Is Equity based Crowdfunding the New new thing?

A week ago, Israeli equity crowd funding platform was released in Australia. It is aimed at investors who have more than $10k to put in and the tech sector. Founder Jon Medved says:

“crowdfunding models are emerging for real estate and other ventures, but OurCrowd is focused specifically on technology start-ups. The company is seeking deals where the company or product has some traction, other investors and the potential market is huge. Australian start-ups would qualify if they are planning to sell to a global market.”

Essentially is is focussed on accelerating product to market type strategies and that will be very welcome news to many Australian startups and hopefully a few NZ ones as well.

OurCrowd is an equity based crowd funder who is diffeent from the pledge based ones that we already know about such as Kickstarter, Pozible, Pledgeme and IndieGoGo.

However with shareholding scenarios comes the need for financial regulations and other shareholding accountability such as the need to vote.

“One criticism of equity crowdfunding is that entrepreneurs then have to deal with thousands of smaller investors and chase them for signatures and votes in order to make decisions on the company. The OurCrowd model gets around that by aggregating the investment into one voting equity with board representation.”

OurCrowd joins two other equity based platforms in Australia. These are ASSOB which has been operating since 2005 and has raised $A138m and newcomer VentureCrowd @v_crowd.

ASSOB CEO Paul Niederer says

“Equity crowdfunding will lift the crowdfunding industry to a new level. Pre-sales and patronage only work for some products and services. Not everyone can market their opportunity or product on the basis of pre-orders. Many opportunities and companies need money in the operational entity and usually it is a lot more money than can generally be achieved by pledge or reward crowdfunding.

These opportunities will attract their own tribe of people looking for a meaningful use of their funds and often a strong emotional connection to the people who are going to be the custodians of their hard-earned dollars. This is not the area for a gatekeeper to make the decision for them.

However, equity crowdfunding is not just about diversified portfolios. Which means there will be a place for people managing “diversified portfolios” where the more analytical can decide the best place for, say, 2 per cent of someone’s investment portfolio in a high-risk, early stage venture. But, you can’t write human nature off.

Many people invest because they have a natural affinity to support causes they believe in. They will be friends, family, fans, followers, where they passionately love the technology, people, geographical location or the general buzz. For these people, a diversified portfolio is not their definition of equity crowdfunding.”

Crowdfunding

In New Zealand we have only recently got Kickstarter for local projects.

Pledgeme is the main home grown platform and only now are we starting to see signs of equity based crowdfunding platforms becoming available.

Pledge based systems work best for presale type products – where the reward can be a version of the funded product as a presales special. But for many businesses that is not going to scale.

Like other peer to peer funding projects before ( and these are 10+ years old now Zopa, Prosper and others) part of the hold up has been financial regulations catching up with the technology of the collaborative economy. In New Zealand The Snowball Effect @snowballnz is about to launch on April the 1st.

“We have a vision: a New Zealand economy, fuelled by emerging businesses, backed by everyday kiwi investors.

Through Snowball Effect, New Zealanders can support and share in the success of our country’s emerging businesses, while providing them with a new funding option for growth.

This process, known as equity crowdfunding, is growing in momentum worldwide. From April 2014, proposed regulatory changes will make this a reality here in New Zealand.”

Here is hoping that the change of regulations will see more projects investigate equity based crowdfunding.