Equitise: The future for equity crowdfunding SMEs in Australia
Wednesday, July 16, 2014/
I have written a couple of pieces on crowdfunding in respect to raising capital for small business. I have been investigating the startup community and came across a business, Equitise.
Equitise is a new startup that will be crowdfunding exclusively for SMEs in Australia.
To share their insights and thoughts, I have included my Q&A with the minds behind Equitise below. This is my interview with Chris Gilbert and Jonny Wilkinson (no not the Jonny Wilkinson!) who are the founders of this new startup.
When we last spoke, you mentioned you had frustrations with Australian startups being funded by overseas investors. How do you think equity crowdfunding will assist to solve this problem?
Equity crowdfunding will improve the accessibility of funds within Australia. It will provide many great Australian businesses with the opportunity to access large pools of capital from a variety of local and strategic investors that they don’t currently have access to. It will mean Australian companies no longer have to reach out to the overseas markets to fund their innovative local businesses.
Why is equity crowdfunding of benefit to SMEs in Australia?
As we touched on above, it opens up funding channels and allows them access to capital that they could never have imagined being able to get before. They can now market to and gain funding from a large pool of investors who understand their products and services, and who have subsequently validated it through the crowdfunding process and actually want them to succeed.
Most importantly, it means they don’t have to deal with banks and provide the same assurances they would have traditionally been required to via traditional channels. So it provides an alternative to the existing funding channels which are restrictive, time consuming and often not suitable for high growth innovative companies and ultimately means they do not have to rack up debt on their credit cards or post their home as security to get the banks to lend to them.
So does this mean that SMEs can access debt financing from the crowd as well as selling down equity?
Yes, companies will be able to fund themselves through issuing both debt and equity to investors through crowdfunding. The interest rates at which they can access this debt funding may even be cheaper as the competition from the crowd to price the security makes it lower than the high rates they may need to pay through other traditional methods.
Given a recent Deloitte Access Economics paper has stated that “10% of Australian SMEs or around 200,000 businesses have problems accessing finance,” this will be of significant benefit to companies who wish to raise capital without giving up equity in their companies and without the stringent requirements normally placed on them by banks.
What is the current funding situation like for Australian SMEs?
Accessing both debt and equity financing in Australia is currently very cumbersome and time consuming. Currently SMEs in Australia can access capital from three main areas:
- Banks (for debt financing);
- Angel investors and venture capital (for credible sophisticated equity investors); and
- Friends and family (often as a last resort to put together seed funding to get a venture off the ground).
The way in which SMEs interact with these groups of people is ineffective, time consuming and in many cases unsuccessful, often taking important time away from the most critical thing, which is concentrating on driving the success of their business.
From your experience in launching Equitise, what are the typical struggles experienced by people thinking of starting their own businesses?
Fortunately, Equitise as a business hasn’t faced as many of the typical struggles in launching a business due to our involvement in the AWI Limited accelerator program where we have received mentoring and business support services as well as initial seed funding. However, from meeting with and discussing funding options with numerous businesses wanting to use our services, it is very evident that the main issues faced by SMEs and technology startups relate directly to access to funds from strategic investors, and also access to experienced founders with technology related experience. Matt Barrie was quite vocal about both of these issues in an article run by The Australian Financial Review a few weeks ago.
What do you think needs to happen as the next step to progress equity crowdfunding in Australia?
With New Zealand and other markets already moving to legislate and allow equity crowdfunding, the federal government needs to take what CAMAC have said and quickly pass the legislation and encourage ASIC to move fast so Australia doesn’t fall behind the rest of the world.
Fi Bendall is the managing director of Bendalls Group, a team of highly trained digital specialists, i-media subject matter experts and developers.