Equity crowdfunding platform Equitise, which recently launched the first retail equity crowdfund in Australia, connects early-stage and high-growth businesses with a broad range of investors.
To better understand how a company can list on the platform and how investors can access exciting investment opportunities, Equitise answers the main questions on how equity crowdfunding works.
1. Who can invest on the Equitise platform?
Accessibility is one of the keywords that best describes the Equitise investment platform.
After a recent change to the legislation in Australia, almost anyone (over the age of 18) can invest $10,000 per company per year in public crowdfunding offers. Before the change, only sophisticated investors were eligible.
For private offers or capital raises over $5 million, the offer is open to either a select group of individuals or sophisticated investors respectively.
2. How do companies qualify to list on Equitise?
If an early-stage company appears like a promising business investment with a high percentage of future success, Equitise’s is probably the right place for the startup to find new investors.
For these companies is very important to show investors their chance to provide them with a high future return.
Equitise undertakes preliminary checks on each company and its directors, senior managers and stakeholders, in order to check their identity and guarantee their credibility, reliability and honesty. More on the due diligence process which means we only work with company’s we feel have the greater chance of success.
3. How do you set a company's valuation?
There is no set science in calculating the value of a company. It is something more intangible and unpredictable, it is an art. The most important thing is to analyse the past and predicted success of the market, the industry and the sector in which the early-stage company operates. Investors will only take any interest in a company that operates in a market that shows strong growth prospects, that show a positive level of growth and that offer more successful exits. An exit strategy is defined to assure a positive conclusion to a business and it’s decided at the beginning of the business modelling. The exit strategy is part of the business model and it shows investors that the model will result in benefits and profits for them, whatever happens. There are different forms of exits for ventures such as going public (IPO), going private or negotiating a merger or acquisition (M&A).
There are two ways for Equitise to set a company’s valuation:
a. If we are facilitating a capital raise as part of a larger round, where there is prefunding, then there is a less onerous workaround setting a valuation. As the crowd is investing on the same terms as Institutional or sophisticated participants, the market value of the company has already been set. In this instance, Equitise would get comfort around the valuation in a similar process described in the second point of this text. E.g. Xinja has a pre-money valuation of $40M, this valuation is set for their Series A and the round has been divided into 3 tranches ($5M, $3M and $2M). As the first $5M round has been raised by institutional capital, the valuation has been set by market participants and so Equitise needs to see the rationale and get confident this is a fair value.
b. In the case where Equitise is leading a capital raise or establishing a valuation, the following methodology is used:
- Comparable analysis – looking at past acquisitions, IPOs for similar companies where there is a revenue multiple used to value the company, generally by EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation), which is one indicator of a company’s financial performance and is used as a proxy for the earning potential of a business.
- Valuation analysis and forecasting – the other instance is to use traditional financial modelling (DCF or FCF analysis) which projects the company’s earnings into the future and discounts these cash flows to their present value.
4. Who sets the investment terms?
The investments made through the Equitise platform are regulated by the “Investment Agreement”.
This legal document establishes the terms of the investment between investors and Companies. It stipulates that the investor is agreeing to buy shares in the Company and that the Company will issue those shares to the investors.
5. What do you get when you invest in a company on Equitise?
Equitise is a trustworthy platform that conducts due diligence before presenting any offer to investors. The team is available to offer support to investors every step of the way. The investing process is easy, efficient and quick. The investor can create an account in under 5 minutes.
Once the investment has been made, the investing funds are held in a secure trust account until the offer is successfully finalised. If the offer fails, the funds are returned to the investors. After the offer closes, Equitise provides any necessary further assistance and updates. In NZ and with sophisticated offers in Australia, the Nominee structure facilitates honest and frequent communication between the investor and the company.
6. When do you get returns on your investment and when can you sell them?
Investors can make a return on their investment when the company is floated on the Stock Exchange or sold, or if the company decides to pay shareholders dividends.
Equitise does not operate an active secondary market where investors can sell their shares, but it will register the investors’ buy or sell interest and mediate a private transaction if a matching buy or sell order is presented by another investor.