Invest in start-ups with $50
Crowdfunding gives investors the opportunity to back the next big thing from as little as $50
Start-ups can now raise capital directly from the public through equity crowdfunding portals. While you may be tempted to invest in what you believe is the next Seek or Atlassian, it’s worth noting that these types of ventures typically carry greater risks.
In a significant milestone, ASIC, the corporate regulator, issued its first batch of equity crowdfunding licences in January. The government hopes the new source of funding will lead to greater Australian innovation and help start-ups develop and grow.
ASIC commissioner John Price says the platforms have been added to its register of Australian financial services licensees. “Intermediaries have an important gatekeeper role, which will be key to building and maintaining investor trust in crowd-sourced fundraising.”
Start-ups developing neo-banks, drones, biotech engineering, robotics, medicinal cannabis, gin distillers and more can be found on platforms such as Equitise, Big Start, Billfolda, Birchal, Global Funding Partners, iQX Investment Services and OnMarket BookBuilds.
Eligible companies can raise up to $5 million a year using crowdfunding and must be worth less than $25 million. Investors can invest from as little as $50 up to a maximum of $10,000 per company per year and in return they will receive shares.
To invest you need to apply through the crowdfunding website. You can look at the company’s offer document, disclosure statement and agreement. Previously, these kinds of early-stage investments were only available to high-net-worth individuals and venture funds.
Xinja, which is building a neo-bank, got off to a flying start in January, raising $1.6 million from small investors after just a few weeks on the Equitise platform.
A neo-bank is a new breed of mobile-only banks. Its app has a powerful set of banking functions that are designed to allow consumers to interact entirely on their smartphone. Its disruptive technology allows it to challenge traditional banks with disaffected customers.
The company raised $8 million last year from high-net-wealth individuals and venture capital funds and is seeking another $5 million. It aims to launch a prepaid debit card first, followed by home loans and deposits.
It follows overseas disruptors such as Monzo in the UK, which has over 500,000 customers. Its founder, Jason Bates, is on the Xinja board.
“We want to build an ethical bank that works for its customers,” says Xinja’s CEO and founder, Eric Wilson. “Part of that is we want our customers to own us and have a chance to get the digital revolution upside and be a part of it. But there are investor risks as well.”
Being required to carry an ASIC risk warning is appropriate, says Wilson. “It’s not the same as buying a share in NAB or CBA. Many start-ups fail and the stocks are illiquid. If you
buy the shares now and want to sell them next week, like you can with NAB, it’s not going to happen. You’re making an investment for three years. It is important that people understand there’s a difference between a listed share on the ASX and crowdfunding.”
The start-up was recently granted a credit licence by ASIC. Wilson says it hopes to offer home loans in the next few months. It has applied for a financial services licence from ASIC and a banking licence from the Australian Prudential Regulation Authority, which will allow it to start offering deposit products.
While some of the crowdfunding platforms are yet to build their technology or conduct any transactions, Equitise is no novice, having
launched in New Zealand three years ago. “We used that experience to provide an even better platform and even better service to retail investors in Australia,” says Chris Gilbert, its co-founder and director.
He says the crowdfunding market has allowed small investors to share in any potential upside in these high-growth companies. “The businesses that use equity crowdfunding are early stage, they’re innovative, they’re disruptive. You don’t see corner stores and car dealerships on these sites. Crowdfunding is usually more about drones and neo-banks. You’re more likely to see opportunities people don’t ordinarily hear about.”