What’s keeping us awake at night (among other things)?
1) Crowdfunding, the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the internet is becoming popular in Singapore.
2) It’s not new of course. Way before the internet, people have pooled funds to carry out projects, too expensive or risky for one to bear. Then, they stuck mainly to trusted networks of responsible deal makers.
The risks of crowdfunding are very real
Risk of fraud –There is no assurance that the projects or proposals are legitimate, or that promised rewards or returns to the individual contributors would materialize.
Counterparty risk – By contributing funds through a crowd funding platform, individual contributors cannot be sure if funds collected are passed on to the project owners and originator.
Risks related to start-ups – if crowd funding is used to fund a start-up, individual contributors are subject to risks related to start-ups. There is no certainty that a start-up business will be able to generate the promised returns.
3) We’re very concerned because all a scammer needs these days on a crowdfunding platform like kickstarter and indiegogo is a snazzy powerpoint presentation, slick videos, promised returns and a “exciting” product to get folks to part with their money.
4) One of the most hilarious real life example was a project that raised money for a brand of Kobe beef-based jerky, made with 100% organic feed- and beer-fed Japanese cows. The company Magnus Fun, Inc got more than $120,000 from more than 3,000 people through crowdfunding platform, Kickstarter. Yet neither the company nor the product existed in reality.
5) The anonymity offered by the internet has attracted hordes of scammers, knowing that scamming small amounts of money from individual victims will hardly invoke any serious revenge.
6) When things go wrong and the originator of the project supported by crowdfunding disappears or the crowdfunding platform gets pulled down, it is very difficult to get recourse. Scammers know it only too well that their victims eventually give up and just lick their wounds. Even if the scammer is successfully tracked down, charged and convicted, it may be a hollow victory if the money has all been siphoned away and there is nothing left to claw back.
7) Be alert at all times. See you at our 14 Mar Public Investment Outreach!
Empower Advisory Team
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