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The Crowdfunding Revolution Is Coming to Australia

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The Crowdfunding Revolution Is Coming to Australia The crowdfunding revolution is coming to Australia. In April 2015 the Business Insider Australia, featured a story written by Alex Heber, regarding the impending raise of crowdfunding and how it was going to affect the Australian public and businesses. Here is a short snippet of what he wrote. If your would like to see the full article please go to; http://www.businessinsider.com.au/a-crowdfunding-revolution-is-coming-to-australia-heres-what- you-need-to-know-2015-4 Last year, (April 2015) taxi mobile payments app Ingogo announced it was hoping to raise up to $4 million of its latest investment round using crowdfunding platform Venturecrowd. The decision to raise up to one-third of its $12 million round through crowdfunding – a way of combining smaller parcels of investment into one larger capital pool, with the process typically enabled by a technology platform– shows how the fundraising method has become an important component of the investment environment. The recently-concluded Financial System Inquiry, led by David Murray, listed crowdfunding as one way to assist start ups and innovative businesses in Australia’s economy. The federal government is aiming to consult on draft legislation for regulation in the middle of this year (2016) There are two basic ways crowdfunding works. The first is rewards-based crowdfunding, which allows people to contribute money to an as-yet unbuilt product but guarantees they will be among the first to receive it if the people behind the idea raise the money they need. The best-known platforms for this are Kickstarter and Indiegogo, where two Australians with an idea for a beehive with a tap have sensationally raised $US12.1 million this year. The other method is equity crowdfunding, where investors pay to own a slice of a company. Tim Heasley, COO of Artesian Venture Partners which runs crowdfunding site VentureCrowd, said the current law in Australia meant only wholesale investors – those who earn at least $250,000 or have $2.5 million in assets – could participate in equity crowdfunding. The potential audience is estimated in the low hundreds of thousands in Australia. “The law is expected to liberalise or change this year (2016), that would allow most Australians to participate in this,” Heasley said. The practice of crowdsourcing investment has become more frequent with a range of platforms being launched which connect investors with ideas. Since VentureCrowd’s equity crowdfunding platform was launched in 2013, hundreds of investors have invested more than $2 million cumulatively into high-growth tech companies, including Ingogo, Fame & Partners, Posse/Beat the Q and CrowdMobile. Israeli-based funding platform OurCrowd are operating similar model in Australia where pre-vetted start ups and wholesale investors, also known as “sophisticated investors”, are matched. The practice of securing backers can mean the founders are exposed to less risk. Rewards-based crowdfunding projects also provide start ups with a customer base already committed to the project. In 2014, 3.3 million people pledged more than $500 million on crowdfunding platform Kickstarter to bring more than 22,200 projects to life. Companies like Ninja Blocks and Startmate startup KoalaSafe are two Aus- tralian tech companies which have used Kickstarter to raise funds for their projects. Another platform, Pozible, has raised more than $25 million in pledges and launched over 8,200 projects. Indiegogo is also gaining traction, most spectacularly with the $US12.1 million Flow Hive project run by Australians Cedar Anderson and his father Stuart. Their initial target was $70,000, but within two hours they’d sold $830,000 worth of beehives. Crowdfunding the project provided customers, exposure and financial backing for the start up – lowering the risk to investors. Crowdfunding is now seeping into the property and mining market. Start ups like CrowdfundUP and BrickX are helping real estate investors buy small parts of property developments, providing a way to overcome the entry barrier that is such a common cause of complaint among younger Australians. This week VentureCrowd announced it was a running a trial in crowdfunding real estate with one of Australia’s largest developers, Mirvac Group. Late in 2014, a heavyweight group of investors backed SocietyOne, which has established a peer-to-peer lending platform connecting lenders and borrowers. The investors included News Corp, investment companies controlled by Kerry Stokes and James Packer. Westpac was already invested. SocietyOne currently has at least $1.4 million available on its network, which funds loans of up to $30,000. While not strictly crowdfunding, it is another example of how the ability to raise money is being transformed by technology projects. Clearly, this is a threat to traditional banking and capital management institutions. But despite all the noise and some decent numbers, comprehensive and reliable data on the size or success rate of the Australian crowdfunding market is hard to come by. “Very early-stage seed funding rounds are improving year-by-year and what we’re seeing, in parallel to that, is a drop off of the slightly later stage funding rounds of between $2 million and $20 million. “That’s where we need to be focusing most of our effort in addressing that challenge, because the so-called valley of death, that’s the single biggest challenge of start ups. That’s when they develop their concept, they turn it into a commercial reality and they are at that critical infliction point where they need to start thinking about scale and global reach, bringing on more resources and starting to feel and operate like a sophisticated business, it’s at that point that they start struggling here in Australia to attract enough interest from potential investment.” Paul Niederer, CEO of the Australian Small Scale Offerings Board, estimates about 90% of the transactions are done on the rewards side, rather than equity. “On the equity side, it’s very early days, we’ve been doing it since 2005, it wouldn’t be over $20 million a year on the equity side of it,” he said. adding, “We’re really waiting for treasury to set some rules.” As for where crowdfunding sits, Niederer said was an important mechanism which sits between founders using credit cards or sourcing family money and when the company is ready for Angel investment. End of excerpts from Business Insider Australia. Please see their web site for full article . Some dates changed to bring it up to date. The potential for the mining industry to take advantage of crowdfunding would seem obvious, with the changing times already creating project funding challenges, looking to Crowdfunding for alternative sources of funding for your next project could be the best business decision you’ll make all year. .
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