Several outlets are reporting on “BuySellStandard’s creation of financial investment products using ‘fractional investment’.” To develop these fractional investment products, an MOU for ‘Support and Mutual Growth Finance Token Securities Product Development’ was signed with Wemakeprice on the 27th. The purpose is to create investment products aimed at supporting excellent SMEs and small business owners who, despite having competitive products and ideas, miss opportunities due to their inability to secure funding in a timely manner.
The product is named ‘Mutual Growth Finance No. 1’ STO (Security Token Offering) product, through which investors will invest in products of SMEs and small businesses. Some media are hailing it as a new financial product. However, this type of investment has already been widely conducted under the name of crowdfunding.
Of course, crowdfunding can issue tokens to create certificates, changing its form. However, changing the container does not necessarily provide new investment opportunities to investors or guarantee that it will be beneficial to SMEs and small businesses.
A May 2022 News1 article titled “Concerns Over Investment Contraction due to Spillover from Fractional Investment into ‘Securities-based Crowdfunding'” comes to mind. The article voiced concerns that the unease over fractional investments could spill over to securities-based crowdfunding, potentially contracting funding investments. There was worry that crowdfunding, which operates legally within the system, could be equated with fundraising methods like fractional investments or STOs, especially since crowdfunding shares similarities with fractional investments in allowing individual investors to participate in alternative investments with small amounts.
Crowdfunding refers to the act of an entrepreneur planning a business to raise funds from numerous small investors through an online platform operated by an ‘online small investment broker’. Crowdfunding companies are regulated under the Capital Markets Act, including requirements for capital and personnel, to protect investors and prevent market disorder. They must register with the Financial Services Commission and manage investment funds through designated institutions, ensuring that investment funds are protected even if the crowdfunding company goes bankrupt. In contrast, securities from fractional investments are not protected as they exist outside the legal framework.
If BuySellStandard and Wemakeprice plan to invest in SMEs with excellent technology or products, it would fall under securities-based crowdfunding. If the investment is in new products, implying investing in securities based on the earnings of the underlying asset, this form of crowdfunding operates on an evolved method of ‘pre-order before production’, similar to what BuySellStandard and Wemakeprice announced. However, investments in STO forms are not protected by law.
Perhaps, beyond legal protection, the distinction between investing in crowdfunding or ST (security tokens) may not be as important. What could be more crucial is how to innovate in uncovering excellent products and managing profits to create new investment opportunities for investors.
