A new era in investing & capital raising
What is equity crowdfunding?
Equity crowdfunding is a way to connect companies and investors through an integrated online digital portal / site.
Unlisted companies, start-ups and small businesses can access equity crowdfunding sites to raise capital from large groups of investors (the ‘crowd’) via online 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.
We are solving two main problems:
- First, it reduces capital-raising obstacles for private companies. A longstanding challenge in Australia is the lack of capital-raising options for early-stage companies because of Australia’s small venture-capital and angel investing sectors;
- The second problem is investor access to unlisted companies. This form of investing has been the preserve of professional investors and high-net-worth-individuals with contacts in this area. Through equity crowdfunding, anyone can now invest in this sector of the market.
When to use equity crowdfunding?
Typically founders of small businesses personally finance the initial growth, then seek ‘angel investment’ from wealthy private investors as the business becomes established. Later as the business expands funds can be sought from venture capital firms (professional investors) and corporate investors.
As the business grows and assets build it can raise debt from banks with adequate security. Once an established operation with a mix of equity and debt funding and successful trading history a possible next stage is raising new equity capital through an Initial Public Offering (sharemarket float) and listing on a stock exchange.
Equity crowdfunding cuts across all aspects of this traditional linear fundraising process, providing new options for companies introducing new investors at various stages of development as required. In doing so, it helps innovative Australian companies raise capital faster, easier and cheaper – and take on global markets.
Equity crowdfunding already now exceeds angel investing, and in the United States is forecast to overtake venture capital funding by 2020(1).
(1)https://www.marsdd.com/mars-library/angel-investors-seed-or-venture-capital-investors-that-depends-on-your-stage-of-company-development/ – With amendments from Enable research.
Why will equity crowdfunding grow
Enable Funding forecasts that with the new crowd-sourced equity funding (CSF) reforms, 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 who have already adopted these early CSF reforms have overseen 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 $674 billion self-managed superannuation fund (SMSF) sector (at March 2017) with capital-seeking unlisted companies, CSF growth could exceed expectation.