A new era in investing & capital raising
What is equity crowdfunding?
Equity crowdfunding is a simple way to connect companies and investors online.
Unlisted companies, start-ups and businesses can raise capital from large groups of investors (‘crowds’) via equity crowdfunding platforms, such as Enable Funding.
In exchange for capital, investors receive shares or equity in the business. If the business succeeds, the value of those shares rises, and vice versa.
Equity crowdfunding solves two main problems:
- Capital-raising obstacles for private companies. A longstanding challenge in Australia is the lack of funding for early-stage, emerging and SME companies due to limited interest from banks, venture-capital funds and angel investors.
- Investor access to unlisted companies. Traditionally available only to professional and high-net-worth investors, unlisted shares can now be owned by anyone.
When to use equity crowdfunding?
Typically founders of small businesses personally finance initial growth, then seek ‘angel investment’ from wealthy private investors as the business becomes established. When the business expands, funds can be sought from venture capital firms (professional investors) and corporate investors.
As its assets grow, the business can raise secured debt from banks. Once an established operation has an appropriate a mix of equity and debt funding along with a successful trading history, a possible next stage of funding may include raising new equity capital through an Initial Public Offering (share market float) and listing on a stock exchange.
Equity crowdfunding cuts across all aspects of this traditional linear fundraising process, providing new options for companies and introducing new investors at various stages of development. In doing so, it helps innovative Australian companies raise capital faster, easier and cheaper to compete in global markets.
The amount of equity crowdfunding already exceeds angel investing and in the United States is forecast to overtake venture capital funding by 2020*.
*MaRS Library with amendments from Enable research.
The growth of equity crowdfunding
Enable Funding forecasts that capital raised on Australian CSF platforms will soar from $119 million in 2016 to $1.5 billion in 2021…which would result in a more than tenfold increase in just five years.
We believe Australia will follow CSF trends in the United States and United Kingdom as these markets have experienced massive growth in capital raising via CSF platforms.
We expect new CSF reforms in Australia (which came into force on 29 September 2017), to have similar effect on local CSF capital raisings and investor interest in this market.
In fact, we believe our CSF growth forecasts, shown in the chart (left), are conservative.
As we link Australia’s self-managed superannuation fund sector ($674 billion as of March 2017) with capital-seeking unlisted companies, CSF growth could vastly exceed these forecasts.