Equity Crowdfunding for Founders

Long Story Short

Equity crowdfunding platforms enable companies to offer their securities to a number of potential investors in exchange for funds. In addition, the digital nature of the crowdfunding platforms democratises investing in startups and scale-ups by making deals available to a large pool of eligible investors that invest compared to the traditional funding pathways in smaller amounts.??

However, equity crowdfunding is not the right option for every business, but it can help you propel your business beyond the campaign with the right partner. We have invested in and assisted startups and scale-ups with raising capital and achieving their growth goals for over 30 years. This vast expertise and experience are now available to you!??

Contact us and learn more about how StrideEquity can help you to achieve your capital raising and growth goals.

The Long Story

Equity crowdfunding is a relatively young industry in Australia but has been growing for years! More and more companies raise capital through the crowd. Furthermore, the average crowd deal size has been increasing for years. Therefore, today it is possible to raise millions through the crowd! Crowd-sourced funding (CSF) intermediaries have certain obligations. We will cover them in a later article. However, we added the most relevant links at the bottom of the article.??

Equity Crowdfunding allows you to attract and accept investment from a larger and more diverse pool of investors. In general, there are two types of investors.?

Retail vs Wholesale Investors?

The main difference is the investment cap for retail investors. Retail investors must be over 18 years old and can invest up to $10,000 per company and year.??

Wholesale investors can invest more than $10,000 per company, and year after, they have provided the CSF intermediary with evidence of wholesale status. In Australia, a wholesale investor is legally defined as an individual that:??

• Has earned over $250,000 in gross income per annum over the last two financial years, or;??
• Owns over $2.5 million in net assets.???

Most platforms distinguish between retail and wholesale offers. However, it is a mistake to assume that a wholesale offer is better than a retail offer. Instead, you should choose the option that aligns with your business and capital raising goal since an equity crowdfunding campaign can add more value to your company than just additional funds. Compare the benefits and risks before deciding if equity crowdfunding is an option for your company.??

Benefit 1 - Access a larger pool of Investors??

Compared to the traditional forms of raising capital, an equity crowdfunding campaign allows you to showcase your business, product and team to a larger audience. Companies activate their entire network and invite customers, suppliers, partners and other stakeholders to become shareholders in the business.??

Benefit 2 - Concentration of Power and Control??

Having a larger number of shareholders also reduces the risk that a small group of investors can consolidate power and take control over your business. Furthermore, with equity crowdfunding, you are in control of your valuation and setting the share price.???

Benefit 3 - Efficiency??

Leveraging an equity crowdfunding platform to access a broader investor audience frees you up to growing your business rather than figuring out how to get in touch with the big investors and go through the various stages of meetings. Furthermore, more sophisticated investors use equity crowdfunding platforms these days to get direct access to deals.???

Benefit 4 - Market insights??

The crowd will provide valuable insights and feedback about your product/business. Use the opportunity to make adjustments and increase your chances of success.??

Benefit 5 - Marketing and Public Relations (PR)??

Crowdfunding campaigns are marketing and PR campaigns. Therefore, take the time to plan the different stages of your campaign and think beyond your crowdfunding campaign. Furthermore, you don't have to target only high-net-worth individuals and venture capitalists. You can market to your existing target audience and invite them to become shareholders in your business. You may gain new brand advocates and press coverage. So, an equity crowdfunding campaign can add new funds to your company and increase brand awareness and the customer base. Moreover, if you manage to keep your new investors engaged, they can help you to accelerate your growth journey.??

Benefit 6 - Customer Acquisition??

Equity crowdfunding will likely increase your brand awareness and the number of brand advocates. Many of them are also expected to become customers. Depending on your strategy, you might be able to reduce your customer acquisition costs by adding an engaged crowd to your business.??

Benefit 7 - Growth Capital??

Last but not least, at the end of your successful crowdfunding campaign, you will also have secured the capital you need to elevate your business to the next level.???

Bonus – StrideEquity's expertise and experience??

We have over 30 years of expertise and experience in raising capital, investing in early and late-stage businesses, and providing advisory services! Moreover, this vast amount of experience and expertise is accessible to all our investees!??

As you can see, an equity crowdfunding campaign can add more value than just additional funds to your business. However, you should consider the potential downsides in your decision-making process.???

Risk 1 - Failure??

Not every crowdfunding campaign is successful. Therefore, you should also consider the potential impacts of an unsuccessful campaign on your business. For example, it may reduce the confidence of the public and investors in your business. That is why we have a comprehensive due diligence process.??

However, if you managed to build up some momentum, the campaign should still add value to your business by increasing brand awareness and adding new customers to the business. Therefore, it is important to plan ahead so you can leverage even an unsuccessful campaign to your advantage.?

Risk 2 - Too early?

It is essential to take the time to plan your equity crowdfunding campaign. Most companies activate their networks and build up momentum before launching their EOI campaign to increase their success chances.????

Risk 3 - Wrong Valuation?

The wrong valuation can lower the attractiveness of your offer, or you might give away too much equity. We know the valuation of the business, especially an early-stage company, is a science and an art at the same time. Luckily for you, our team has decades of experience in it!???

Risk 4 - Wrong Choice?

Equity crowdfunding is a very tempting option, especially these days, but it may not be the right option for your business.??

Final note?

An equity crowdfunding campaign does not need to be a one-off. More and more companies activate their community again for a follow-on round or combine it with other funding options. Think about it, why wouldn't you after you mastered the crowd once???

So, are you ready for the crowd? If so, we would love to hear from you.

Resources?

ASIC RG 261 – Crowd-sourced funding: Guide for companies

ASIC RG 262 – Crowd-sourced funding: Guide for intermediaries