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Print Edition> Business
UPDATED: March 30, 2015 NO. 14, APRIL 2, 2015
A Crowded Marketplace
The prospect of equity crowdfunding may soon send securities brokers to the streets rejoicing
By Wang Jun

"Crowdfunding will be widely employed in film and TV production, creative design, technology, the production of healthcare remedies, real estate investment, research funds, and raising money for tuition fees and travel expenses," said Ruan. "Equity crowdfunding has already been put to good use in the culture and real estate sectors."

"Take Angelcrunch [China's largest crowdfunding platform for angel investors] for example. In 2014, it was used in industries as diverse as local life services, mobile social networks, advertising and education," she said.

However, only 10 percent of equity crowdfunding projects go on to succeed at present. Ruan said post-investment management will be of paramount importance for platforms to remain competitive.

Equity crowdfunding factors in equity in return on investment; therefore the returns depend on the actual operations of a project. Post-investment management will emphasize operational management, disclosure of financial information and the disposal of the related assets of a project.

Business innovation

As an Internet-based private placement business, equity crowdfunding will bring new opportunities for securities companies.

Song Rui, an analyst from Huarong Securities Co. Ltd., said that in the future, securities companies will glean profits from equity crowdfunding in three distinct ways: by establishing equity crowdfunding projects to obtain revenues from management fees; using crowdfunding to gain access to new sales channels for the over-the-counter securities products; and employing the service to headhunt promising startup companies.

Ruan said that with equity crowdfunding, securities companies can get involved in businesses such as securities underwriting, investment consultancy and asset management. Securities firms can also connect equity crowdfunding with the pledging of stock rights thereby making full use of their overall advantages.

"Currently, securities companies are most likely to participate in equity crowdfunding through stock ownership," she said.

According to the draft administrative measures for private equity crowdfunding released by the Securities Association of China in December 2014, securities companies now enjoy a generous five-day period in which to file for record to the association after participating in a private equity crowdfunding project.

"As more equity crowdfunding platforms are now open to securities firms, the government can allow them to get involved in innovation-based enterprises as early as possible," Song said. "By establishing long-term cooperation with such enterprises, securities firms can provide better full-service businesses, such as public offerings or refinancing, and offer comprehensive options for companies in terms of investment and financing."

"The opening up of equity crowdfunding platforms to securities companies can also nurture awareness of the Internet, and the manifold opportunities the online realm offers to securities companies," Song added. 

Copyedited by Eric Daly

Comments to wangjun@bjreview.com

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