When investing in startups, are Malaysians following the crowd?

But does that make it a better investment? Not necessarily, although new Malaysian research suggests the behaviour of other investors can strongly influence whether an equity crowdfunding campaign succeeds.

Research presented at the National Financial Literacy Symposium in Kuala Lumpur on Oct 7 analysed 335 campaigns hosted on three licensed Malaysian equity crowdfunding platforms.

The study, led by Xiamen University Malaysia assistant professor You Hui Wei, examined the signals investors appear to rely on when deciding whether to back young businesses.

Of the factors studied, “social-proof cues, particularly the number of investors” emerged as the strongest predictors of campaign success. Disclosure of a company’s valuation was another important factor, while younger firms were also associated with a higher likelihood of reaching their fundraising targets.

Social proof refers to the tendency to look at what others are doing when making an uncertain decision. A busy restaurant can seem more appealing than an empty one; a product bought by thousands of people may feel safer than one nobody has tried

Startup investing is obviously more complicated, but similar behaviour can come into play. Potential investors generally have far less information about an early-stage company than its founders do, and unlike a large listed company, a startup may have little operating history, limited financial information and no analyst coverage.

In that situation, visible clues – including how many other people have invested – can become more influential. The researchers said financial-literacy efforts should help investors interpret “a small set of high-impact signals” rather than simply assume those signals indicate a sound investment.

A growing investor count may attract still more people, although that does not necessarily mean the crowd itself caused a campaign to succeed. A strong business may simply have convinced many investors independently, with the rising number of backers then providing additional reassurance to others.

What are Malaysians investing in?

Equity crowdfunding (ECF) allows startups and smaller businesses to raise money online from multiple investors. Unlike donating to a crowdfunding campaign or pre-ordering a product, an ECF investor receives shares in the business and becomes a shareholder.

According to the Securities Commission Malaysia (SC), more than 22,000 investors had participated in ECF since its introduction, while 1,979 invested in 2025 alone.

Some 71.5% of those who participated that year were first-time ECF investors, while retail investors made up 59% of participants and Malaysians accounted for 98% of all investors.

For smaller investors, accessibility is part of the attraction. Rather than needing large amounts of capital to back a private company, ECF platforms allow individuals to participate with comparatively modest sums, although that accessibility should not be mistaken for safety.

That distinction is particularly important when interpreting the new research. The study looked at whether campaigns successfully raised their targeted amount, but it did not examine whether those companies subsequently grew, paid dividends or delivered profitable exits for their investors.

A startup that hits its fundraising goal has therefore succeeded at raising money – not necessarily at making money for shareholders. The SC puts the risk plainly: “Investing in start-ups and early-stage businesses involves high risks.”

Among those risks are losing the entire investment, difficulty selling shares, receiving no dividends and seeing an ownership stake diluted if the company later issues more shares. Under current limits, retail investors may invest up to RM5,000 in a single ECF issuer and no more than RM50,000 across ECF investments within a 12-month period.

The commission also advises investors to study the company, its finances, how it intends to use the money raised and the risks involved before committing funds.

That advice sits neatly alongside the new research because seeing hundreds of people backing a startup tells you something: the campaign has generated interest and convinced others to put money behind it. What it cannot tell you is whether those people are right.

When it comes to startup investing, the crowd may help explain where the money is going, but it remains no substitute for understanding what you are actually buying.