Entrepreneur Asia: Power Players

Power of people – Crowdfunding gains traction in Asia

Lynn Lee, Special to CNBC.com
Pebble smart watch.
Alissa Holland | Contributor | Getty Images

When Singaporean sisters Hani and Aisah Dalduri decided to scale up their textile printing business Fictive Fingers, they chose to take a gamble. Rather than turn to friends and family for help, they opted to seek out strangers instead.

The Dalduris launched a crowdfunding campaign on Australia-based platform, Pozible. They wrote up their story, shared photos of their products and encouraged supporters to contribute in return for a range of rewards. The strategy worked and the sisters exceeded their funding target of $3,600.

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When asked why they took the crowdfunding route rather than via traditional venues like banks or venture funds, they say the campaign wasn't all about money; they were also drawn by the opportunity to reach out to a community.

"We thought crowdfunding was the best way for us to get people involved in bringing our idea of a collaborative space to life," says Aisah.

Fundraising can seem like a daunting prospect to even the most seasoned entrepreneur. Traditionally, there are pitches to be made, angel investors to woo, skeptical lenders to convince. But crowdfunding – where a web campaign is used to get a large group of people to contribute small sums of money each to a project – is helping redefine the terrain. Researchers at Massolution estimate that total pledges worldwide reached some $5 billion last year. Asia accounted for only a fraction of that amount. But that, it seems, is starting to change.

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"The demand side potential has always been massive," says Leo Shimada of Singapore-based Crowdonomic. "The service side has taken a bit of time to catch up. There's been an upgrade in professionalism of crowdfunding operators in Asia in recent times."

It's no surprise plenty of opportunists are vying for a slice of the action. The World Bank predicts that investments in the developing world alone could hit $93 billion in 20 years.

In Asia, the race is on to be the region's Kickstarter (link) – the industry's undisputed leader. Launched in the United States in 2009 as an avenue for creative projects to seek financing, the platform announced last month that it had passed $1 billion dollars in pledges. Its success stories include the Pebble smart watch, which set out in 2012 to raise just $100,000 but received a record $10.2 million instead. Last week, the Micro 3D Printer hit $2 million in pledges on Kickstarter in just 48 hours.

More than a website

Kickstarter isn't available in most of Asia, making it easier for wannabe-sites to replicate its formula. Many though, are struggling to survive.

"Anyone can copy Kickstarter's design and start a website," says Tim Cheng, who runs Taiwan's leading crowdfunding platform, FlyingV. "The core issue isn't the website. The core issue is: How do I create an environment where people are creative and able to pitch their idea and how do I make sponsors feel comfortable to support products that haven't been made yet?"

Around 45 percent of all projects on FlyingV hit their funding targets. Cheng says that's because he believes in giving creators plenty of offline support – apart from invitations to workshops and talks, they are welcome to drop by his offices to work on projects. Beyond that, there are also plans to develop a site so finished products can be sold to the public.

"There's a big gap between having an idea, having a product, and having a business plan," says Cheng. "We want to fill that gap."

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Pozible too prides itself on taking a hands-on approach. The Dalduri sisters chose the platform in part because it offered them direct support and advice on how best to reach out to potential funders.

"In Asia, it can be very hard to break language and culture barriers," says Co-founder, Rick Chen. "We see our role as that of a connector."

Since its launch in 2011, Pozible has raised some $18.5 million (20 million Australian dollars). It's now looking to make inroads into China, where the World Bank predicts pledges could reach $50 billion by 2025.

The next big step

Cheng believes the next big step for the industry is to move into equity crowdfunding, where investors back companies in return for shares rather than rewards. This approach elevates things to a whole different level, as it is likely to require some form of regulation.

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"I think it's inevitable," says Cheng. "It's a matter of time before this is allowed legally."

But, it could be a while. The United States has only recently enacted rules covering equity-based crowdfunding. In Asia, it's still largely uncharted territory. Governments are only just waking up to the possibilities and challenges posed by the crowdfunding industry. Getting the regulatory framework right will a delicate balancing act.

"Too much burdensome regulation," says Jason Best of consultancy group Crowdfund Capital Advisors, which produced the World Bank Report, "and the crowdfunding platforms won't be able to make a profit and grow and continue serving the SME and start-up markets."

All these developments throw up an intriguing question: Will crowdfunding platforms supersede roles played by traditional lenders, investment firms and financial institutions? The Pebble's story offers some insight. Prior to launching the campaign, creator Eric Migicovsky had hit a dead-end in his search for angel investors. Going on Kickstarter was a last-ditch effort to get his project off the ground. The rest, as they say, is Internet history.