.
Sinwattana also had to ensure investors understood the investment risks. For example, a start-up would have a roughly 25 percent chance of success. After registering online, investors would have to read a disclaimer and undergo a simple test on basic financial concepts.
Sinwattana would prepare a term sheet to summarise the terms and conditions and investment memos for each project. Once online, investors would have to select the deal, make the reservation, and then transfer money through the bank, into the escrow account.
The money would only be released when the target funding was achieved. Project returns would usually range from three to eight percent at a minimum. Retail investors would only be able to invest up to THB 1 million (US$33,000) a year and THB 100,000 (US$3,300) per project to limit the amount of risk.
It works. Now that?
For a country whose banking system had tightened lending requirements following the 1997 Asian Financial Crisis, Thailand perhaps had a ready-made of pent-up demand for crowdfunded capital. Sinwattana had proven to be a success with a working platform that satisfied issuers and investors, and had gained traction through social media and word-of-mouth.
But despite the presence of large firms like Kickstarter and Indiegogo, crowdfunding was a nascent industry in Thailand. Kwek wanted to collaborate more closely with the regulators and hoped to persuade them to reconsider amending impractical financing rules. Many industry participants felt that the individual limit of THB 100,000 (US$3,100) per investment was too small to meaningfully help SMEs grow their businesses.
Kwek planned to open a “secondary market” where investors would be able to trade the shares of companies that had already raised money on the Sinwattana platform. This would provide investors with the opportunity to buy into more mature, fast-growing companies, and the increased market breadth would enhance the vibrancy of the crowdfunding scene.
This is an adapted version of the SMU Case, "Sinwattana: Raising Capital through Crowdfunding". To see the full case, please click on the following link: https://cmp.smu.edu.sg/case/5056.
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Last updated on 29 Oct 2021 .
