How do I make money from a private company investment?
Aside from the other benefits of investing in startups and early-stage businesses, we understand that visibility on how you make a return is still key.
There is uncertainty when it comes to making money from any investment in a company but even more so with ones not yet listed on the stock exchange.
This is because equity crowdfunding investments are relatively ‘illiquid’ (meaning you can't easily sell your shares) so a return can’t be made until what we call an ‘exit event’ occurs whereby you can sell your shares. However, high school economics teaches us that with greater risk, comes greater returns, generally. It’s the same principle here. Early-stage investing in startups is usually seen to be riskier than investing in more established businesses as there are a lot more unknowns however because you’re getting in on the ground floor, there can also be higher returns.
Here are two more ways of getting a return on your investment with equity crowdfunding which are less common:
Private Secondary Market
The ASX or NZX are examples of public secondary markets where existing shares can be traded between buyers and sellers. Private secondary markets allow private company shareholders to exchange shares with one another should they elect to exit their investment, or desire to increase their holding. Whilst this option is not available right now, we anticipate it will be soon.
Off Market Transfer
Similar to a private secondary market but in a more manual sense, if two individuals decided to make an exchange of a shareholding and cash, they can do this privately in accordance with their relevant shareholder agreement.
Equity Crowdfunding Exits
Investing via equity crowdfunding is generally a medium-long investment. With this in mind, and standard early-stage company and startup timeframes, it’s unsurprising that we’re yet to see many exit events resulting in a return on investment. What we have seen is a lot of success so far from the companies we’ve raised for. Several of our portfolio companies have experienced uprounds, which is essentially an increase in their valuation or share price.
Nonetheless, there have been some Australian companies who we have seen have successful exists, and we can take confidence in the success of international equity crowdfunding markets that have existed for several years longer than ours, in addition to . Not only are these markets seeing ongoing growth, higher amounts raised, and greater attention, they have also started to see exit events!
Examples of Successful Exits (AU)
Car Next Door
Car Next Door is an online peer-to-peer car-sharing platform that raised in $770,000 in 2017. It was announced on January 19 2022 that ride-sharing giants Uber had acquired Car Next Door. This means that Equitise investors who participated in Car Next Door's raise with us were able to get a return on their investment.
Activated Nutrients (Biome Australia Limited)
Activated Nutrients is a plant based activated formula brand. They raised with Birchal in 2019 $330k on at a pre-money valuation of $6.8M, and in 2021 listed on the ASX, successfully completing an oversubscribed $8m IPO.
Examples of Successful Exits (UK)
Camden Town Brewery
One of London’s biggest breweries raised £2.75m back in 2015 and was privately acquired just 8 months later, providing investors with an undisclosed multiple return on their investment.
Revolut
The neobank has offered two exit opportunities in 2016 and 2018, with investors receiving a 19x return on their original investment at the later exit. These two opportunities have provided a return of £1.76m to investors.
Mettrr Technologies
From a 2012 raise, investors in April 2017 realised a 9x return on their original investment through a secondary share sale through Crowdcube.