Since equity crowdfunding launched in Australia in 2017, startups in their droves have looked to the public to help take their venture to the next level — albeit some more successfully than others. But from the modest to the multimillion, what is it that made the successful raises successful?
These founders have all been there, and they’ve got some advice.
Make the most of your community
Sonya Stephen, founder of cinema ticket startup Choovie saw equity crowdfunding as a way to turn her “fabulous customers” into investors, giving the community of users a chance to be more involved in the business
When business-to-consumer interaction is important to a startup, “crowdfunding is a great way to go”, and a “really exciting avenue to explore”, she said.
Neobank Xinja also always planned to make shareholders out of its loyal customer base
It’s first crowdfunding campaign — the first in Australia — raised $500,000 in its first 18 hours, and went on to raise $2.4 million. The startup launched its second campaign in January.
Speaking to StartupSmart, Xinja founder Eric Wilson said equity crowdfunding isn’t the easiest way to make money, but the neobank always wanted early adopters to be able to be a part of the journey — making a difference and eventually a profit.
“It was important the people we were building it for had a chance to own some of it,” Wilson said.
Equally, having customers as shareholders piles on the pressure to succeed, “but in a good way”, he added.
View it as a stepping stone
Startup Jayride was the first equity-crowdfunded startup in Australia allowing investors to exit. The startup listed on the ASX in January 2018, allowing shareholders to exit for 108% returns.
At the time, Jayride co-founder Rod Bishop told StartupSmart crowdfunding is “not the be-all and end-all”.
Crowdfunding platforms provide an interesting way to engage with new investors, while paving the way for future success. The platforms “create the opportunity for investors who otherwise wouldn’t be able to invest a large enough parcel”.
“They’re able to provide proper engagement to support those parcel sizes on your behalf … [the investors] get more confidence in the transaction,” he said.
Crowdfunding is also a handy way to increase shareholder numbers ahead of an ICO, Bishop said.
“To list on the ASX you have to have hundreds of shareholders,” he explained.
Equity crowdfunding “gave us a more distributed shareholder base going into the IPO”.
For startups that see a public listing in their future, Bishop recommends this route.
“If you’re looking to consider an IPO at a future date, equity crowdfunding is an interesting bridge that should be considered,” he said.
Tap into public consciousness
Wave energy startup Wave Swell Energy ran a crowdfunding campaign to raise $1.5 million, to finish off a $9 million raise.
At the time, founder Tom Denniss told StartupSmart he saw “good synergies” between the renewable energy startup and the kind of people that would typically invest through a crowdfunding campaign.
Similarly, Toowoomba startup Direct Injection Technologies recently embarked on a crowdfunding campaign with an upper limit of $1.1 million, to scale its solution to help farmers save money on nutritional supplements.
DIT founder Mark Peart told StartupSmart he saw how much support was drummed up for the ‘buy-a-bale’ campaign to help farmers during the drought crisis, and realised people wanted to support rural communities.
“Everybody knows how hard farmers have it,” he said.
“If we’re saving them a dollar, that’s a dollar they can put towards the cash reserves to get through the dry times, or to invest,” he added.
“There’s such a conversation around farming and food. People can get involved.”
Offer a low buy-in
Solar energy retailing startup DC Power Co raised $2.5 million from 17,500 investors, in the world’s most popular equity crowdfunding campaign back in 2018.
And founder Emma Jenkin puts this at least partly down to the fact investors were offered buy-in of as little as $50. In the end, two-thirds of investors went for the $50 option.
This is the way equity crowdfunding will go in the future, Jenkin told StartupSmart, suggesting more startups will follow suit.
Some companies might balk at the prospect of answering to 17,500 shareholders, but Jenkin doesn’t consider it an issue.
“We’re a team of seasoned professionals, and we have a great company secretary,” she said.
“As I see it, these people are going to be our customers, so we’ll need to be communicating with them anyway as part of our day-to-day business.”
Don’t underestimate what you’ve got
Xinja’s Eric Wilson noted that retail investment is very different to taking venture capital, and can come with a greater sense of responsibility.
“There’s hundreds and hundreds of investors — mums and dads, brothers and sisters — some you know, some you don’t. They’ve backed us and trusted us to do the right thing, which is quite a responsibility. It’s our job to not mess this up,” he said.
“You don’t take money from anyone lightly, but we’re very conscious when it’s just normal people like us who may not have millions of dollars.”