This week the VenReport a leader in investment equity crowdfunding news and analysis announced the ten most influential people in equity crowdfunding.
It was pleasing to see I made the top ten.
The list is here!
James Eyers from the AFR has written a well balanced article on crowdfunding including investor crowdfunding in the Australian Financial Review’s “Capital Magazine”
There is very little discussion in Australia about equity or investor crowdfunding. James makes the point that Section 708 has allowed a small crowd (limit 20) to invest over many years and maybe it is time to increase the 20 to 50 or 100 or beyond.
Watch the video in the middle of the James Eyers article as Legal Consultant Bob Austin puts some context around legislation changes.
In recent years, the global economic downturn has caused banks to restrict their lending practices, enabling equity-based crowdfunding to become an alternative source of raising finance for a business, project or ideas.
The crowdfunding concept, popularised by Kickstarter in the United States, Crowdcube in the United Kingdom and Symbid in the Netherlands (the latter using cooperative investment structures), has now been firmly accepted into US law as a viable route to finance, through the creation of the Jumpstart Our Business Start-Ups (JOBS) Act.
Implementation is expected once the SEC finalise the compliance structure and operational rules and processes. Whilst Australian based ASSOB has managed to assist Micro-Issuers to raise equity capital within the prescribed the provisions of Section 708 of the Australian Corporations Act, the current economic climate has made it difficult for Micro-Issuers to obtain investment from their personal investor network and these businesses subsequently languish in operation. The simple reason is that a Micro-Issuer’s personal network does not always have an abundance of liquid cash resources to invest in a high risk and often early-stage venture.
If we consider twenty (20) personal contacts investing in 12 months, with an average ASSOB investment by a single investor being $38,000, it is problematical for companies to find twenty (20) personal contacts – family, friends and fans – with $38,000 to invest. Of course, the answer is to publish a registered disclosure document seeking smaller amounts of investment parcels, however the reason for s708 is, in part, to reduce the financial and legal burden for Micro-Issuers when seeking equity funding from their personal contacts. For these reasons a suggested path forwards is an increase from the twenty (20) investor ceiling to a higher number of ‘personal investors’ for those persons involved in making or calling attention to offers of securities through the business introduction and matching service such as ‘Australian Small Scale Offerings Board’.
This would mean for a $300,000 raise the parcel size could be as low as $3000 per investor (whilst the U.S. has also introduced maximum investment amounts per investor we have not found this an issue when the matter seeking funding is portrayed fairly and without hype on a platform monitoring compliance).
It is over 25 years since the small scale offering legislation was brought in to play in Australia. It refers to Bulletin Boards instead of websites so that is an indicator of its age. The reason for the creation of s708 was, in part, to reduce the financial and legal burden for Micro-Issuers when seeking equity funding from their personal contacts. This is also the fundamental driver for investor crowdfunding. Section 708 as a means for friends, family fans and followers of a business to be able to affordably buy shares was pioneering Australian legislation that has stood the test of time.
Now its ime for Australia to show the world again.
For informal investors, investing in start-ups and young promising entrepreneurs is and always will be a risky business, especially in the current economic climate. However there are still business angels who are very successful in these unstable markets. But how do they do it? What is their secret?
This was revealed during Informal Investors Day 2013
Themed as Successful Angel Investing in Turbulent Times, Business Angels Networks the Netherlands organised the 10th Informal Investors Day on February 14th During this interactive and leading event on angel investing, business angels from
all over Europe will openly share their knowledge and experience and discuss the following items:
- Outlook 2015: where is the exit?
- Experiences of a European business accelerator with 100 start-ups 3 Crowd funding in Australia (125M raised for 200 companies)
- Cooperation between European angel networks
- Live funding of 5 carefully selected business cases
The full video is in Dutch except for the part in the excerpt above.
In most countries getting a few mates to invest in your early stage business is expensive, time consuming and often restricted to those that meet income and asset criteria.
The rapidly growing movement for the democratization of capital formation hopes to level the field for both investors and entrepreneurs while increasing engagement, equality and participation for all stakeholders.
Access to capital, essential for small business growth and thus job creation, has been restricted to the upper echelons of societies for a long time. The Middle Age is a stretch of European history that lasted from the 5th until the 15th centuries. It began with the collapse of the Western Roman Empire, and was followed by the Renaissance and the Age of Discovery. During the Middle Ages the Royal Family and the Church held the purse strings. The Church and Royalty allocated capital.
The Industrial revolution that followed shifted this responsibility to a small group of industrialists and those that financed them. Their bankers.
This continued on until the late 1960′s where a few major institutions in most countries worldwide allocated capital to their privileged clientele.
Many think that the Facebook IPO should have been the catalyst that welcomed in a new era where investment took place at the intersection of social media and community finance. In other words the democratization of finance. Facebook already had hundreds of millions of “fans” that loved its brand and if given the chance would have invested. However it was not to be.
From September 2004 until March 2011 those privileged to be on the lists of chosen funds and merchant banks invested while the public could not. When it became time for the privileged early investors to make a profitable exit the price was sky rocketed up as “fans”, (effectively mum and dad investors) paid many times what previous investors had paid only to see the stock tank shortly after they bought it.
The above graph courtesy of Dara Albright shows the valuation in billions when investors were allowed to buy shares.
Mum and Dad investors were finally allowed to invest at a valuation of $104 billion. Where the graph is at its highest. The majority of investors came in at a valuation under $15 billion. Bono came in late 2010 at a $24 Billion valuation. Goldman Sachs’s private clients were allowed in around March 2011 at a $50 billion valuation. The graph itself visually tells the story.
Equity Crowdfunding platforms are positioned at the intersection of social media and community finance. By intelligent use of the internet these platforms will connect investors and entrepreneurs with efficiency, transparency and without exorbitant intermediary fees and influence.
The democratization of finance is a response to the lack of investment in productive activities in today’s societies and the speculative excesses experienced and read about by the mum and dad investors. These unaccredited / unsophisticated investors know that it is wrong to be permitted to put thousands of dollars through a a one arm bandit gambling machine when they are not allowed to invest in a mate’s company or early on in the next Facebook. This is a tide that will not turn back.
No-one has said it better than Dara Albright of the Now Street Journal …
“The crowd is telling us loud and clear that they are no longer willing to be the “exit strategy” for the privileged. Until smaller investors are afforded equal growth opportunities, our capital markets will continue to deteriorate.”
Good article in StartUpSmart … ASX won’t be launching a start-up platform, but do start-ups care?
For early stage investment and growing startups the gap from their first raises to a listing is a long journey and there will probably be Angel and VC rounds before then. For companies starting their raises on ASSOB the next step is often a trade sale or VC investment.
This week I found myself in Amsterdam at this event.
It was a International Business Angels Event and I was honoured to be one of the invited Guest Speakers. What was very refreshing was that there was an incredible depth of knowledge about Crowdfunding and the audience was yearning to know more about how a large dollar raise based platform performs in reality.
I gave a number of case studies of both successful and unsuccessful raises as well as some general comments on the democratization of investor finance.
I spent some time around the area where the Dutch East India Company was first established and I was amazed at the number of fully operational crowdfunding platforms that had 10 to 20 employees handling all different aspects of Crowdfunding campaigns.
One site I visited had a whole room of programmers coding several crowdfunding platforms, I doubt you would see that anywhere else at the moment. The speaking event was held in the fully equipped and impressive auditorium at the ABN Ambro headquarters and hats off to Peter Rikhof for organising such a rewarding event.
As I wandered around the canals that used to carry goods from the Dutch East India Company I couldn’t help thinking that with the Dutch being the the first to have a crowdfunding event that effectively created the first common stock company they are now venturing out in both profit and non-profit areas and charting new territory. Many of their platforms are not even seen by the public but are on large company Intranets where employees allocate the time and resources to projects they love to better the lot of mankind.
Check out … 1% Club, Symbid, ImakeRotterdam, OnePlanetCrowd, Voorde Art,
Here is a video from the day …
“I had the pleasure of interviewing Paul Niederer, CEO of ASSOB, the world’s largest equity or investor crowdfunding platform …..” (Read more here)
What was interesting about this interview was that Jonathon walked me through a series of questions that attempted to trace the journey a new raising would take through our equity capital raising platform.
ASSOB is by far the most successful equity based crowdfunding platform in the world. ASSOB assists small and medium sized business to sell equity (shares/stocks) in their business to friends, family, fans and followers of the business in a compliant and proven manner. Over $130 million has been invested in matters funded through the ASSOB Capital Raising Platform.
Stats can be seen here … http://pinterest.com/pin/62487513550882183/
A recent comment in Forbes magazine was as follows.
“Our best indication of how equity-based crowdfunding will work is to look at the places it already exists. We track the Australian platform ASSOB that was founded in 2005, so we have 6-7 years of data to look at. Through their platform, they’ve helped fund 176 companies so far. Nearly 6% have gone on to register on traditional securities exchanges and forty percent have exited through trade sales. But here is the real clincher: 86% of these companies are still in operation. Clearly, ASSOB has a long-enough history of successful funding to demonstrate that it can work.”
ASSOB is an accredited crowd funding platform with the Crowdfunding Accreditation for Platform Standards (CAPS)
http://www.crowdsourcing.org/site/assob/wwwassobcomau/11529
Brian Knight from Crowdcheck reflected on a recent post I made. (<—Click this link to read about Patronage, transperancy and investment crowdfunding)
In a recent piece Paul Niederer, the CEO of the Australian Small Scale Offering’s Board (and guest of the CrowdFundCast), argues that patronage serves as a motivation for many crowd investors.
In this 40 minute video I’m interviewed by Jonny Sandlund of the Crowdcafe about some of the practical aspects of investor or equity based crowdfunding.
Twenty five years ago, when the word “bulletin board” was used instead of a website and the word crowdfunding did not exist, Australian regulators passed legislation that allowed small businesses to raise capital from friends, family, fans and followers without the expense of preparing and lodging disclosure documents like a prospectus or offer information statement.
Looking back this legislation was innovative and in reality is as close to “crowdfunding” as any existing legislation anywhere in the world. A small business or startup can market it’s offering to all its personal contacts and the personal contacts of the “bulletin board” owner provided a few simple rules are followed.
In this interview I outline the major parts of the capital raising process and some of the lessons those positioning themselves to take advantage of the Jobs Act can learn.
One of the main points I make is the difference between pledge crowdfunding and equity crowdfunding from an operational point of view. With “pledge crowdfunding” the contributor is expecting a reward. A graitification. Probably instant gratification. Meaning if they contribute $100 for a watch they are pretty sure they will get the watch within a few months.
However with “equity or investor crowdfunding” there is uncertainty and hope. The investor hopes that when they invest they will get their money back or better but it is uncertain as to when this will happen. Meaning if they contribute $20,000 they trust that the founders of the company will be good custodians of the money and will deliver on the promises they have made or the picture they have painted. Hope also must endure. From the time of the crowdfunding investment until its return, or not, communications need to be maintained with investors because they are still living on hope.
They hope that they will at least get their money back and it should not be a surprise after three years if they dont.
Ongoing communication is essential.
NB: Jonny Sandlund of the Crowdcafe has written an update post here: Exploring ASSOB: A $130 Million Crowdfunding Model that Works
It was great to share the stage with Michael Shuman.
We must work harder with the ASSOB platform to empower local entrepreneurs and projects and connect them to local and social entrepreneurs.