Equity crowdfunding in Australia: We have lift-off

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Equity crowdfunding in Australia: We have lift-off

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Equity crowdfunding in Australia: We have lift-off
Equity crowdfunding in Australia: We have lift-off

Equity crowdfunding has been celebrated as a game-changing alternative to venture capital and traditional business loans but has until recently been off limits to most retail investors.

With the lifting of Australian restrictions on who can use equity crowdfunding platforms, there is cautious uptake from consumers and start-ups – with several platforms establishing a clear lead – but the claim of outsize returns will take time to be tested.

Key Takeaways

  • The A$111bn global crowdfunding market is projected to continue growing at ~19% CAGR over 2018-22. The APAC region is expected to make up nearly half of this growth, and the equity crowdfunding market is anticipated to grow strongly as a result of the regulatory reform to allow retail investors to access offerings in many jurisdictions.
  • Since legislation allowing equity crowdfunding offerings to retail investors in Australia went into effect in early 2018, approximately 0.2% of start-up funding has been crowdfunded (~A$6mn). Leading new platforms are OnMarket and Equitise.
  • Australian platforms’ total funds raised are currently skewed towards outlier raises. Large raises include BookTopia’s planned raise (~A$10mn goal), Xinja (~A$4mn raised) and DC Power Co (~A$4mn raised).
  • Older platforms targeting wholesale investors in Australia have raised substantially more than the A$10mn raised by the seven licensed equity crowdfunding platforms so far. These include Enable Funding (~A$146mn) and VentureCrowd (~A$24mn).

The global crowdfunding market

What is crowdfunding?

Figure 1. Google searches for Crowdfunding, 2004-present

SOURCE: Google analysis tools

Though the idea of sourcing funds from multiple supporters of an enterprise has been around for centuries, the term crowdfunding has only become popular in the last decade (see Figure 1 above).

In essence, the term crowdfunding refers to the combination of funds from multiple investors or donors - often a large number, rather than the small syndicates typically involved in vehicles such as venture capital (VC) funds and hedge funds - for a specific investment, which may or may not be intended to deliver a return.

Types of crowdfunding

This can refer to a large range of practices in which money changes hands, but these are typically grouped into four categories:

  • Donations-based: The crowdfunder donates funds without expecting any return.
  • Rewards-based: The crowdfunder transfers funds with the expectation of a reward, which may be in the form of a token gift or an early/exclusive release of a product or service offered by the start-up company. Kickstarter and Indiegogo are among the most successful crowdfunding platforms built on the rewards-based model of crowdfunding. Since its launch in 2009 through April 2017, more than 123,000 projects have been funded through Kickstarter with nearly US$3bn pledged[1].
    • There are two types of campaigns: All-or-nothing (AON) campaigns require a project to hit 100 % of its funding target, or else funds are returned, while “keep it all” (KIA) or flexible funding campaigns allow the project sponsor to keep the amounts raised. AON campaigns have more backers and raise a higher amount of funds compared with KIA campaigns[2].
  • Debt-based (also known as marketplace lending or P2P lending): The crowdfunder lends money to individuals or companies in return for interest. While there are platforms exclusively targeting socially oriented lending, the majority operate as commercial platforms in direct competition with other financial intermediaries.
  • Equity-based: The crowdfunder purchases equity in a company or other form of asset, for example, real estate or a stream of income such as rental payments. Equity-based crowdfunding remains highly dependent upon supportive regulatory frameworks, which often restrict equity investment to professional investors.

Evolution of crowdfunded products

Over the last decade, the types of investments included in the crowdfunding category have grown from hobbyist items (clothing, artisanal alcohol products, and niche new devices) to traditional assets – such as property, debt (e.g., mortgages, student loans, business loans), and start-up securities – to non-traditional or exotic offerings such as new currencies and initial coin offerings (ICOs) of custom virtual currencies designed to raise capital for use in platforms such as AngelList, Republic, and now Indiegogo[3].

Revenue models in crowdfunding

The key actors in any crowdfunded transaction are the investor, the recipient and the platform. Revenue models vary in terms of where the cost and risk is borne (both upside and downside), and the incentives to seek quality or quantity in terms of activity on the platform. Typically, debt- and equity-based crowdfunding platforms favour a mixture of volume- and variable success-based revenue streams, while non-profit platforms tend to use volume-based revenue streams.

Figure 2. Google searches for ‘Crowdfunding’, 2004 - present

SOURCE: Venture Insights

Global market analysis

Global market has expanded rapidly over the past decade - that growth will slow to a CAGR of ~19% over the next four years, taking a ~A$111bn market to ~A$235bn by 2022

Estimates of the total global crowdfunding market’s current size (by funds invested or donated per year) range from A$100.3bn[4] to ~A$111bn[5]. Growth projections by Technavio, which has produced the most recent comprehensive report on the global crowdfunding market[6], show the market’s growth decelerating dramatically compared with the growth experienced over the past decade; over 2009-18, the CAGR was 74.6%[7], and over 2018-22 the projected CAGR is 18.8%[8]. By 2022, the market is expected to grow by ~A$124bn to ~A$235bn.

According to KPMG’s widely respected Venture Pulse Report[9], global VC investment across all stages over the last year will reach ~A$320bn, almost 3x the size of the total crowdfunding market (let alone the equity-based crowdfunding segment).

Key positive trends boosting the growth outlook include increased usage of e-commerce platforms for functions beyond transactions (on both sides of crowdfunding platforms, i.e. investment and lending), a growing pool of global savings searching for returns in a low-interest-rate environment; an increased willingness to use alternative investment platforms (credibility established by early adopters).

Key negative trends moderating the growth outlook include a weak track record of average returns on equity-based crowdfunding investments, especially for less sophisticated investors without access to high-quality deal flow (the notion that crowdfunding tends to be ‘the last resort’ after conventional banks and professional investors like VC funds); and a series of high-profile failures and stumbles by celebrated crowdfunded companies, for examples, Pebbles (see case study below).

North America is currently the largest market for crowdfunding, but the APAC region will account for nearly half of the expected growth over 2018-22

At the beginning of 2017, the Americas remained the dominant revenue-generating region in the global crowdfunding market (~51%), followed by APAC (~28%) and EMEA (~21%)[10]. However, as of 2018, the APAC region was expected to account for ~48% of the market’s growth over the years to 2022[11]. According to Technavio:

“The crowdfunding market is experiencing tremendous growth in APAC primarily due to the growth of the social media and a mobile-savvy population that has the potential to build credible relationships over short messages. With the legality issues being cold compared with those in the Western countries, the extreme use of mobile phones has the potential to save a lot of time”[12]

However, the Americas are still expected to remain the largest market:

“North America is one of the most developed markets for crowdfunding. Equity crowdfunding is gaining prominence and is seen as an investment opportunity by many investors. The crowdfunding market in this region overtook the venture capital model, indicating that crowdfunding is the preferred source of revenue for start-up enterprises, entrepreneurs, and established companies to generate funds”[13]

Debt-based crowdfunding (P2P lending) segment dominates the crowdfunding market - but in some sense is not “crowdfunding”

At the beginning of 2017, P2P lending was the largest segment, with equity-based crowdfunding taking up the smallest share of funds raised[14]:

  • Debt-based / P2P lending: 78.1%
  • Rewards- and donations-based: 17.2%
  • Equity-based: 7.8%

At today’s market size, this would represent a debt-based/P2P lending market worth around US$86.7bn, a reward- and donation-based market worth approximately US$19.1bn and an equity-based market worth around US$8.7bn. However, these figures likely understate the size of the equity-based crowdfunding market, which is considered to have experienced significant growth since the liberalization of various investor protection regimes in key jurisdictions.

Available projections suggest the equity-based crowdfunding market will represent ~US$50bn by 2020[15].

A focus on equity-based crowdfunding

Though debt-based crowdfunding currently has the largest share of the global crowdfunding market, this report will focus particularly on case studies and market analysis of the equity-based crowdfunding segment for several reasons. Firstly, many companies in the debt-based crowdfunding segment would not think of themselves as part of the crowdfunding sector, and instead consider themselves part of marketplace lending. Secondly, in some sense, debt-based crowdfunding investments are not as “new’ as equity-based crowdfunding; they are simply deploying a product that retail investors have already been exposed to (a pooled and risk-weighted stream of income based on debt) using a new digital delivery mechanism. Thirdly, while many people associate crowdfunding primarily with non-profit reward-based platforms, such as Kickstarter and Indiegogo, much of the attention within the investing, start-up, and capital-raising communities have focussed on the potential for equity-based crowdfunding to become an alternative source of start-up capital and returns. Finally, the opportunities and risks posed by equity-based crowdfunding have also been a key focus for regulators, and have driven liberalization of accreditation regimes in major jurisdictions over the last three years.

Case studies of leading-edge crowdfunding platforms

Globally, large crowdfunding platforms vary along a range of axes, including:

  • For-profit or non-profit status
  • Offering type (donation, reward, equity, debt)
  • Asset type (e.g., company securities, property shares)
  • Geographic markets targeted (including both investors and companies/organizations allowed to participate)
  • Level of curation (both human and technological)
  • Investors allowed (retail and/or sophisticated / “accredited”)
  • Industry/domain focus (e.g., charities, creative industries, technology start-ups)

The case studies in this report cover several of these axes, varying by geography, asset type, investors allowed, and domain focus. Most are early entrants to the crowdfunding space (founded approximately a decade ago) and have established leading or close-to-leading positions in their regional markets (see Figure 3 for a summary of companies profiled, Appendix 1 for full case studies of crowdfunding platforms, and Appendix 3 for case studies of crowdfunded companies & products).

Figure 3. Global crowdfunding platforms profiled in this report

SOURCE: Venture Insights

Australian crowdfunding landscape

Regulatory environment

The biggest challenge for regulators is the equity crowdfunding for retail investors

Rewards- and donations-based crowdfunding are generally subject to relatively limited regulation, as the risks to donors are relatively low. On the other hand, debt-based crowdfunding generally replicates an existing business model (pooling streams of debt repayments and turning them into investment products) and delivers it over an online, user-friendly platform direct to retail investors; existing regulatory frameworks have been relatively simple to adapt to P2P/marketplace lending. This is also true of some forms of equity-based crowdfunding in real estate.

However, the level of risk and opacity involved in using equity-based crowdfunding to invest in early-stage companies has made this a prime focus for regulators in many jurisdictions, where platforms are lobbying for lighter regulation to unlock pools of funding beyond the sophisticated and professional investment communities. The current state of these regulations is described below.

Deep dive on Australian regulations

As wholesale investors are generally considered to be able to navigate high-risk, early-stage investments competently without risking serious financial harm, the key questions in equity crowdfunding regulation are generally around the protection of retail investors’ interests. These include:

  • What makes someone an unsophisticated (retail) investor?
  • How much can retail investors invest, both in total and in a single raise?
  • What requirements must companies meet to take their investment?
  • How much can companies take from retail investors as a group?

In Australia, a wholesale investor is classified as someone who:

  • Qualifies as a professional investor, or
  • Qualifies as a sophisticated investor, i.e., has net assets of A$2.5mn and/or has gross income of at least A$250,000 for the last 2 financial years of, or
  • A body or single investor who invests A$500,000 in a single securities offering

In Australia, extensive lobbying led to the passage of federal legislation in March 2017, opening the door to equity crowdfunding offerings being made available to retail investors. Applications opened in September 2017 and licenses were issued to seven companies in early 2018 (see Australian crowdfunding platforms section below for list). However, after criticism of the requirement that recipients be “unlisted public companies” (which excluded ~99% of Australian start-ups and small businesses), new legislation was passed in September 2018 to widen the eligibility criteria to all eligible private companies. Key eligibility requirements under the legislation now are:

  • Companies must have less than A$25mn in turnover and gross assets, and funds raised will be restricted to A$5mn each year.
  • Start-ups using the above method will be subject to transaction rules and stringent reporting and disclosure obligations, with annual reports and directors’ reports required. Once companies raise A$3mn or more, they will also be subject to auditing requirements.

Equity crowdfunding regulations for retail investors vary slightly by jurisdiction

Figure 4. Comparison of equity crowdfunding regulations across jurisdictions

SOURCE: Country regulator websites, Industry experts.

Case studies of Australian crowdfunding platforms

The Australian crowdfunding landscape includes players in all of the major categories - equity-based, debt-based, donation-based and reward-based crowdfunding (see Figure 5 below for a summary). The following deep dive focuses on equity-based crowdfunding platforms.

Figure 5. Australian crowdfunding platforms (asterisked platforms are profiled in Appendix 2)

SOURCE: Fintech Australia, KPMG, Start-up Smart

Early traction in a liberalized equity crowdfunding regime

Metrics on equity crowdfunding in Australia are not yet conclusive on the quality of returns or retail investor uptake, but early leaders are emerging

Of the A$3.5bn raised by Australian start-ups over the 2017-18 financial year, equity crowdfunding represented just A$6mn, or 0.2%[16] [17]. However, this period takes place several months before any licenses were given and none of the period before the government’s Equity Crowdfunding 2.0 reforms; next year’s results will be more informative of the real traction being achieved by equity crowdfunding platforms. Just one exit has occurred so far - the airport transfer comparison site Jayride - in which investors received a return of 108%[18].

Newly licensed crowdfunding platforms targeting retail investors have raised <A$10mn in total in their first ~10 months of operation: Average raise sizes & total funds raised are far lower than those of global leading players, which is to be expected, but have also varied significantly by platform in Australia, with Equitise and OnMarket clearly establishing themselves as leaders among the new platforms. However, these metrics are substantially skewed by outlier raises (Xinja and DC Power Co). Figure 6 and 7 below summarise two key metrics - total funds raised and average raise size. To summarise the leading three Australian players:

  • Total funds raised by platform (see Figure 6 below for international comparison)
    • Equitise: ~A$4.01mn
    • OnMarket: ~A$3.73mn
    • Birchal: ~A$0.76mn
  • Average funds raised by platform (see Figure 7 below for international comparison)
    • Equitise: ~A$997,000
    • OnMarket: ~A$960,000
    • Birchal: ~A$192,000

Legacy crowdfunding platforms targeting sophisticated investors are still the largest equity crowdfunders in Australia by far. Both Enable Funding and Venture Crowd have raised substantial funds from sophisticated investors over their years of operation (A$146.3mn and ~A$23.5mn respectively). Though Enable Funding has received a licence to offer crowdfunding to retail investors, they are both still targeted strongly at sophisticated investors. However, their average raise values are comparable with new entrants targeting retail investors (~A$731,000 and ~A$534,000, respectively).

Figure 6. Total funds raised by equity crowdfunding platforms, A$Mn

SOURCE: Company reports and websites.

Figure 7. Average raise size by equity crowdfunding platforms

SOURCE: Company reports and websites.

Some analysts have also argued that the major equity crowdfunding players in the Australian market are systematically underperforming in terms of achieving featured start-ups’ targeted amounts (see Figure 8 below for one such analysis by the website Stockhead). However, with such a small sample size based on the early months of the Australian retail crowdfunding industry, it will be necessary to recheck in the coming months and years in order to evaluate whether this trend eventuates.

Figure 8. Performance of completed raises on major equity crowdfunding platforms (published October 2018)

SOURCE: Stockhead, October 2018 [19]

Appendix 1: Case studies of global crowdfunders

Donation-based

  • Founded: 2010
  • Global market leader in online fundraising
  • Product: For-profit donation-based global crowdfunding platform, typically used for personal life events (such as illness and tuition costs) and social causes (such as disaster relief)
  • Prominent campaigns include the TIME’S UP campaign against sexual harassment, spawned by the #MeToo movement, which has raised over US$21m
  • Key features:
    • Intuitive connection to social media platforms for sharing
    • Full-service mobile app
    • Rapid campaign set up
    • No platform fees (i.e., no listing fees to begin a campaign) for users in UK, US, and Canada - tip-based system
  • Revenue model:
    • 2% payment processing fee
  • Metrics:
    • >50mn donors
    • >US$5bn raised
    • US$100mn in revenues as of 2016
    • Valued at ~US$600mn in 2015 fundraise
    • >2mn campaigns run

Equity- and debt-based

  • Founded: 2011
  • Funds raised for WeFunder: US$2.3mn over 6 rounds (Y Combinator graduate company)
  • Product: Equity and debt in North American start-ups, made available to sophisticated and retail investors
    • One of the leading players in US equity crowdfunding market
    • Hosts Reg D, Reg CF, and Reg A+ offerings (see section on Regulation for details of US regulated offerings)
  • Key features:
    • Types of start-up vary from “moonshot” high-risk investments to neighborhood businesses and software/biotech
    • No liquid secondary market available
    • Minimum investment of US$100
    • No approval or curation of companies raising capital
    • Optional “investment clubs” that share characteristics with syndicates on AngelList (including a mechanism for deal sponsors and club moderators to earn a share of the carried interest)
    • AI-enabled “WeFunder in a box” offering for companies to create complaint funding portals of their own
  • Revenue model:
    • Investors: 2% investment fee (US$7-75 range)
    • Companies: Fee of up to 6% of funds raised (4% in cash, 2% in equity or warrants)
  • Metrics:
    • >230 companies funded, >US$74mn raised
    • Average raise: ~US$320,000
    • ~190,000 investors
    • Average portfolio size: US$398

Equity-based

  • Founded: 2013 (Israel-based, with offices in 10 countries)
  • Funds raised for OurCrowd: US$112.5mn over 4 rounds
  • Products: Equity-based crowdfunding for early-stage start-ups around the globe for sophisticated investors (sometimes referred to as “Kickstarter for the rich)
  • Revenue model:
    • Companies:
      • Management fees: 2% annually for four years (capped)
      • Administration fees: One time 4% (capped until exit) for direct reimbursement of SPV’s expenses; drawn down as expenses are incurred
      • Carried interest: 20% on profits up to 5x of the amount invested. Proceeds in excess of 5x of the amount invested will be subject to carried interest at a rate of 25%
    • Investors:
      • Management fees: Range between 1.5%-2.5% over the life of fund on committed capital
      • Administration fees: Direct reimbursement of fund expenses, typically uncapped
      • Carried interest: Typically 20% on fund profits after return of capital
    • Key features:
      • Global sourcing and investing of capital
      • Only open to sophisticated investors
    • Metrics:
      • US$1bn raised globally
        • US$200mn from Australian sophisticated and retail investors (as of May 2018)
      • >30,000 investors
      • 150 countries
      • 160 portfolio companies
      • Average raised size: ~US$6.25mn

Equity-based

  • Founded: 2011
  • Funds raised for Crowdcube: US$48.4mn over 8 rounds
  • Product: Equity-based crowdfunding for UK start-ups
    • Leading player in UK market
  • Revenue model:
    • Investors
      • No joining fee
      • 5% investment fee (of funds invested), capped at £250
    • Companies
      • 7% success fee on funds raised
      • Completion fee (0.75-1.25%) of all funds raised also applied
    • Metrics:
      • £561mn invested (as of 2018)
      • >700 companies served
      • ~650,000 registered members
      • Average raise size: ~£801,000
      • Average portfolio size: ~£863
      • Largest raise (by number of investors) was by Monzo (challenger bank) - 6,484 investors
      • Largest raise (by value) was by Vita Mojo at £2mn

Equity-based

  • Founded: 2014
  • Launched by JD.com, China’s leading online direct sales company (the “Amazon of China” with the largest ecommerce presence by revenue)
  • Products: Equity-based crowdfunding for investors in Chinese companies (launched 2015) and a reward-based crowdfunding platform (launched 2014)
  • Revenue model:
    • Differentiated from other platforms by its ambition to develop “a complete ecosystem for start-up companies” in exchange for a small equity stake in each successfully funded start-up (amount undisclosed)
    • Ecosystem features include JD Cloud, its cloud computing unit, financing tools, marketing support, and training from JD.com’s management, as well as VC partners such as Capital Today, ZhenFund, and Sequoia Capital
  • Metrics:
    • US$670mn raised as of 2017
    • 89 companies (as of March 2017 - better data not available[20])
    • ~US$162mn raised (as of March 2017 - better data not available[21])
    • Average raise (as of March 2017): ~US$1,820,000
    • Number of investors: unknown

Reward-based

  • Founded: 2008
  • Funds raised for Indiegogo: US$56.5mn over 5 rounds, from investors including Max Levchin (PayPal co-founder) and Richard Branson
  • Product: International reward-based crowdfunding and equity-based crowdfunding (since 2016) for retail investors, mainly in innovative and creative projects
  • Revenue model:
    • Investors: 5% fees on contributions
    • Companies: ~US$5K- 6K in administration fees (passed on directly), plus 7% commission fee and 2% equity fee (in warrants) on funds raised
  • Key features:
    • Minimum investment of US$100
    • No curation of investment campaigns (more expansive than Kickstarter)
    • Option to choose ‘AON’ or ‘KIA’ campaigns
    • Large portion of campaigns are for technology and design products
    • Recently added an ICO option to the platform; Indiegogo vets coin offerings and facilitates their sale to investors
      • The first project to use the service, a start-up known as the Fan-Controlled Football League, aimed to raise US$5mn to create a league of football teams that will be guided by people who buy the league’s coins.
  • Metrics:
    • Equity-based crowdfunding (as of May 2017, no further data available - data represents first six months of equity crowdfunding)[22]
      • 12 companies
      • >US$3mn raised
      • 3,700 investors
      • Average raise size: US$250,000
      • Average investor portfolio: ~US$810
    • Total (rewards- and equity-based crowdfunding), as of late 2018
      • 15mn site visitors per month
      • US$1.3bn raised
      • 11mn contributions
      • Average contribution size: US$118
      • 800,000 campaigns launched in total
      • Average funds raised by campaign: US$1,625

Debt- and equity-based

  • Founded: 2012
  • Funds raised for Fundrise: US$55.5mn over 6 rounds, included a 2017 equity crowdfunded round
  • Product: Crowdfunded debt and equity, through fractional investments in property pooled together in diversified eREITs (Real Estate Investment Trusts) and eFunds, open to US retail investors
    • Leading player in US crowdfunded real estate market
    • Operating in Australia
  • Revenue model:
    • Investors: 0.15% annual advisory fee and 0.85% annual asset management fee
  • Key features:
    • US$500 minimum investment
    • Income, asset appreciation and mixed income / appreciation options available
    • Properties chosen by in-house team
    • Investment in private market real estate through diversified portfolios
    • Liquid secondary market available, but with substantial redemption lead time (at least two months) and penalty (3%)
  • Metrics:
    • As of December 2017, >US$2bn in investments
    • 7-12.4% historical annual returns
    • Users: >500,000
    • Average portfolio size: US$4,000

Appendix 2: Case studies of Australian crowdfunders

  • Founded: 2015
  • Products: Began as Onmarket BookBuilds, a platform to increase retail participation in IPOs, and now assisting companies anywhere along the capital raising lifecycle – from seed and Series A Equity Crowdfunding, through to IPOs and placements
  • Revenue model:
    • Assessment/establishment fee for companies: A$10,000
    • Funds raised fee: 7.5% fee on funds raised through platform
    • Investors do not pay fees for submitting applications to invest
  • Key features:
    • A$50 minimum investment
    • Mobile app for IPOs and equity crowdfunding raises
  • Metrics:
    • 109 raises & A$68.7mn raised across years of operation
      • ~A$3.8mn raised in equity crowdfunding over four closed offers in 2018
      • Average raise value: ~US$964,000, or $696,000 (skewed by DC Power)
    • 45,000 customers
    • Known for world’s largest equity crowdfunded raise (by number of investors-15,000) in DC Power with A$2.2mn raised

  • Founded: 2014 (operated only in New Zealand from 2015-17, until Australian legislation changed)
  • Funds raised for Equitise: A$1.5mn over 3 rounds from investors including H2 Ventures and BridgeLane Capital
  • Product: Equity crowdfunding platform for retail and sophisticated investors to invest in early-stage companies and start-ups
  • Revenue model:
    • Start-ups
      • 7.5% one-time fee on capital raised
      • Fixed cost for time spent and use of Equitise Nominees Limited, which administers the transaction and investors; fee may vary depending on the input required by Equitise to manage the transaction
    • Investors
      • No upfront fees - 5% fee on any profits made
    • Key features:
      • A$50 minimum investment
      • Operates both retail and wholesale raises
      • Companies go through vetting and campaign strategy development process
      • No secondary market
    • Metrics:
      • 13 retail deals & 11 wholesale deals
      • 8 IPOs
      • >A$9mn raised in 2018
      • Largest raise to date: A$2.4mn for neo-bank Xinja
      • Several large raises have substantially underperformed their target ranges
      • Average AUD crowdfunding raise: A$1.002mn (skewed by Xinja), ~US$723mn

  • Founded: 2018 (spun off from Pozible, a reward-based platform for creatives)
  • Funds raised for crowdfunding platform: N/A
  • Market: Equity crowdfunding for Australian start-ups
  • Revenue model:
    • Administration fee: A$1,990 (plus GST); fee is fully reimbursed if the CSF offer is successful
    • Success fee: 6% of funds raised (plus GST)
  • Key features:
    • A$50 minimum investment
    • Company profile is similar to Pozible, i.e., large number of consumer brands
  • Metrics:
    • 610,000 members and A$64mn raised across Birchal & Pozible
    • At least A$750,000 raised by Birchal in 2018

  • Founded: 2013
  • Funds raised for VentureCrowd: US$2.9mn over 2 rounds from investors, led by Artesian Ventures (October 2018 round was equity crowdfunded)
  • Products: Crowdfunding for early-stage Australian securities and property, for sophisticated investors only
  • Revenue model:
    • Companies: 6% fee on funds raised, plus A$4,000 flat fee.
    • Investors: 0% transaction fee & 20% performance fee on exit
  • Key features:
    • Multi-asset offerings
    • Combines sophisticated and retail investors in many offerings
  • Metrics:
    • Overall metrics (start-ups and property):
      • Gross returns in FY18: 107% on start-ups & 96% on property
      • 45 deals funded
      • A$23mn raised
      • 9695 investors (1,396 wholesale, 8,289 retail)
      • Average investment size: ~A$32,000
      • Average raise: A$511,111, or ~US$387,000
      • Largest raise: A$6.7mn (Ingogo taxi start-up)
    • Largest raise to date: A$316,000 for soccer products brand Park

  • Founded: 2007 (previously focused on SMSF sector, servicing sophisticated investors as Australian Small Scale Offerings Board)
  • Currently the largest Australian equity crowdfunding platform by volume of funds raised - marketed as experienced hands rather than as an innovative start-up
  • Products: Offers equity-based crowdfunding in Australian start-ups, and business introduction services for sophisticated investors
  • Revenue model:
    • Investors: No fees
    • Companies: 8% of funds raised
  • Key features:
    • Strong focus on rigorous corporate governance - selection criteria include:
      • Currently or willing to become publicly unlisted companies
      • Looking to raise A$500,000-5,000,000 in any year
      • High growth and scalable businesses
      • Working product or service prototype
      • Strong IMENCA score indicating likelihood of attracting funding (IMENCA is a system of screening businesses)
      • Understanding and engagement with target customer and investor crowd community
      • Strong brand, vision, and message
      • Powerful and concise investment pitch
    • Metrics:
      • A$147mn raised
      • 200 companies
      • 30,000 investors on platform
      • Average raise: ~A$735,000, or ~US$530,000

Appendix 3: Crowdfunded companies & products

Oculus VR

High-profile success story

  • Founded: 2012
  • Product & market: Virtual reality headset designed for gaming
  • Key points:
    • Developed as a side project by an engineer
    • Funded through Kickstarter for US$2.4mn (10x original goal)
    • Two pre-production models released to developers before acquisition
    • Acquired by Facebook for US$2.3bn in 2014

 Pebble Wearables

Crowdfunding darling that missed the peak

  • Founded: 2012
  • Product & market: Wearable smart watch designed for the fitness & lifestyle market
  • Key points:
    • Launched Kickstarter campaign in 2012 for US$100,000 to build a new smartwatch company, and received >US$10mn, with 85,000 watches on order
    • Ran successful subsequent Kickstarter campaigns and gained widespread media attention as a crowdfunding success story
    • Turned down US$740mn buyout offer in 2015 from legacy Japanese watchmaker, only to see Apple and Fitbit launch competing products, which came to dominate the market
    • Eventually bought for US$40mn by Fitbit in 2016 and was discontinued

DC Power Co

Early Australian success story

  • Founded: 2018
  • Product & market: Aiming to be Australia’s first solar-focused power company
  • Key points:
    • Raised A$2.45mn using OnMarket, in single largest (by number of investors) equity crowdfunded round ever (over 15,000 investors), beating required funding by ~A$700,000
    • Customer base includes ~12,500 home and building owners using the DC Power Co Beta trial
    • Claims to offer:
      • Cheaper energy bills
      • Connection to the grid
      • Wholesale energy prices for grid top-up when needed
      • Ability to sell excess energy back to the grid
      • Best service on installations and upgrades
      • Attractive deals on solar storage batteries and smart home solutions
      • Advice on optimizing solar system and usage
      • Transparency around all aspects of its investment

Xinja neo-bank

Early Australian success story

  • Founded: 2017
  • Product & market: Aiming to be Australia’s first home-grown, 100% digital “neobank” - independent and “designed from the ground up” alongside customers
  • Key points:
    • Aims to become a full-service digital bank, avoiding the legacy structures and costs associated with more traditional financial services companies
    • Raised A$2.42mn using Equitise
    • Beta version of app and prepaid card is currently being rolled out to a waitlist of customers

Booktopia

Established Australian company tapping new a funding source

  • Founded: 2004
  • Product & market: Online book retailer looking to survive and thrive when Amazon enters the Australian market
  • Key points:
    • Currently has sales revenue of ~A$114mn in FY18, and is shipping nearly 5mn books per year to >5mn customers
    • Abandoned plan to list on the ASX in 2016
    • Announced plan to raise A$10mn through Equitise’s equity crowdfunding campaign in late 2018
      • A$1 per share with 8.1% of business open to the public
      • A$3mn minimum raise
      • A$250 minimum investment
    • Funds will be used to increase automation within the Booktopia business (particularly within its distribution center), add new products, and grow its capital reserves
    • Struggled to break even in 2018 after making a loss in 2017

[1] United Nations Development Project, 2017, Financing Solutions for Sustainable Development

[2] United Nations Development Project, 2017, Financing Solutions for Sustainable Development

[3] NY Times, 2017

[4] Orbisresearch

[5] Technavio: Global crowdfunding market

[6] Technavio: Global crowdfunding market analysis share

[7] From US$530mn to US$80bn.

[8] From ~US$80bn to ~US$159.5bn; this sits in a similar range to other sources; for example, Statista estimates 28.8% CAGR over 2018–22: Statista

[9] Q3 2018 edition, KPMG Venture Pulse Q3 2018

[10] Businesswire: Global Crowdfunding Market

[11] Technavio: Global crowdfunding market

[12]  Businesswire: Global Crowdfunding Market

[13] Businesswire:Global Crowdfunding Market

[14] Statista

[15] Crowdsourcing.org

[16] Techboard Australian Start-up and Young Technology Company Funding Report 2017/18.

[17] Smartcompany

[18] Smartcompany

[19] Stockhead

[20] Harvard Business School: Digital Initiative

[21] Harvard Business School: Digital  Initiative

[22] Indiegogo Blog