The previous blogpost from Equitise addressed the state-of-play of equity crowdfunding and VCs in the UK. Today, we’re taking a closer look at how VCs work alongside the equity crowdfunding industry across Australia and New Zealand. If you haven’t already read Equitise’s coverage on how Syndicated Investment operates, do so first! Today’s update addresses how the two industries are consolidating in 2016.
The Challenge
At its core, equity crowdfunding represents a challenge to traditional means of finance, and has been described as “disruptive” finance. Recent figures found that 75% of startups funded by venture capital alone failed, suggesting that consolidation between equity crowdfunding and VC firms may assist the latter. Generally, VCs and crowdfunding platforms target companies at different stages – the later-stage companies with a lower risk and high-value investment for the former, and seed-stage and startup companies for the latter. However, crowdfunding is no longer limited to targeting startup companies, and is increasingly used to supplement funds provided by angels and VC firms. This helps to validate the market for the company that VCs are targeting. Recently, the Kiwi drug development company Breathe Easy raised raised over $1 million through a combination of VC and crowdfunded sources.
“Syndication [or Participation] refers to the type of funding relationship between the funded and its funders, including the relationship between multiple funders. Crowdfunding, by contrast, is a method of finding funders, who are generally unknown or outside of one’s personal network.” (Jor Law, VerifyInvestor.com)
Working Relationship
Crowdfund Insider effectively encapsulated the working relationship of syndicated investment and equity crowdfunding in its recent post “Syndication is the What, Crowdfunding is the How”. It offers a clear definition of the kind of syndicated investment model, already offered by Equitise (remember to read our blogposts on Syndicated Investment). Generally speaking, as VCs are not attracted to early-stage companies, syndicated investment exposes them to a new array of companies. As Australian venture capital firms are experiencing record growth, announcing $900 million in new funds since August, tripling their 2015 raising, there is a large mass of capital potentially available for syndicated investment. 2016 research found that 30% of VC funding in Australia is targeted towards the Fintech industry. Now, syndicated investment will help companies close the capital gap by bringing VC and crowdfunded funds together.
“The lines between the concept of syndication and crowdfunding have always been blurred”, Amy Wan, Crowdfund Insider
The liberal equity crowdfunding regulations in New Zealand and positive climate for the industry here has produced many benefits. A key emerging benefit is the promotion of syndicated investment – bringing together diverse investor types to reflect the democratic ethos of platforms and diversify portfolios. Equitise’s recent offerings 1Above and RIG are brilliant examples of this – high growth, seed-stage companies looking to close the gap in capital through a broad array of investors. Likewise, Venture Capital companies in Australia, like Fat Hen, have been crowdfunded, and in turn VC firms are contributing to crowdfunding campaigns. It’s an exciting period for the industry and Equitise is hopeful about the future collaborations between VCs and the equity crowdfunding industry.