Crowdfunding EpiCentre – How Did They Manage To Raise so Much, so Fast

crowdfunding success

23 Mar Crowdfunding EpiCentre – How Did They Manage To Raise so Much, so Fast

It has been an exciting week for the local crowdfunding scene. Taking retail investors by storm, Apple product reseller EpiCentre has completed (almost) three tranches of fundraising on crowdfunding platform Moolahsense for close to $1.5 million.

This development is significant for a few reasons. The size and the speed notwithstanding, this is the first time a listed company has taken to crowdfunding for funds. It is a small but significant step as crowdfunding moves into heads and hearts of retail investors. Kudos also to Moolahsense for pulling this off. This deal is a significant one for CEO Lawrence Yong and it will no doubt cement their position as the front runner in the fledging crowdfunding space.

First up, some background. EpiCentre Pte Ltd, a subsidiary of the Catalist board listed EpiCentre Holdings is looking to raise up to $2mil for the ‘purchase of inventory and general working capital’. They will be offering a nominal interest rate of 13.5% per annum. An investor can contribute to this amount via the Moolahsense platform, and expect to receive interest payouts every quarter. For more details, check out this post by SGYI.

The fact that retail investors practically queued up to participate in this deal is hardly surprising. I would like to share some reasons why I think it is so.

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A listed company operating in the SME space

EpiCentre Holdings has been on the catalist board since 2008. A listing is a pedigree. It is a stamp of approval from the regulators. Investors see listed companies as more credible, more stable and consequently more investible than other non-listed company.

Like an Ivy League education, a listing creates that sense of awe in the minds of investors. Whether the listed company is better run, growing faster or even making bigger profits is another issue altogether. There are a variety of ways for listed companies to raise capital including but not limited to the issuance of more shares or bonds. There is also the traditional avenue of bank financing.

big fish small pond

Being the first ever crowdfunding campaign from a listed company, EpiCentre is a big fish jumping into a small pool. Compared to other guppies swimming around the pond, they have made a splash. It is only right that retail investors get all excited about the campaign.

Retailers advantageThey have retail store fronts in the middle of town right smack in the heart of Orchard Road. Unlike a business supplying say soil testing equipment for construction companies, visibility and brand awareness is crucial for the success of a B2C business like Epicentre.

Crowdfunding is still a new game in town. Many lenders are early adopters. It will be no surprise then if many of them are Apple aficionados as well. Long time Apple users would have found EpiCentre a familiar name.

Because they can be seen, because they are easy to understand, because they are familiar, it makes it easier for the investor to part with their money to fund the business.

Not just retailing, Apple retailing

Apple is like a religion. Apple products are the epitome of cool. According to Forbes, Apple is the most valuable brand globally, with a perceived brand value of US $145 Billion.

If you are sitting near a waterfall you cannot help but get wet. If the main business is in selling Apple products, it would be almost impossible for some of that coolness to rub off the company.

Taiwanese researcher Feng Jui Tsu and his team wanted to find out if branded stocks performed better overall. They divided stocks in the US into a branded portfolio vs a regular one. They found that the branded portfolio outperformed the S&P500 Index and generated a positive risk adjusted alpha.

Other studies have found a correlation between marketing budgets and stock performance. There is little doubt that investors invest in what they are more familiar with.

13.5% yield – WOW!

In a world where fixed deposit rates are hovering around one percent, where the property market is treading water and rental yields are low, where Singapore Savings Bonds clock in at less than 3%, 13.5% per annum sounds like an extremely exciting proposition.

The reality is – it is. To make it even more appealing, it is not even an estimate or a projection. It is a confirmed payout. Unlike stocks, it is not dependent on market conditions. Unlike properties, it is not dependent on securing tenants. Unlike bonds or commodities, it is not dependent on interest rates, global market conditions, demand and supply. No matter what happens, come rain or shine, investors will receive their interest payout.

There is only one scenario where the payout does not materialise – i.e. if Epicentre defaults. Looking at the take up, it seems like a situation where investors are more than happy to overlook.

The most comfortable decision

As investors we obtain information, process them and eventually come to an investing decision. Unfortunately this entire process is subjected to biases and thinking. The nature of the business and the position of the company and the macroeconomic conditions has made it easy for the retail investor to commit without much thought.

Given that all stars are in alignment for EpiCentre, it would be tough for them not to reach the amount they set out to raise. For the retail investor, it is a very comfortable decision to make. But is it the right decision?

The Elephant in the Room

2-10-14-the-elephant-in-the-room2

I want to go back to the first reason I have listed above. For many, a listed company represents the reason why they must invest in this campaign. For me, it represent the exact reason why I will not.

There are many avenues for companies to raise capital, much more so for a listed one. A profit maximising company will choose the option that will cost the least. A 13.5% yield may represents a great investment for individual investors but on the other side of the coin it represents a huge cost to the company.

For Epicentre to even consider raising at this price, there must be an extremely compelling reason.

And that, for me, is the Elephant in the Room. Could they have exhausted other sources of financing? Would going the traditional way take too long? Do they need cash that urgently?

Until this issue is throughly addressed, I will not be touching EpiCentre with a ten foot pole.

In tomorrow’s article, Alvin will share three possible reasons why EpiCentre choose crowdfunding to raise cash. Watch this space!



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14 Comments
  • Tacomob
    Posted at 11:20h, 23 March Reply

    Hi Jon,
    Good and balanced post on the Pros and Cons.
    If something looks too good to be true, it probably is. The elephant in this case is huge.

    • abc
      Posted at 14:38h, 23 March Reply

      Agree totally.
      The real elephant is not here yet.
      Apple Store is opening in Orchard Road also.
      Smart of the co-petitor to quickly get its funding before the bigger elephant comes into the territory.

    • Jon
      Posted at 23:25h, 23 March Reply

      Thanks Tacomob for dropping by. Let’s do coffee and exchange ideas again soon!

  • Calvin Chong
    Posted at 12:29h, 23 March Reply

    I agreed with TacoMob, is too obvious in size. I also wonder how many EpiCentre’s outlets around Singapore island are closing down, the one I know of is in our weat aea at Jurong Point. The outlet is taken over by their competitor, solely selling Samsung products.

    Big fish (SGx listed) jumping into a small pool is signaling they are running out of borrowing options.

    I still stand on TacoMob’s standpoint of view. If it too good to be true, it probably is.

    Pray hard it don’t goes default for those innocnets vested.

    • Jon
      Posted at 23:32h, 23 March Reply

      Thanks Calvin,

      I believe they have a rather significant presence overseas as well, so what we see here might not be reflective of the entire situation with the company.

      Nevertheless, with crowdfunding and SME funding, defaults WILL come. It is a matter of when. The only sensible way to play this game is to diversify into many campaigns so that when shit hits the fan it is only a small part of the portfolio. And hopefully the outsized yields from others will be more than enough to make up for it and the portfolio will still be out performing other investments.

  • CH Lim
    Posted at 12:34h, 23 March Reply

    Hi Jon,
    Great job and to-the-point on the analysis. Thank you.
    I was considering diversifying my portfolio of corporate bonds, equities, CPF and private equity funds by adding on crowdfunded projects. I looked at EpiCentre but baulked for exactly the same reason you listed – why are they paying so much for debt, and don’t they have other sources of funding for the debt? I then looked at their financial performance numbers in their annual report, and was not entirely convinced that I should participate.
    Perhaps you can follow up and back up your feel with an analysis of the income statement, balance sheet etc, and share w all of us.
    You are doing a great job, dude!

    • Jon
      Posted at 23:41h, 23 March Reply

      Thanks for the encouragement CH,

      You are a conscientious investor indeed. I have not dug deeper into EpiCentre because it does not pass first cut, hence there is no need for further examination.

      I do want to throw this idea out though since you mentioned diversification. If Epicentre is your first and the only campaign you are going to fund, I would probably not recommend it. But if it is your hundredth loan and each loan you make only takes up 1% of your crowdfunding portfolio, I would say don’t bother with research and go ahead.

      The beauty of diversification is such that your portfolio will come out way ahead despite some defaults here and there.

      • CH Lim
        Posted at 12:08h, 24 March Reply

        Hi Jon,

        Thanks for the tip to diversify within the crowdfunding projects such that “each loan you make only takes up 1% of your crowdfunding portfolio”. Good advice indeed.

        My follow-on thought from your advice [no worries, I know I need to do my own due diligence and not holding you responsible for your comments : ) ] is to consider putting 5% of my entire investment portfolio into about 10 crowdfunded projects (0.5% per project) which mature at different times within the year (most p2p projects have 12 month maturity). This probably provides some safety net. Any thoughts on that?

        • Jon
          Posted at 11:15h, 28 March Reply

          HI CH, sorry for the late reply. I missed out on this one.

          Yes, that is exactly what I would do. You have caught on to the beauty of diversification and responsible investing. Great stuff!

  • EpiCentre Seeking Crowdfunding – 3 Possible Reasons
    Posted at 09:05h, 24 March Reply

    […] Recently, a famous retailer of Apple products in Singapore was hot on the news. Jon covered the generics about the project in this post. […]

  • PositiveMoney
    Posted at 11:53h, 25 March Reply

    When banks tighten credit the money supply needed to move the economy sit idle in the banks without the money multiplier effect taking its course. Crowdlending comes in to address this particular mismatch in demand for funds and the supply which was restricted by the banking system.

  • PositiveMoney
    Posted at 11:59h, 25 March Reply

    It’s a self fulfilling prophecy when banks have knee jerk reactions to market events in which lead to domino effects everywhere.
    This is the time when governments come in with infrastructure projects and buildings in which during good times it is too expensive to do on a massive scale. Contractors who tendered for these projects get their lines cut or reduced by banks therefore putting them in difficult cashflow positions. When banks are the main reason over lending occurs during good times and they are also the main reason the economy cannot pickup during turbulent times, even if the borrowers are bankable if they were to be assessed normally. Such restrictive credit policies contribute to further downturn.

  • PositiveMoney
    Posted at 12:03h, 25 March Reply

    Same thing could have happen to EpiCentre. It is time people do more research of the reasons such crowd lending platforms are prospering in much more matured financial markets such as UK and US. Being based in Singapore, I believe a local platform such as MoolahSense helmed by prominent individuals would not do anything but closely in-line with what MAS intends. Other platforms may not be.

  • Happybird
    Posted at 23:01h, 30 March Reply

    moolahsense have late repayment again

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