This article first appeared in Wealth, The Edge Malaysia Weekly on December 30, 2024 - January 12, 2025

pitchIN, the largest equity crowdfunding (ECF) platform, isn’t resting on its laurels. It launched two initial exchange offering (IEO) campaigns this year, opening up new avenues for investors to participate in the growth of blockchain projects and businesses initiated by start-ups and companies.

The firm also introduced the pitchIN Secondary Trading Market or PSTX, the first secondary market for the trading of shares of private companies in Malaysia. Investors who hold those shares through ECF campaigns are now offered a new way to exit their holdings earlier.

Without much fanfare, exits are also taking place within the ECF space, providing investors with returns ranging from 12% to 180%, according to ­pitchIN co-founder and chief strategy officer Kashminder Singh.

That’s not all, says Kashminder during an interview with Wealth. The firm wants to open up PSTX to all private companies, not just those that have raised funds through a licensed ECF platform. Such a plan may involve tokenisation, if necessary.

He says pitchIN will apply to join the recently announced sandbox of the Securities Commission Malaysia (SC) to achieve such a goal. “We want to join the SC sandbox to see if we can expand our secondary market to all private companies in the country. There are a million small and medium enterprises (SMEs) in Malaysia. Plenty of companies are looking for financing.”

The SC announced in October, at the SCxSC Fintech Summit 2024, that it will introduce a regulatory sandbox and enhance its regulatory framework to encourage the tokenisation of securities and spur innovation in the capital market. The regulator also mentioned that it will be collaborating with sovereign wealth fund Khazanah Nasional Bhd to explore the issuance of tokenised bonds.

Kashminder is also exploring partnerships with peer-to-peer (P2P) financing players to offer blended financing solutions to private companies, with a view to redefining pitchIN’s role. “We are trying to see how else we can innovate within the ECF space and make deals together with other players in the financial technology (fintech) industry. A potential solution is the offering of blended finance.

“Let’s say a business owner comes to us. Looking at what he is doing, I might suggest, ‘Why don’t you raise RM10 million of equity via ECF and RM10 million debt via P2P?’ The financing is blended. We may be able to do it with our P2P partners,” he explains.

When that happens, pitchIN would no longer be just an ECF platform operator, but a financing solutions provider for private companies. Depending on each company, they may opt to raise funds through equity, debt or even through the issuance of digital tokens. All this would translate into more investment opportunities.

At its earlier stage, the success of an ECF platform is mostly measured by the number of campaigns it has done and the amount of funds it has raised for companies. However, it is important to see whether meaningful exits have taken place over the longer term, as the industry needs success stories to attract more companies and investors to come on board.

On this, Kashminder says some exits that took place in recent years did provide pitchIN investors with decent returns.

The most recent exit, which is still ongoing, is Yin’s Sourdough Bakery founded by Chan Su Yin. The bakery that started off in Balik Pulau, Penang, raised about RM1.14 million from 59 investors through pitchIN in mid-2024, according to pitchIN’s official website. The bakery made RM6 million in revenue in 2023 and was aiming to double that by end-2024.

“Our ECF investors in Yin Sourdough will have a full exit, which we are facilitating right now. The firm has been doing quite well and a purchaser came on board. All our investors’ [shares] will be bought out. They would make about 12% to 123% in less than two years,” says Kashminder.

Meanwhile, some ECF investors of Fundaztic — one of the licensed P2P financing firms in the country and operated by Peoplender Sdn Bhd — have sold its shares on a voluntary basis to a purchaser. “A corporate investor offered to buy out [Fundaztic] ECF investors. But it’s voluntary. Not all of our investors took it up, but a significant number of them sold their shares. We didn’t shout out about the deal as it isn’t a full exit,” he adds.

Investors who took up the deal made a profit of about 60%. According to news reports, Fundaztic raised RM3 million in just 38 minutes in October 2018.

Based on news reports, property developer Paramount Corp Bhd (KL:PARAMON) completed its first fintech investment by acquiring a 30% stake in Omegaxis Sdn Bhd, the holding company of Peoplender. As at August 2021, Omegaxis had a 63.5% stake in Peoplender.

Another offer similar to that of Fundaztic’s has also been extended by an investor to MHub, an end-to-end property transaction platform that captured 28.3% of the nation’s total primary residential transactions in 2020, according to the company’s official website.

Kashminder adds that pitchIN ECF investors of Ray Go Solar Holdings Bhd (KL:RGS) have benefited from the company’s listing on the LEAP Market of Bursa Malaysia. “Again, not all investors of RGS have exited through the process, but many of them are part of the LEAP Market now. So, it is like an exit for us,” he says.

Returns aside, ECF exits, if they happen, could take a long time — usually three to five years, or longer. That is why pitchIN developed PSTX, launching it in 2024 and making it the first of its kind in the country.

Another ECF firm, Mystartr Sdn Bhd, has said that it is planning to launch its secondary market platform.

Secondary markets for private companies, such as PSTX, are a new initiative locally. While they facilitate secondary market trades similar to that in Bursa Malaysia, there are differences in how both operate.

As at Nov 11, only 10 companies were listed on PSTX, all of which have raised funds through ECF campaigns on pitchIN. Another company will be added soon, according to Kashminder.

PSTX is open for trading two days a week — Monday and Thursday. This is because not many companies and investors trade private companies’ shares frequently.

There also isn’t a standard lot size for PSTX as private companies impose a minimum investment amount during their ECF fundraising campaigns.

Kashminder says trades are taking place on the days when PSTX is open. “I feel quite happy to say that, based on my observation so far, nine out of the 10 companies listed on the platform have seen their shares being traded.”

Another interesting thing he has observed is that 10% of PSTX participants are new investors who have not participated in any ECF fundraising campaigns before. It means that they registered with pitchIN specifically to trade on PSTX.

Kashminder plans to ramp up activity on PSTX by listing more companies on it, attracting more investors and facilitating more trades. Now that PSTX is operating rather successfully, pitchIN wants to make sure that all companies that come to the firm for fundraising are ready for their shares to be traded on the secondary market.

The firm is working on setting out specific standards for the PSTX, Kashminder says, such as standardising the lot size of the shares.

So far, pitchIN has successfully raised funds for 183 companies, but not all are ready for PSTX. Some companies prefer to do it when they are performing better, while others are bound by their agreements with existing institutional investors.

When the SC invited industry players to apply for an IEO platform operator licence in 2020, pitchIN was drawn to it. “We call ourselves the hub of fundraising and investing, so we can’t just have one way for companies to raise money. When the IEO framework came out, we were immediately interested in it. For us, it is the future way of raising funds using blockchain and digital tokens. That’s when we made the decision to raise money for our IEO platform,” says Kashminder.

In 2021, pitchIN launched its first fundraising exercise via another ECF platform, Leet Capital, which was successfully concluded with RM5.65 million raised from 322 investors. The funds were said to be for expanding its operations, which subsequently included the launch of PSTX and its IEO platform.

So, how has pitchIN’s IEO platform been performing? Nicholas Chong, pitchIN head of token crowdfunding or TCF, says it has facilitated the issuance of the country’s first utility token while the second IEO issuance has gone pre-live.

Chong explains that there are essentially three types of digital tokens, the first being utility tokens that can function like coupons, making them a part of a company’s loyalty programme. They can be traded on the secondary market such as on digital asset exchanges (DAX).

There are also asset-backed tokens and tokenised securities. The former represents an investors’ interest in non-financial assets or real-world assets, while the latter represents investors’ rights to mainly bonds or shares.

BidNow Sdn Bhd, the issuer of the first utility token locally, is a one-stop solution platform for auctioning properties in Malaysia, with over 20,000 active users and 8,000 real estate brokers on its online platform.

According to its white paper, the firm auctions different products and services under “JomBid” and “GroupBid”, including brand new home appliances, gadgets, luxury watches, furniture and antiques.

The company issued the BidNow token in order to join the Web3 ecosystem and utilise blockchain to streamline and innovate its existing services.

The white paper further points out that the BidNow token can be used as a mode of exchange for auctions (including premium auction listings, featured auction listings and bidding services on its online platform), partnerships, services and transaction fees.

The utility token market is a blue ocean with a lot of opportunities, says Chong. “The reason being Malaysia is one of the very few countries globally, if not the only one, that regulate utility token fundraising.

“Most countries only regulate the anti-money laundering side of things. With regulatory assurance, we see a lot of Web2 companies coming to us to explore ways of entering the Web3 world,” he explains.

The second IEO issuer  on pitchIN is Frac Sdn Bhd. It aims to raise RM1.5 million to RM6.5 million from investors for “product enhancement”, which means using its solutions to help businesses fractionalise their assets using blockchain technology.

According to its white paper, Frac is a technology solutions provider that allows its enterprise partners to create their own portal to fractionalise real-world assets (precious stones, precious metal or a valuable antique, among others) for sale. Its enterprise partners can also conduct pre-market offers and secondary market trading with Frac’s solutions.

One of the eight features of its tokens listed on the white paper is that token holders are given access to unique assets, which can be luxury assets or intellectual property, and can purchase a fraction of them with the digital tokens.

Depending on the holding requirement, Frac token holders are also entitled to a specific percentage of Frac’s net revenue, as an entire group of companies. The percentage ranges from 0.5% to 5%.

Interestingly, Frac token holders can vote on specific proposals by the company, including commercial terms between Frac and its enterprise partners and how the token can be utilised for various purposes.

Chong says pitchIN will be submitting four to five IEO deals to the SC by the end of year. Other than BidNow and Frac, another potential issuer is premium cookware manufacturer Ni Hsin Group Bhd (KL:NIHSIN).

According to news reports, Ni Hsin’s wholly-owned subsidiary, Ni Hsin EV Tech Sdn Bhd, which is in the business of electrical vehicles, has inked an agreement with pitchIN to raise funds via the issuance of digital tokens.

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