Jonny Wilkinson, Co-Founder of Equitise, talks through options now the stock market is down 30%
About a month ago the ASX200 index, the value of the 200 largest companies on the stock exchange, hit a record high, which is generally a good reflection of the health of our economy. Fast-forward a few weeks and with the spread of Covid-19, the market has plunged over 30% and is fast approaching the levels of the 2008 Global Financial Crisis.
Part of this can be attributed to the economic impact of the virus, slowing down growth and consumption. Another part can be linked to panic selling, with many investors liquidating their assets to avoid further losses, and to have some cash reserves for rainy day scenarios. Where can investors look when traditionally stable sources of growth such as Qantas and CommBank are down over 70% and 30% respectively?
The experts are all saying the market will recover and that continued investing will help it to recover quicker and I couldn’t agree more. However in the meantime, there are also alternative options other than the stock exchange which aren’t as sensitive to market conditions. This includes longer-term investment options which are currently ‘illiquid’ such as equity crowdfunding, private equity and infrastructure.
Equity crowdfunding is a relatively new way to invest which is highly-regulated and secure. Whilst previously only available to wealthy investors, anyone can now invest in an early-stage company or ‘startup’ in exchange for shares. Whilst investing in early-stage companies carries greater risk, there is potential for greater return as you get in on the ground floor. It’s also highly accessible with investment starting from $50. Because the equity is currently ‘illiquid’, which means the shares can’t readily be sold until an exit event like an ASX listing or a buy-out occurs, it’s a lot less prone to the fluctuations in the market we’re currently experiencing.
This week was evidence that some investors are turning to equity crowdfunding in these market conditions. We closed two offers successfully, raising nearly $1 million from 190 investors. The first one, Kitfit, is a really innovative RetailTech app which helps consumers find the products that fit them best when online shopping. The second, Food to Nourish, is one of Australia’s leading health food producers.
More evidence was perhaps the launch of a new equity crowdfund this week - Bondi-born eyewear Pacifico Optical which already has $74,000 invested. With most of the market dominated by just a few massive conglomerates, prices for sunglasses and optical were historically very high. Pacifico wants to change that by offering high-quality, stylish and affordable eyewear and is raising capital to ramp up their operations and expand. With the majority of its revenue coming from its online store, Pacifico feels that despite current market conditions, their strong sales will continue.
Market correlation and investment returns aside, one of the best things about equity crowdfunding is the ability to support the Australian startups driving the economy from the bottom floor - something that the market might desperately need right now. Startup communities are becoming increasingly important in the modern economic era, and these opportunities allow you to make your investment mean something, whilst also potentially making a return, with funds going straight into growth and job creation, rather than into the pocket of a senior executive. And for the reasons listed above, we believe the equity crowdfunding industry will remain robust throughout this period.