Equity crowdfunding is fast emerging as a go-to source of funding for early stage and high growth potential startups in Australia and across the globe. But the fragmented nature of the market and requirement for companies to communicate with and report to a large number of shareholders presents its challenges.
Looking to solve this emerging issue is the Crowd Sourced Funding Exchange, a platform that provides investors with a centralised way to stay up to date with their investments and monitor new opportunities across Australia’s seven licensed equity crowdfunding platforms.
While Australia’s equity crowdfunding scheme is relatively new, with licenses only being granted at the start of 2018, markets such as the US and UK see hundreds of deals a year flow through their platforms. In fact, in the UK where Seedrs and Crowdcube have captured more than 86% of the market, 250 deals were closed in 2016 alone. And this number is continuing to grow.
As a result of the high deal flow and low barriers to investment it is not unusual to see active investors quickly build a large portfolio, often spread across numerous platforms. According to Brett Allpress, the Founder and CEO of the Crowd Sourced Funding Exchange “as our market matures it is highly likely that an active investor will make between five and ten investments per year. Over a five year period that quickly translates to a portfolio of 25 to 50 investments that they will need to track and manage.”
Conversely for companies that are looking to raise funds on equity crowdfunding platforms such as Birchal, Equitise or OnMarket they need to prepare for a time in which they need to update hundreds if not thousands of investors all at the same time. This in itself provides a logistical challenge with many companies currently resorting to bulk email updates. The Crowd Sourced Funding Exchange solves this issue with their centralised reporting portal and also provides additional value for companies who are likely to return to the market for funding in the future.
As Allpress outlined “one major benefit of the platform is that it not only allows companies to communicate with their current investors but also prospective investors who may be interested in their next round. Investors on our platform can add companies to a watchlist. The companies can then choose to update these prospective shareholders along with current investors in the company, increasing the likelihood that if they raise funds in the future they have a larger and more captive audience to draw investent from”.
In time this will also allow CSFX to provide companies with insight into the potential success of an equity crowdfunding campaign and size of the round that the market will support. CSFX will be able to achieve this by aggregating data on the average investment made by each investor with those that have added a specific company to their watchlist. As a result companies will be able to have a certain level of confidence that there is a captive market of investors waiting for the next opportunity to purchase shares in the company.
Looking to the future Allpress explained that “the real power of the platform will come when we can offer a secondary market for shares purchased through equity crowdfunding campaigns. While this is still some time off and requires the necessary regulatory approval, we can again turn to markets like the UK where interest in and growth of a secondary market is rapidly gaining hold”.
With the launch of the Crowd Sourced Funding Exchange taking place in the next two months the company is currently looking to raise $1 million via their own Series A. As Allpress went onto explain “this will allow us to further build out the technology underpinning the platform, but more importantly also help us raise awareness and understanding of equity crowdfunding in Australia as this remains the largest barrier to growth of the industry”.
For investors interested in signing up to the Crowd Sourced Funding Exchange you can visit their website and express your interest here.