Make.V startup tests limits of laws

A Chinese media startup called Make.V finished a second round of online private financing Sunday, raising funds from 1,191 individual investors from around the country, which analysts said is a likely violation of Chinese securities laws.

Anyone could subscribe to 100 shares of Make.V by buying a 120 yuan ($19.30) membership card on C2C e-commerce platform taobao.com between January 9 and February 3. Investment contracts will be delivered to buyers in lieu of membership cards.

The company had planned to sell shares on Taobao at 1.2 yuan each, but switched to membership cards because Taobao did not regard equities as saleable products, Zhu Jiang, Make.V's CEO, told the Global Times Sunday.

The second round of online fundraising brought the company 816,000 yuan, with 680,000 shares going to 1,191 online investors, according to data sent to the Global Times by Make.V Sunday. In the first round, launched in October 2012, the funds raised reached some 400,000 yuan with more than 400 subscribers.

Make.V risks committing illegal fundraising according to the securities laws of China, given that they collected money from the public and the number of subscribers surpassed 50, said Hao Junbo, a Beijing-based lawyer who specializes in filing against listed companies for cheating investors in China and abroad.

Lu Fang, the company's public relations vice president, told the Global Times Sunday that the shareholders come from all walks of life, from domestic venture capital companies to teachers and college students, mainly in Beijing, Shanghai, Guangzhou, Zhejiang and Nanjing.

Xiong Yan, the chairman of China Beijing Equity Exchange, said on his Weibo account Sunday that Make.V's action could be considered crowd funding, which would violate China's current laws and regulations.

If the company pledged returns or interest to its buyers and specified a time frame, it will likely be sanctioned by the China Securities Regulatory Commission (CSRC), Hao told the Global Times Sunday, adding that it is very risky for people to invest in venture firms that are not under the CSRC's supervision.

"Our private fundraising has not been blocked by the government. We never made any commitments of fixed or high returns to our shareholders, which is a major difference from illegal fundraising," said Zhu.

"Making money is not my top priority. If Make.V went bankrupt, I would turn to other companies. Everything is risky," a Shandong resident surnamed Nie told the Global Times Sunday. And Lu said that many investors in the company have a similar attitude.

According to the company's investor prospectus, it expects to gain 60 million yuan and pay dividends of 0.3 yuan per share by the end of 2013 via its two television programs, which are currently scheduled to air this spring.

"I did not invest in Make.V," an industry analyst told the Global Times Sunday on condition of anonymity. "But I support online private financing, which shows more transparency than the traditional mode."

Hao echoed that online fundraising, simple in procedure, should be encouraged and supported by the government.