Buying Into The Brands You Believe In
If you had the opportunity to invest in a brand you believe in, how much money would you be prepared to invest? Equity crowdfunding has helped early stage ventures across the world draw on their core community to raise capital, but was only legalised in Australia earlier this year. We talk to some of the individuals leading the charge forward for the Australian capital market.
January 11, 2018 may have passed unremarkably for many Australians, but for local founders seeking investment, it marked a capital funding milestone. Following legalisation in many developed countries including the United States, Britain, Italy and New Zealand, equity crowdfunding was officially licensed in Australia, with ASIC granting the Australian Financial Services licenses to seven platforms.
Officially known in Australia as crowd-sourced equity funding, equity crowdfunding allows private companies to source funding by offering a stake in their business to public investors. Eligible Australian companies can source up to $5 million a year through the process–and unlike the mix of venture capitalists, wealthy individuals and angel investors that make up the traditional investment market, all kinds of individuals are able to participate in the funding by investing from $50 and up.
The concept of equity crowdfunding is similar in many ways to the the reward-based crowdfunding that rose to prominence about ten years ago through platforms such as Kickstarter, Indiegogo and Pozible. Individual creators or founders could source peer-to-peer funding for their project, product, or mission-based activity, with the supporters receiving a reward for their pledge. These days crowdfunding has enabled passionate public supporters to fund everything from hi-tech headphones to colouring books, helping Australian founders raise more than $100 million from reward-based campaigns since 2010. But while both platforms provide an opportunity for potential investors to handpick the brands they want to support and contribute an amount of their choosing, the stakes are higher for businesses taking the equity crowdfunding approach. They’re not just delivering a reward, but giving up a portion of their business.
Matt Vitale, co-founder of Birchal, a sister platform to Pozible and one of the first seven platforms granted a license by ASIC, says for startups and small businesses, the opportunity offers a pleasing alternative to other means of raising capital. “Many company founders resort to funding their businesses through personal savings or very expensive debt; personal loans, credit cards.” Vitale describes the local interest in equity crowdfunding so far as “astounding”, a sentiment echoed by PARK Social Soccer Co. co-founder Sam Davy, who recently completed a successful equity crowdfunding round through Birchal. “The response has been amazing,” says Davy, “we’ve had 105 investors from Australia, the USA, UK and Europe raising over $300,000, with people investing from $50 to $50,000.”
PARK aims to tackle poverty, wellbeing and gender inequality by activating the simple power of the soccer ball; bringing people together and acting as communcal glue in many areas. Through the Pass-A-Ball project, which matches every soccer ball bought by sending one to a disadvantaged child, PARK have passed on over 4,500 soccer balls across 11 countries.
Both Vitale and Davy are also quick to point out the other key benefit of equity crowdfunding: the opportunity to bring your most passionate fans closer to your business. If reward-based crowdfunding offered brands an early opportunity to drive awareness with their target market, equity crowdfunding gives them the opportunity to become directly involved. Vitale believes that by blurring the lines between customers and investors, brands can more successfully incorporate a capital raise to their sales and marketing strategy. “When executed successfully, you get the funding you need, and a tribe of fiercely passionate ambassadors who love your product and will try to make everyone they know love it too.”
Providing a place to actively involve a brand’s core ‘tribe’ in the business has particular relevance to social enterprises like PARK, which operate with the community at their core. “Reaching out to the community, and involving them in the fundraising makes total sense,” says Davy, “we wanted a way for as many people as possible to invest in a brand they believe in.” Having successfully raised 158% of their target ($316,035 AUD), it was a strategy that quite literally paid off for PARK, while also enabling Davy and his team to learn more about their audience. “PARK appeals to such a wide range of people and this is reflected in the investor profiles.”
“We feel there is enormous scope for social enterprises to do well on Birchal,” says Vitale, pointing out the widening of an investment market previously restricted to angel investors and VCs will benefit for-purpose brands, and is particularly well suited for consumer businesses that can appeal to their audience on a consumer and investor level at the same time.
Though it’s early days for the equity crowdfunding industry in Australia, the robust market in the UK (where over $150 million AUD is invested annually through equity crowdfunding) suggests there is certainly potential for it to become as commonplace as reward-based crowdfunding here. “Australia is playing catch-up, but we feel that the benefits of equity crowdfunding for founders and investors,and the recent shifts in risk appetite among millennials (particularly considering recent investment in cryptocurrencies) will support strong growth in the Australian equity crowdfunding industry over the next few years,” says Vitale. Davy shares his optimism, “As long as brands and businesses are using the opportunity to engage with their community in a fun, exciting and informative way, I think the crowdfunding investment platforms will grow.”