MoolahSense gets moolah to help small businesses in Singapore crowdsource funds

Crowdfinancing in Singapore is about to enter a higher gear. The Singapore Exchange is working on an equity-based crowdfunding site for small and medium-sized enterprises (SMEs), while property crowdfunding site CoAssets recently raised a round of financing.

Enter MoolahSense, a Singapore-based startup that’s also targeting the SME market. But instead of offering equity to backers, it’s debt-based. Firms who raise money on the platform will need to return the money eventually with interest.

The company today announced it has raised a round of funding led by East Ventures with participation from Pix Vine Capital. No financial details were revealed (Disclosure: East Ventures is an investor in Tech in Asia. See our ethics page for more information).

MoolahSense got off the ground in November 2014, and to date has helped two companies raise S$350,000 (US$252,000). Private education institution First Media Design School received S$250,000 (US$180,000) from 52 investors in an oversubscribed round.

Here’s an explainer of how it works:

A safer bet?

Lawrence Yong, the founder and CEO of the startup who’s a banking industry veteran, explains its appeal to investors: “The main draw would be attaining attractive fixed income returns, bounded by a contract. Investing in mutual funds and index funds have variable returns.”

The risks are lower for investors, due to the different nature of firms seeking debt financing versus equity financing. The former is preferred by businesses with validated models and predictable revenue.

“There would already be some financial performance for the investors to review, where the investors can then evaluate the business’ capacity to repay. Unlike investors of equity, debt investors do not yearn for 20x capital gains but rather, are yield focused, desiring a fixed income on their investments,” explains Yong.

MoolahSense also promises a lower interest rate compared to traditional finance. “The high power distance in private lending results in SMEs frequently having to accept terms and conditions that are tilted against their favor. The lack of financing options also result in entrepreneurs selling out equity too early, too cheaply. This in turn lowers the incentives for an entrepreneur.”

Yin and Yang

So in this respect, MoolahSense is complementary to SGX’s upcoming platform rather than a direct competitor because they’re targeting different types of companies and investors. With MoolahSense, the minimal initial deposit is just S$1,000 (US$720), though average Joe investors have to bear in mind that companies do go bankrupt. To minimize such occurences, MoolahSense promises a strict filtering process.