Equity crowdfunding: (Another) fundraising alternative

By Adhi Wardhana | adhi.wardhana@nacounsels.com

The limited amount of capital has always been a major constraint for local small and medium-sized enterprises (SMEs) or start-ups to grow. Business expansions for start-ups have become the secondary priority since maintaining a sustainable income and operation is set as the main priority due to its limited capital. As the equity and assets are mostly sourced from the founders, funding through conventional banks is often unsuccessful. The companies or the founders’ assets that are designated to be used as collateral in financing are often not bankable.

At the end of 2018, the Indonesian Financial Services Authorities or Otoritas Jasa Keuangan (“OJK”) passed the OJK Regulation No.37/POJK.04/2018 on the Equity Crowdfunding (“OJK Rule on Equity Crowdfunding”). The enactment of this OJK Rule is one of OJK initiatives in providing capital access for start-ups by bridging the gap with the investors by selling equity securities to the public without triggering the compliance with the public offering rules. The Equity Crowdfunding activities will not be considered as a public offering if:

• the offering performed through Platform providers that has obtained licence from OJK;
• the share offering is within a period of 12 months; and
• The total funding raised through an Equity Crowdfunding is limited to a maximum amount of Rp10 million.

OJK Rule on Equity Crowdfunding defines equity crowdfunding as a procurement of share offering service that is utilised by the companies/issuers to sell their shares directly to the investors through an open electronic system network (“Platform”) organised by the Platform providers that has obtained licence  from OJK (“Licensed Platform Provider”). In order to obtain the licence from OJK, the Platform provider must satisfy among others the following requirements:

• established in a form of a limited liability company or a cooperative;
• the minimum paid-up capital of a Licensed Platform Provider in the form of the limited lability company shall be at least Rp2,500 million at the time of the submission of licence application;
• the self-capital of a Licensed Platform Provider in the form of a cooperative shall be at least Rp2,500 million at the time of the submission of licence application;
• having human resource that have skills and/or background in information technology; and
• having human resource that have the skills to review the issuer.

In performing Equity Crowdfunding activities, the issuer, must satisfy the following requirements:

• is established in a form of a limited liability company;
• is not a company that is controlled directly or indirectly by a business group or conglomerate
• is not a public company or subsidiary of public company; and
• is a company with the total asset of less than Rp10 million.

The investors that are permitted to participate the Equity Crowdfunding activities are investors that (i) have the ability to subscribe for the issuers’ shares and (ii) have the capacity to analyse risks towards issuer’s shares. The OJK Rule on Equity Crowdfunding further limits the maximum subscription percentage based on the investors’ income as follows:

The above limitation shall not apply for the investors in the form of companies or parties that have experience in investing in capital markets for at least two years which is evidenced by the possession of the securities account.

In the equity crowdfunding, the issuer may only perform such offering through one Licensed Platform Provider at one time. The issuer shall submit certain documents to the Licensed Platform Provider as stipulated under OJK Rule on Equity Crowdfunding. The process of equity crowdfunding offering to the investor shall be done through the Platform created by the Licensed Platform Provider. Investors shall subscribe the shares through the Licensed Platform Provider with the offering period of 60 days. Once the offering period has lapsed and the targeted amount fully raised, the issuers shall provide shares to the Licensed Platform Provider to be distributed to the investors. The distribution of shares may be performed in script or scriptless through the collective custodian. The issuer must maintain a shareholder register and register the ownership of the investor.

In performing the equity crowdfunding activities, the issuer, the Licensed Platform Provider and the investors shall enter into the following agreements:

• platform agreement between the Licensed Platform Provider and the issuer; and
• platform agreement between the Licensed Platform Provider and the investors.

The Licensed Platform Provider may also organise a system for the investors to trade the issuer shares in the secondary market through the Platform.

Although the OJK Rule on Equity Crowdfunding has been effective since the end of 2018, based on our latest discussion with OJK, OJK has not issued any licence for the Licensed Platform Provider. OJK acknowledged that there are some applicants have submitted their application to obtain the licence but those are still under process.