Equity Crowdfunding

by Ming Wong, 2 Aug 2015

I was recently in London, representing Asia Community Ventures, to attend a conference organized by the G8 Taskforce on Social Impact Investing. The hot topic of discussion is what more should governments be doing to promote this worthwhile activity, including creating new ways to fund social innovation. I am not sure if it was the bias of the organizing committee but a significant part of the discussions focused on social impact bonds, also known as pay for success contracts.

While these instruments have certainly brought innovation to how social outcomes are being funded by foundations and government, the sheer complexity of how each deal is put together remains a major impediment to their ability to scale. I thought equity crowdfunding represents a more promising way to fund innovation of all sorts, social or otherwise, and I hope future events would devote more time to discuss how governments can make it easier for startup companies to crowdfund.

An abridged version of the following article on equity crowdfunding appeared in the Op-Ed Section of the South China Morning Post on July 28, 2015.


Crowdfunding, in its many forms, has now become a global phenomenon that allows crowds of people to support their favorite projects, charities or companies through the Internet via donations or other forms of contribution. Hong Kong Free Press, for example, recently raised over US$75,000 in just one month from 740 backers via FringeBacker, a local crowdfunding platform. The use of crowdfunding by startup companies to raise equity or debt (also known as equity crowdfunding), however, is relatively new and falls in the grey area between the regulated public arena and the unregulated confines of private equity investing.


Given Hong Kong’s role as a global financial center and our government’s interest to promote social innovation and entrepreneurship as well as attract startup companies from all over world to relocate to Hong Kong, it is imperative to understand the role that equity crowdfunding can play in helping Hong Kong achieve these aspirations. After all, all startup companies, regardless of whether they have a built-in social mission, require access to capital to allow them to pay their staff, operate their business and grow their companies.

Many countries, including Italy, Britain and the United States, have recognized the link between job growth and ease of raising capital. Following the recommendations made by a task force of experts for the Minister of Economic Development, the Italian Parliament issued a law on startups, including equity crowdfunding, to be regulated by the Italian Authority on Financial Markets (CONSOB) in 2013 to allow “innovative startups” to raise risk capital through on-line portals. Meanwhile the Financial Conduct Authority (FCA) in Britain began regulating loan and equity based crowdfunding platforms in 2014.

The most stunning development, however, occurred in the United States earlier this March. The Securities & Exchange Commission (SEC) released final Regulation A+ rules under Title IV of the JOBS Act that allow growth companies to raise up to US$50 million from unaccredited investors in a mini-IPO style offering serving as a potential alternative to venture capital or other institutional capital. These new rule mean that companies aspiring to be the next Uber or AirBnb would be able to offer their stock directly to their drivers, riders, renters and tenants as well as the general public. To protect unaccredited investors (who are deemed to be less sophisticated), the rules restrict them to investing no more than the greater of 10% of their net worth or net income each year.

Closer to home, Japan, Taiwan and Malaysia have also recently introduced similar legislation that legalizes equity crowdfunding. It is therefore disappointing that our Securities & Futures Commission has done little other than issue a notice on the potential regulations that might apply to and risks of equity crowdfunding.

The advent of the Internet with its unparalleled ability to disseminate information in a timely and cost effective manner has revolutionized how all forms of trade and commerce are conducted. Finance and fund raising is no different. Equity crowdfunding is here to stay and constitutes an important part of the jigsaw to allow Hong Kong to retain our role as a global financial center and achieve our goal to become a major hub for startups, entrepreneurship and innovation.

For our policy makers, legislators and regulators to do nothing would be a major mistake. Instead, we need to learn from global best practices to design an appropriate equity crowdfunding model for Hong Kong, one that provides adequate protection to the investing public while allowing startup companies to access the capital they need to create jobs, grow their business and contribute to the Hong Kong economy.