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FEATURE: Crowdfunding Goes For The Frontier As Model Evolves

Tom Burroughes, Group Editor, London, 24 June 2015

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The capital-raising model known as crowdfunding is spreading to frontier/emerging markets. This article looks at a UK-regulated platform that recently started in business.

Crowdfunding can sometimes appear to be a largely Western phenomenon but innovation is afoot to use these networked techniques of capital-raising for budding entrepreneurs in regions such as West Africa.

And with hard work and a bit of luck, some of the beneficiaries of this form of alternative financing might become high net worth individuals in the future if, or when, they sell or float such businesses. It therefore makes sense for wealth managers to pay attention.

One of the latest crowdfunding outfits to join a trend that has seen the likes of Crowdcube and Seedrs become prominent is Emerging Crowd, a UK-based organisation incorporated last year which officially launched for business about two months ago. This platform provides equity and debt financing to established businesses (it tends to only deal with firms that have a strong track record in select frontier/emerging market countries). “Frontier” markets are typically riskier and less well developed than emerging market countries are – there is more risk, but also larger possible returns to compensate for it. Examples of the former include (using MSCI methodology) Argentina, Bangladesh, Kenya, Mauritius, Morocco, Nigeria, Pakistan, Ukraine and Vietnam. Emerging markets are nowadays more familiar stamping grounds for investors, such as Brazil, Russia, Poland, India and Malaysia.

The “crowd” approach to investing enables people to put money into direct businesses, for relatively modest individual amounts, and thereby help those entrepreneurs who might otherwise struggle to win money from banks or larger investment houses, Will Tyndall, a co-founder of Emerging Crowd, told this publication recently.

Tyndall, who created the platform with business partner Lucien Moolenaar, outlined Emerging Crowd and what its model is. In his recent business career Tindall has worked in Asia helping to raise money for companies; he came across regular examples of firms that would not be thought of as difficult prospects struggling to obtain relatively small sums of money. As for Moolenaar, he has spent six years in senior leadership positions at Renaissance Capital and Merrill Lynch.

The platform provides equity and debt financing to established businesses (it tends to only look at established businesses that have a strong track record) in select frontier/emerging market countries. Such firms are of the kind that would typically struggle to get the kind of funding from other sources because the amounts are typically too small for, say, a large private equity house, or a bank.

“We are trying to bring best practice from capital and public markets to this field,” Tindall said. “There are proper disclosures and investor protections,” he said, citing such features as pre-emption rights and tag-along rights.

Emerging Crowd is open to retail, high net worth investors and institutions. Retail investors are subject to certain restrictions as set by the Financial Conduct Authority, such as not being able to invest more than 10 per cent of investable wealth in a crowdfunding firm in a 12-month period. The minimum investments size is £500 ($793). Tyndall stressed that investors qualify for the same protection regardless of how high/low the amount they invest.

All the firms on the platform are mandated to provide a minimum of audited accounts on an annual basis and quarterly investor updates, although they are encouraged to report on a more regular basis.

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