We are often asked why a company would choose to use equity crowdfunding or wholesale capital raising instead of venture capital. There are a variety of reasons for this, which we discuss below.
Notably, the answer, at Equitise at least, will never be because they weren’t good enough for venture capital. We prefer to raise for companies that have chosen not to go down the traditional path of VC investment for specific reasons.
Awareness & Advocacy
The most common reason a company will choose equity crowdfunding over VC investment is the benefits of awareness and advocacy. For certain companies, the benefits of raising $1 million from 500 investors far outweigh raising $1 million from one investor, even if that one investor is a venture capitalist with strong experience and connections. Of course, some companies benefit more from the latter, but those that derive value from a large community of supporters can use equity crowdfunding to their benefit.
The investors gained through equity crowdfunding can provide strong ongoing value beyond their initial investment. They act as marketing advocates for the company, themselves often becoming customers and promoting the business to their own network. These investors also provide a great sounding board for feedback on where the company is, and how it should grow. On top of that, many of these investors are still well-connected investors or business individuals who can provide the traditional benefits a VC investor might.
Business Control
A common issue with VC is the desire to take some form of control in the business. This will often mean voting control or veto rights to ensure the business is partially controlled by the VC investor. While some founders prefer to have this controlling influence from an experienced and talented investor, there are plenty of horror stories of losing control over a company’s direction because of ulterior motives.
By raising capital through equity crowdfunding or wholesale raising on Equitise, founders can rest assured that they will remain in charge of the company’s overall direction. When making decisions they don’t need to worry about arbitrary red tape or competing perspectives. When you have multiple smaller investors rather than one large investor, company control is not threatened by an individual with significant voting power.
Industry Alignment
Some VC funds have highly specific target industries and company stages for their investments, meaning many early stage companies simply don’t align with VC preferences. Particularly in Australia where there is limited VC funding around, many companies will simply never be a fit for VC investment, no matter how impressive they may be.
Allow Customers to Benefit
Companies often work with us because they want their customers and followers to join them on the journey. If anyone should benefit from the company’s success it’s those who supported them in the first place by buying the product or engaging with the business in the very early days. Many founders want to give back to their community of loyal supporters, and equity crowdfunding allows them to share in any success.
The beauty of equity crowdfunding is that any industry can raise capital if there’s enough interest from the crowd and the offer hits our quality standards. We’ve raised funds for fintechs, medtechs, retail, food products, breweries and more. Of course, there are certain industries and types of businesses which have performed strongly in equity crowdfunding to date (such as B2C products, breweries and fintechs) but we analyse every opportunity on its own merits in terms of quality and suitability to our platform.
All of this isn’t to say that equity crowdfunding and VC can’t coexist. We’ll often raise capital in conjunction with a VC fund that may be leading or cornerstoning a round. Furthermore, VC funds can also invest in an equity crowdfunding deal or wholesale offer alongside retail and sophisticated investors. Equitise does not exist to disrupt venture capital, but rather gives founders a much needed alternative for raising capital and investors the opportunity to get involved in early stage businesses. 9/10 startups will fail and a major reason is a lack of funding. This flows on to mean less jobs and less innovation for Australia as a whole.