For Investors

How ECF Differs from VC, P2P, and Shariah-Compliant ECF

Other types of crowdfunding include reward-based crowdfunding, donation-based crowdfunding, and debt-based crowdfunding. However, three common types of crowdfunding for startups and businesses are venture capital (VC), peer-to-peer (P2P), and shariah-compliant equity crowdfunding (ECF):

  • Venture Capital (VC): Investment from professional investors who provide funding in exchange for equity in the company.
  • Peer-to-peer (P2P): Raising funds from individuals via an online platform.
  • Shariah-compliant Equity Crowdfunding: A type of P2P crowdfunding that follows Islamic principles and guidelines.

Differences between ECF, VC and P2P

Here are the differences between ECF (Equity Crowdfunding), VC (Venture Capital), and P2P (Peer-to-Peer) lending are:

Differences Equity Crowdfunding (ECF) Venture Capital (VC) Peer-to-Peer Lending (P2P)
Ownership Investors receive ownership in the company they invest in Investors lend money to individuals or businesses without acquiring ownership Venture capitalist invests in exchange for a percentage of ownership in the company
Regulation Regulated by financial regulatory bodies Regulated by financial regulatory bodies Not regulated by financial regulatory bodies
Investment Amount Involve larger investment amounts Involve larger investment amounts Involve smaller investment amounts
Risks Involve higher risk because investing in early-stage companies, which have a higher risk of failure Involve higher risk as borrowers may default on their loans Investing in companies that have already proven their business model and have a track record of success
Control Have less control over their investments Have less control over their investments Have a seat on the board of directors and can influence strategic decisions
Exit Strategy Have a longer time horizon for returns as may need to wait several years before the company goes public or is acquired for them to realize a return on their investment Have a longer time horizon for returns and receive regular interest payments and principal repayment over the life of the loan Exit their investments within 3-7 years through an IPO or acquisition

Differences between Conventional ECF and Shariah-Compliant ECF

Here are the differences between conventional ECF and shariah compliant ECF are:

Differences Conventional Equity Crowdfunding (ECF) Shariah-Compliant Equity Crowdfunding (ECF)
Compliance with Islamic principles No Follows the principles of Shariah, which prohibits investments in certain industries such as alcohol, gambling, and interest-based finance, among others
Screening process Does not involve a screening process based on religious or ethical principles Involves a screening process to ensure that the investment opportunity complies with Shariah principles
Contractual arrangements Involves equity investments, loans, or convertible notes Involves the use of specific contractual arrangements, such as Mudarabah and Wakalah, which comply with Shariah principles
Type of business Any type of businesses Only companies with shariah compliant business and/or activities
Issuance of shares Ordinary Shares or Preference Shares Ordinary Shares or Preference Shares
Usage of capital Capital raised can be used accordingly to the entities Capital raised through the fundraising campaign can only be used for shariah compliant purposes
Equity Crowdfunding is risky. You are investing in early stage companies which may not do well and could even fail. You could lose part or all of your investment. You may not be able to sell your shares easily. Learn more