What do a hot sauce brand, crypto exchange, camel milk farm and a dating app all have in common? When they needed cash to grow their business, they turned to equity crowdfunding.
In the space of a few short years, we’ve watched closely as the equity crowdfunding industry in Australia has evolved from a fringe financial buzzword into a significant domestic market.
Comfortably earning a seat at the big boy table of corporate finance, in 2021 alone the industry was host to 89 successful raises, closing with a combined total of nearly $71 million without a bank or hedge fund in sight.
Despite this, plenty are left wondering; what actually is it? What does it involve, where has it come from, and what’s the story so far?
What is equity crowdfunding?
Put simply, equity crowdfunding is when a company tries to raise money by aiming to get lots of people to invest small amounts.
It’s a fairly new idea in Australia, starting back in 2018 when it was made legal through changes to The Corporations Act 2001.
Rather than pitching to larger industry investors, equity crowdfunding gives companies an opportunity to run a campaign on any specialist platform in the hope of attracting people to support their vision.
It’s made more accessible by a lower barrier for entry, with investment ranging from as low as $50 to the tens of thousands.
Companies that crowdfund aren’t public, and are often in earlier stages of development, giving people an opportunity to obtain shares at a much lower price than your typical ASX investment.
A business looking to run an ECF campaign has free choice from any of Australia’s platforms, from market leader Birchal to others like Equitise and OnMarket. These three accounted for 97% of all funds raised in 2021.
For companies it’s a way to raise capital to get an idea off the ground or drive growth, and comes at a lower risk compared to business loans. It also acts as a marketing tool, driving more awareness and media attention, and helping create new brand ambassadors among the public.
For consumers it offers a chance to support a worthy cause and invest early at a low price, creating more opportunity to profit later down the line.
Since 2018, the Australian public has tipped tens of millions into hopeful startups looking to offer the next big idea, and despite no shortage of risks, the domestic industry doesn’t appear to be slowing down any time soon.
The growth of equity crowdfunding in Australia
Despite a fairly slow start in its debut year of 2018, it didn’t take long for Australia’s youthful new industry to begin trending upwards.
NOTE: the data shown here was pulled from a mixture of sources, notably Birchal’s 2020 & 2021 CSF Yearbooks, and Equitise’s 2021 Year In Review Report.
Whilst 2018 ended a modest 18 raises combining for a total of $14.4m, the following year represented the first big leap forward, with 2019 seeing 51 successful raises close for a total of more than $31m altogether.
In just 12 months, industry activity across Australia had increased by over 116%.
Despite looking set to maintain this momentum, unforeseen setbacks in early 2020 put the lid on what would have likely been another impressive year.
However, as it would turn out, the pandemic-induced slump was a near perfect springboard into 2021, a particularly fruitful year for the industry.
No doubt helped along by the amateur investment boom kickstarted by the pandemic, data from Birchal highlights just how significant those 12 months were for the industry.
Across the major platforms in 2021, a total of 89 raises closed successfully, an increase of 82% compared to 49 in 2020.
In the same year both the number of investors and total capital raised grew by more than double, with 37,000 (↑ 113%) investors contributing over $71 million (↑ 140%) altogether.
Of the three major platforms, Sydney-based Birchal maintained the top spot as host to 59 successful campaigns, followed by Equitise with 13 and OnMarket with 12.
Hopeful startups will be pleased to see another jump in the average raise total, which pushed to a record high of over $700k despite little movement in the average individual investment, which to date remains around $1,500.
More Raises, More Money, More Markets
As crowdfunding continues to become a more reliable source of capital, one thing we’re already seeing is a significant shift in the diversity of offers throughout the industry.
This is a promising sign for a healthy industry – one that’s just as reliant on these companies as they are on it – and will play an important role in attracting new investors in years to come.
In 2020, the 49 successful raises represented 10 different market sectors, a total which grew to 14 in 2021 with the addition of Gaming, Real Estate, Media and Transportation.
Food & Beverage claimed the top spot in 2021 with 21 raises, followed by Software with 15, Financial Services with 9 and Sustainability with 6, while Healthcare dropped from the top spot down to 5th with only 5 offers throughout the year.
Amongst all this progress, the biggest raises continue to grow even bigger still. Zero Co – 2021’s gold medal recipient – successfully closed a whopping $5 million raise in less than a day, with over 3,000 investors taking part.
Happily joining them on the podium were 3 of Glide Agency’s own ECF alumni; financial services app Thrive – $3m, crypto exchange Coinstash – $2.8m, and boba ecommerce startup Bubble Tea Club – $1.65m.
Where to from here?
No matter where you go or who you ask, it seems everyone agrees on one thing; Australia’s ECF industry is only just getting started.
Compared to more established markets like those in the UK (AUD $598m in 2021) and the US (AUD $290m in 2021), our domestic industry is still in the early stages of development.
Offers are expected to get more diverse, more engaging and larger still, while interest from a higher caliber of professional investors is already starting to accompany some of the bigger offers.
With platforms like Birchal, Equitise and OnMarket democratising the capital raising industry for businesses and consumers alike, collective sentiment about the future of crowdfunding is understandably optimistic.
When you look at the stats as they stand, it’s not difficult to see why.
