A HOMEGROWN startup is betting on cryptocurrency crowdfunding as the next fintech vogue. It has created a platform to allow entrepreneurs to raise funds for their projects using virtual currencies such as Bitcoin or Ethereum, instead of regular currency.
FundYourselfNow (see note at bottom), as the platform is named, will launch to the public in early 2018, The Business Times has learnt. It will be the first cryptocurrency crowdfunding platform in South-east Asia, according to its founders Jack Ser and Kenneth Tan.
Mr Ser told BT in a recent interview: "Crowdfunding has been around for centuries. We are currently at the nexus of a pivotal moment. The Internet has decentralised and democratised information flow. Cryptocurrencies and blockchain technology are set to decentralise and democratise the flow of value."
Cryptocurrency crowdfunding, unlike traditional crowdfunding, uses blockchain technology to facilitate an initial coin offering (ICO) for every project. An ICO lets entrepreneurs issue their own digital tokens that can be bought by project backers using virtual currencies.
Digital tokens entitle project backers to monetary rewards such as profit sharing, or non-monetary rewards such as exclusive products created by the entrepreneur.
On FundYourselfNow, digital tokens may also be issued to helpers of the project to reward them for their services such as logo creation or business plan development. The platform has created a services marketplace that enables entrepreneurs to tap project support from the community.
Mr Ser explained: "Many good crowdfunding projects get put on hold or fail to get the required funding due to a lack of marketing support. A supportive crowdfunding platform should help to remove as many such hurdles as possible."
He added: "With the token model, it's up to the entrepreneurs to come up with creative ways of rewarding their backers (or helpers) depending on their product."
These digital tokens can be cashed out. Mr Ser said they can be made tradable through an internal cryptocurrency exchange, so that project backers or helpers can convert their tokens to virtual currency and eventually actual cash if they wish.
Some US$500 million have reportedly been raised through cryptocurrency crowdfunding in the year to date, while over US$200 million worth of cryptocurrency investments were raised through ICOs in 2016.
Mr Ser said the numbers pointed to market readiness for, and effectiveness of, this form of crowdfunding.
"With FundYourselfNow, we are re-running the full circle that traditional, Internet-based crowdfunding has come about in 20 years - only this time, we are making the system extremely efficient, credible and integral, as we can now leverage two technologies as the backbone for the platform: the Internet and blockchain."
Using blockchain, FundYourselfNow is able to implement a milestone-based funding system, where backers can vote to delay or stop further milestone payments should the entrepreneur not deliver on the agreed targets. This is meant to partially protect backers.
Said Mr Ser: "In traditional crowdfunding, project backers have little control over the project as the money is fully disbursed to the project creators at the end of the crowdfunding effort. When a project fails, most of the backers do not get anything at all."
And by using blockchain, FundYourselfNow can lower transaction costs by removing the payment middleman (such as PayPal) found on traditional crowdfunding sites.
Mr Ser said a project creator on Kickstarter typically has to pay transaction fees of up to 9 per cent of his total funds raised, which include a transfer fee (3-5 per cent of total funds raised) and listing fee (5 per cent). This compares to a flat listing fee for every project on FundYourselfNow, and a flat transfer fee that is typically around 10 US cents or less.
"This means that our project creators will receive more funding when they crowdfund through virtual currencies.
"This also makes milestone-basedpayment smart contracts more practical, since the cost of processing the refunds, especially for small donations, is greatly reduced."
Currently, FundYourselfNow has listed four projects, which will be launched for cryptocurrency crowdfunding in the fourth quarter.
The platform has raised about US$1.8 million from angel investors and through selling its own digital tokens to global investors. For a start, it will use the money to develop the platform and acquire users.
Leo Shimada, chief of local equity crowdfunding platform Crowdo, said: "It's always a good thing that different fintech trends are converging like this. By decoupling the traditional notion of equity through cryptocurrency crowdfunding, it makes fundraising less dilutive for the entrepreneur."
He noted, however, that the devil is in the details. "At a commercially-scalable level, the smart contract and crypto technologies are still not there. Market readiness-wise, it depends on whether there are enough companies and investors to scale the platform using the said technology. It comes down to whether Singapore or South-east Asia is an early-adopter market."
But Mr Ser and Mr Tan stand by cryptocurrency crowdfunding as a viable funding model, citing legislation and technologies now being developed that rapidly allow for the mass adoption of digital currencies
Mr Tan said: "One local company, TenX, has already developed a Visa- and Mastercard-backed credit card that allows you to pay with Bitcoin or Ethereum. Recently, the Singapore government just concluded Project Ubin, where they put the Singapore dollar onto the blockchain."
Last week, TenX raised some US$70 million in a token sale, one of the largest ICOs in Asia.
Mr Ser said: "We believe virtual currencies are here to stay and will disrupt the entire finance industry."
Note: As at September 2018, FundYourselfNow has been rebranded to Katalyse.