Working the crowd

Published in the Herald Sun, May 2015 by Karina Barrymore

There could be a new way for bright innovators to source funding.

Australian companies and investors will soon be able to bypass traditional sources of finance in favour of a new venture, similar to an online version of reality TV show Shark Tank.

Companies and start-up businesses will be able to parade their ideas and expansion plans on a new crowdfunding website in the hope of attracting money from private investors and budding entrepreneurs.

The venture capital and investment strategy is being launched by Equitise, an online alternative broker, currently operating its prototype platform in New Zealand.

The Australian platform will give companies the opportunity to source loans from private investors, or equity from them in return for shares in the companies.

Most investors were expected to receive “doubledigit” returns, Equitise managing director Chris Gilbert said yesterday.

“Many small businesses just can’t access expansion capital but there is a large proportion of the population, such as angel investors, entrepreneurs, family groups that can solve this lack of funding,’’ Mr Gilbert said.

"As pay off for putting in their money, most will be wanting to make double-digit growth returns — at least 10 to 20 per cent.”

According to Deloitte partner Damien Tampling, an adviser to the venture, crowdfunding is a common practice overseas.

Australian regulations currently restrict this type of fundraising to wholesale or sophisticated investors, or limited returns to “nonfinancial” rewards for other investors and supporters, Mr Tampling said.

However, a change in regulation expected later this year is set to give retail investors access to companies using such funding methods, and to remove some of the red tape for small companies seeking this type of funding.

Mark DeAmbrosis, an investment director at venture capital specialist MJ Carnegie, said this was overdue here.

“This is a really exciting and attractive new funding source for businesses — it will do a good job of providing liquidity in the Australian venture capital markets.

It’s medium sized businesses who want non-big bank funding,” Mr DeAmbrosis said.

“But it’s also a way for all investors, sophisticated and non-sophisticated to invest money in these opportunities.”

He said that in the past, investors “wouldn’t have access to them or even if they did have access, they wouldn’t have been able to write a cheque big enough for the minimum’’.

“The caveat, of course, is that these smaller businesses by nature can be higher risk because there is often less information about them,” he said.

“Investors need to make sure the regulations are in place and that they are educated about the risks.”

Dale Gillham, chief analyst and founder of fund manager Wealth Within, said his business was founded almost 14 years ago on a similar informal version of crowd funding.

“I think it is a great idea. Anything that makes it easier for small business to get funding is going to be better,” Mr Gillham said.

“I particularly like the idea of people investing in things that personally capture their imagination.”

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