Why Equity Crowdfund?
Before we continue down the track of exploring the more complex interactions of equity crowdfunding we thought it best to first address why a business would equity crowdfund. As part of this evaluation we will dismiss some of the common misconceptions about the process.
Show me the money
The most obvious reason to crowdfund is access to capital! Often entrepreneurs and even more established businesses suffer from the incorrect belief that they cannot raise beyond their network. This is not the case, for instance in our last offer we had a substantial amount of interest from wholesale (high net worth individuals) and retail (‘mum and dad’) investors in both Australia and New Zealand, investors which had previously not been across the company involved.
Is it efficient?
Traditional rounds of capital involve much paperwork and meetings, with of course no guarantee that investors will sign. An equity crowdfunding platform allows you to legally advertise an offer of shares in your company to the entire country. The simplicity is staggering, investors then need only go through the platform’s registration process, consider the offer material and warning statements, before investing in the offer. No more back and forth with documents, or waiting on settlement, it’s all streamlined.
Who is involved?
The offer is open to retail and wholesale in New Zealand. One common myth here is that you are going to end up with a huge share register of retail investors, that looks unattractive to a buyer. Interestingly, crowdfunding campaigns are increasingly generating wholesale interest. Statistically speaking the average investment for our platform has so far been around $5000, and nationally $4000. A large share register can be further limited by structuring your offer appropriately, the subject of another NZ Entrepreneur post.
What’s the catch?
The upfront costs of equity crowdfunding are low, for most platforms it is literally the costs of the legals and production of a video, the latter most companies already have as a promotional tool. Assistance is on hand, equity crowdfunding platforms should have specialists as part of the company who can help draft offer material (i.e. a structured information memorandum detailing the company and the offer). Again, this may even be something the company has prepared before! It could be as simple as repackaging the company’s current material and putting it into the platform.
Have you validated?
This is the dreaded question of have you proved your concept, are you growing, and what are you worth! A successful crowdfunding campaign demonstrates to the market that your product is on point, and that your valuation has credibility. It allows the crowd, your customers, and more sophisticated investors to expressly back you, and valuable thing.
Speaking of the crowd…
The crowd doesn’t just validate your company, it also becomes your most steadfast advocate and loudest voice. It leads to national, and often international, advertising. This can often result in further investment.
These are some of the benefits of the evolving industry that is equity crowdfunding. I look forward to traversing the landscape further with you in the next issue! Stay tuned for the next chronicle. The article was previously published on the NZ Entrepreneur Magazine issue 31. http://nzentrepreneur.co.nz/