Crowdfunding is growing exponentially around the world, offering exciting opportunities for both businesses and investors. Here, “Outside Looking In” explains how crowdfunding works and who a few of the key players in Việt Nam are.
Crowdfunding is all about (financial) strength in numbers and typically involves small amounts of capital being raised from a large number of investors to get a new business venture off the ground.
Like so many financial innovations today, crowdfunding represents a nexus between economic and technological developments. Risk-shy banks slashed lending to small businesses following the financial crisis while interest rates bottomed-out all around the world. This led to platforms springing up to link fledging businesses and investors seeking a better return on their capital, with social media further amplifying the reach of these networks.
Crowdfunding came to the fore in the West around five years ago and has grown exponentially since then. It is estimated that 2017 will have seen US$34 billion raised globally, a figure which proves just how important a role crowdfunding is playing in spurring on entrepreneurship around the world – particularly against a backdrop of tightened lending conditions and dampened productivity in many traditional industries.
Crowdfunding is still relatively novel concept in Việt Nam, it having only reached the country in the last few years. However, it is certainly a growing trend which is getting both business people and investors really excited about its possibilities.
The Different Types of Crowdfunding
There are four main types of crowdfunding:
Equity-based crowdfunding, which means investors take a stake in a new business;
Reward-based crowdfunding, which allows investors to receive services or goods in return for their investment;
Lending-based crowdfunding, which sees investors repaid their funds over a set amount of time; and
Donation-based crowdfunding, where contributions are going towards a charitable cause which is often highly individualised (like a sick person needing treatment) or newly emerged (like a natural disaster).
How Cultural Differences Affect Investment Trends
Cultural factors mean that crowdfunding faces challenges in Việt Nam that don’t occur so much in the West.
On the start-up side, the fact that Vietnamese people are more strongly influenced by the fear of failure leads to them being more reticent about discussing their business ideas and seeking investment.
On the investors’ side, the fact that Vietnamese business culture is more dependent on personal relationships makes investing in someone they don’t know quite a leap.
There is also the need for Việt Nam’s legal system to outline explicit laws on crowdfunding. In the United States, for example, crowdfunding is subject to regulations restricting investment to only qualified individuals.
But despite these barriers, crowdfunding is taking off in Việt Nam, with several platforms having already achieved significant traction. The benefits – for both sides – of expanding business funding beyond owners, family/friends and a small circle of venture capitalists are proving too exciting to ignore.
Two Standout Crowdfunding Platforms in Việt Nam
FirstStep is a reward-based crowdfunding platform which launched in 2014 to connect investors with an eye on creativity with those looking to start up truly innovative businesses.
Another high-profile crowdfunding platform is Comicola, which is focused on Việt Nam’s comic industry. Comicola was launched to support young artists by publishing their works, generating profile and maximising profit from them.
Making crowdfunding work for you
As both these examples emphasise, crowdfunding often has a great element of fun as well as the potential for financial returns (or other rewards, like access to new products).
However, while there is a lot of satisfaction to be had from helping start-up businesspeople realise their dreams, you should never lose sight of the fact that a large proportion of new ventures fail.
Alternative investments should only ever make up a small proportion of most investors’ portfolios, and higher-risk ones like crowdfunding an even smaller one still for the majority of people.
* Brian Spence is Managing Partner of S&P Investments. He has over 35 years’ experience in the UK financial services industry as an investment manager, financial planner, and M&A specialist. He is a regular contributor in the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues.