systems integration


19th February, 2021

Small businesses turn to equity crowdfunding in growing numbers

Equity crowdfunding has emerged as a key funding route for small-to-medium businesses and startups, writes Nina Hendy.

Since the start of the equity crowdfunding industry in 2018, it has since grown to become a popular source of funding for Australian small businesses and entrepreneurs.

It’s popularity may come as little surprise to those with experience trying to access more traditional funding options. For example, bank loans aren’t easy to come by, particularly post-Royal Commission, as the banks tighten up their lending criteria.

By comparison, the Australian crowd-sourced funding industry appears to have become a resilient and increasingly popular source of capital for businesses, even in the midst of the pandemic.

READ THIS NEXT: Raising capital for business: What you need to know

What is equity crowdfunding?

Equity crowdfunding enables small businesses and entrepreneurs to get their big idea off the ground by trading shares in their company to investors. And because crowdfunding platforms are capable of bringing many investors together, it also enables the business to build a loyal audience of fans, which often go on to become loyal customers and advocates for the brand.

A number of high profile brands have got their start after an equity crowdfunding raise – including one of the most celebrated start-up brands in recent times, Flow Hive.

Flow Hive and Cedar Anderson
Cedar Anderson’s Flow Hive is one example of a small business to recently find success with equity crowdfunding. (Click to view)

Flow Hive’s founder Cedar Anderson has gone on to have global success after revolutionising the production of honey for beekeepers.

Other brands to have success include Douugh, which rewarded early investors with a return of up to 1,633 percent having managed to sell at its peak after listing on equity crowdfunding platform Equitise.

Equity crowdfunding is a way for unlisted companies to secure a financial shot in the arm. The Federal Government legalised the means of fund-raising in 2018, enabling a business to seek money from a number of people who have chosen to fund a project or business.

How does equity crowdfunding work?

By funding a company via equity crowdfunding, the ‘crowd’ secures part ownership of the business and has the potential to make a return.

Since equity crowdfunding started, 118 Australian small businesses have collectively raised over $75 million by issuing shares from their most passionate customers and fans online, according to a leading equity crowdfunding platform in Australia, Birchal.

Key insights from 2020 reveal that there are now 55,000 investors that have participated in crowd-sourced funding offers, with this number growing despite the economic impact of Covid-19 for many sectors.

Last year, 49 successful offers were completed, which is around the same number as in 2019), with a total of approximately $30 million raised (down slightly from $31 million the year before).

It was a tale of two halves last year. Escalation of the Covid-19 pandemic saw activity decrease by approximately 54 percent in the first half of 2020, compared to the same period in 2019.

The last half of 2020 was particularly strong, with the final quarter the biggest for the equity crowdfunding industry yet, with more than $13 million raised across more than 22 successful campaigns.

Activity in the Australian industry has continued to consolidate towards three major platforms – Birchal, OnMarket and Equitise. Birchal hosted 70 percent of all successful deals last year (35 in total), raising approximately 68 percent of all funds raised (over $20 million).

Popular industries utilising the Birchal platform in 2020 were:

  • Health Care – This was the most invested industry in 2020, with eight successful campaign raises scraping together a total of $7.14 million. The majority of these campaigns were for medical cannabis
  • Food and beverage – This was the second most invested industry, with eight successful campaigns raising a total of $6.45 million
  • Sustainability and financial services – This was the third most invested sector, raising a total of $4.35 million and $4.36 million respectively

Birchal’s research into successful raises for 2020 also reveals that female founded (or co-founded) businesses raise around 25 per cent more in their campaigns, and attract over three times as many investors, than businesses that did not have a female founder or co-founder.

Birchal co-founder and managing director Matt Vitale writes that it’s commonly understood that females are under-represented among startup founders, and venture-based companies. It is estimated that female founders receive less than five per cent annually of the total venture capital funding deployed globally.

“Equity crowdfunding democratises the investment process, by enabling businesses to raise investment online from their most passionate customers and fans,” said Vitale.

“Because equity crowdfunding enables founders to side step the old guard, and raise funds from their most passionate customers and fans, it’s little wonder that female founders, and the investors that back them, are increasingly finding their voice.”

Equity crowdfunding a glance*:

  • 118 successful offers
  • $75 million in funds raised
  • $639,000 – average deal size
  • $1,348 – average investment size
  • 55,000 investors
  • 25 days – average offer open on Birchal
  • Fastest deal – 3 days

*As of 31 December, 2020. Source: Birchal.