Crowdsourced equity is reaching a tipping point and “start-ups are on the verge of an unstoppable wave” that will transform venture capital and the start-up landscape significantly, says investment expert Jon Medved.
Crowdsourced equity is a strategy to raise usually early-stage funding by offering small equity interests to people who donate cash via crowdfunding platforms.
The United States, Hong Kong, Israel and the United Kingdom have all recently amended the relevant legislation to better enable crowdsourced equity.
Medved, founder and chief executive of Israel-based equity crowdfunding site Our Crowd, spoke at an event for Australian venture capital and private equity investors in Sydney yesterday.
“Crowdsourced equity and start-up activity has huge potential and room for growth in Australia, if you look at the example of Israel,” Medved told the room.
He added while Australia lacked Israel’s pro-risk culture, we had similar multicultural societies and strong government support.
“The people here in Australia have courage, they’re quirky and interesting. You’ve got a lot of money and everything going for you. When I come back here in five years, I reckon you’ll be a completely different ecosystem,” Medved says.
The Israel start-up scene has been growing rapidly in the last few years. In 2012, over $550 million in angel investment deals were made, up considerably from a total of $376 million in 2011.
Medved told the room crowdsourced equity was gaining traction globally, and would only continue to grow. Our Crowd has invested over $24 million in 38 deals since launching in 2012. Seven of these deals have been for over $1 million.
Designed to fit the gap between angel and venture capital investment, Medved said Our Crowd and similar platforms allowed access to a wider pool of potential donors than ever before.
“We wanted the speed of angel investing and all the sexy parts without the limited deal flow,” Medved says. “Being an angel investor means you have a psychic connection with the entrepreneur and bigger risks. You get bragging rights, whereas if you brag about your venture capital investments that’s gauche and weird.”
While crowdsourced equity could open up a whole new pool of donors, Medved says they’re watching the market-led legislative reforms in countries like the Jobs Act in the United States nervously.
“No one builds a start-up alone,” Medved says. “But we don’t want to unleash a horde of investors and people on an early stage start-up, which are often a guy, a girl and a dog. Crowdsourced equity will be happening at a much greater volume in the United States next year.”
Steve Maarbani, the director legal services at Pricewaterhouse Cooper, who also presented at the event, added greater crowdsourced equity activity in Australia would lead to more deals being closed more quickly.
“I think the role here in Australia will be to close rounds, similar to the role the angel sidecar funds have played,” Maarbani said.