SEC approves country’s first crowdfunding portal

The Securities and Exchange Commission (SEC) has allowed Investree Philippines, Inc. to operate a crowdfunding platform that will connect small, medium and emerging enterprises with banks and other lenders.

In its December 22, 2020 meeting, the Commission En Banc approved the application of Investree to operate as a funding portal and act as a crowdfunding intermediary, subject to its compliance with certain conditions.

The registration of Investree as crowdfunding intermediary and funding portal shall be valid for one year, subject to a review by the SEC of the actual operation of the crowdfunding portal during the first 11 months for possible extension.

A joint venture between Filinvest Development Corporation and Investree Singapore Pte. Ltd., Investree is the first crowdfunding intermediary and funding portal registered with the Commission since the Rules and Regulations Covering Crowdfunding (CF Rules) took effect in July 2019.

Crowdfunding is a fundraising activity typically conducted through an online platform for startups and small and medium enterprises. It basically involves three parties: the entrepreneur or project initiator; the supporters or those willing to fund the business idea or project; and the platform or moderating organization that brings the entrepreneur and supporters together to realize the business idea or project.

Crowdfunding may be donation-based, where supporters pool their resources to support a charitable cause; or reward-based, where supporters give money in exchange for a “reward,” usually a product produced by the project initiator.

Crowdfunding may likewise be lending-based, where supporters lend money to the entrepreneur and receive his/her legally binding commitment to repay the loan at predetermined time intervals and interest rate; or equity-based, where supporters invest in shares sold by the entrepreneur and receive a share of the profits in the form of a dividend or distribution, subject to the entrepreneur’s discretion.

Investree will operate a lending-based crowdfunding platform. The crowdfunding activities will involve banks or qualified buyers as lenders, and will be limited to small, medium and emerging enterprises as borrowers.

Lending-based and equity-based crowdfunding activities involve the offer of securities in the form of debentures or shares. As such, they are subject to securities regulation in many jurisdictions.

In the Philippines, Section 8 of Republic Act No. 8799, or The Securities Regulation Code, provides that securities shall not be sold or offered for sale or distribution, without a registration statement duly filed with and approved by the SEC.

However, to promote capital market development and access to finance, the CF Rules provide an exemption from registration of CF securities provided that the issuer, intermediary and investors comply with the CF Rules.

Under the rules provided through SEC Memorandum Circular No. 14, Series of 2019, a crowdfunding intermediary may be a registered broker, investment house or funding portal, which mediates the offer and sale of crowdfunding securities through an online, electronic platform.

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