Founded by the crowd: the new way to invest in Australian businesses
Equity crowdfunding is a relatively new way for Australians to invest. It’s a smart way to collect donations for a charity cause or raise capital for new products and with recent changes to Australian investment laws, crowdfunding platforms can now be used to raise equity capital for a business startup.
This change opens a new funding stream for fledgling creative companies to gain investors and get their idea into the marketplace faster. So what opportunities and pitfalls are there for businesses who are considering equity crowdfunding?
Three forms of crowdfunding
There are three forms of crowdfunding and first up is, Donation or Charity based Crowdfunding, which has been available to Australian donors for a number of years. It focuses on ‘Calls for Help’ such as a friend’s cancer journey, a social enterprise or an event. Traditionally these have been one off or smaller raises led by passionate people or groups. Crowdfunding uses social media for distribution at it has shown that people are more likely to support causes where they have a personal connection. The emotional attachment and benefit is that “this feels like the right thing to do” due to your own core values.
The second form of crowdfunding is, Equity Crowdfunding, which simply put, is how small companies and start-ups can raise startup capital by selling shares. The company sets a valuation based on its financial position and its offering. Investors can buy shares, not on the stock market, but through a company licensed by ASIC to manage this service.
Lastly there’s Reward based Crowdfunding, which roughly is the same as equity crowdfunding, but with one significant difference. A reward for the purchase of the shares is also offered as part of the raise. Reward based crowdfunding focuses on what the funder gets in exchange for their cash as well as the long-term financial opportunity. Rewards based crowdfunding has the potential to be the most widely applicable type of crowdfunding.
To read more, please click on the link below…
