Crowdfunding can be a great way to get your tech start-up off the ground, but what are the different options available? In Australia, there are four main types of crowdfunding: equity-based, debt-based, reward-based, and donation-based. In this blog post we will discuss three of the four crowdfunding options available;
- Equity crowdfunding
- Debt crowdfunding
- Reward-based crowdfunding
What is equity crowdfunding?
Equity crowdfunding is where investors invest money into a company in exchange for shares in the business. This type of crowdfunding is regulated by the Australian Securities and Investments Commission (ASIC). Equity crowdfunding allows the possibility for hundreds of people to participle in a company. Private businesses often cannot have more than 50 shareholders, however, equity crowdfunding regulations allow businesses to bypass this barrier. This model permits private enterprises to raise funds from more than 50 shareholders if certain criteria are met. If the company achieves these requirements, it can raise up to $5 million in a year. An investor can put in as little as zero dollars, or as much as $10,000. In order to participate in equity crowdfunding, the company must:
- Have two directors;
- Ensure that its primary business location is in Australia
- Have consolidated gross assets of less than $25 million and a yearly revenue of less than $25 million, and
- Raise funds through a reputable intermediary (for example, Equitise, VentureCrowd, OnMarket.)
Importantly, if the company chooses to crowd-fund via equity, it must meet certain extra standards. This includes disclosure and reporting requirements, some of which can be burdensome for early-stage businesses.
You can access the following equity crowd-funding platforms situated in Australia:
Equitise
In 2018, Equitise was one of the first websites in Australia to get a license for retail crowdfunding.
Since then, the equity crowdfunding platform has raised over AU$ 39 million through 38 crowdfunding initiatives. Equitise is free for investors and takes a fee of the total cash raised beginning at 4% if your campaign is successful.
Birchal
Birchal has 610,000 members and over $70 million in transactions for companies seeking loans. The organization has adapted its service offering by centralizing the investment process, making it easy and quick for investors and businesses alike. Birchal’s website design is our favorite feature. The crowdfunding platform’s sleek modern design makes it easy for consumers and campaigners to navigate. Within minutes, businesses may construct a page with a “web-designer-style” aesthetic.
This attractive aesthetic is certain to attract the attention of potential investors. Birchal is one of the best pitching decks to share with others, as evidenced by its aesthetically pleasing appearance. Its platform architecture is top-notch, and we believe that Birchal has significant potential as it competes with other early-adopter crowd-funding platforms for market share in the future.
Venture Crowd
Venture Crowd is an equity crowdfunding platform that allows investors to participate in private firms with rapid growth. Since its start, the company has raised a total of $23 million and supported 45 transactions. Venture Crowd distinguishes itself from other crowdfunding platforms by being the only multi-asset class platform in Australia.
Similar to Birchal, its web design and investor pitch deck is sleek, fashionable, and professional, making it one of the best in terms of presentation. Venture Crowd has a proven track record, having facilitated a number of successful transactions since its inception. Their first crowdfunding-funded startup exit returned 107% to investors.
Since then, the platform has consistently facilitated numerous successful capital offerings, demonstrating its dependability for individuals seeking investment. We regard Venture Crowd as a reliable option for company initiatives and a reputable brand on the market.
OnMarket
OnMarket is a competitor to Equitise in Australia’s crowdfunding market. The company asserts that it has raised more financing for Australian businesses than any other platform ($71,4 million). OnMarket replicates Equitise’s strategy, in which investors fund early-stage, unlisted startups in return for shares of the company. By participating in DC Power Co.’s crowdfunding campaign, OnMarket has demonstrated its market standing. DC Power was able to raise $2.1 million from 14,950 investors on OnMarket’s platform, making it the world’s most popular equity crowdfunding offer.
With this kind of reach, it is apparent that OnMarket is one of Australia’s most successful crowdfunding platforms for startups. OnMarket, like Equitise, provides its users with a fully automated distribution, payment, and allocation process.
In addition, the platform frequently collaborates with investment funds, brokers, and financial industry specialists.
What is debt crowdfunding?
Debt crowdfunding is where investors lend money to a company and receive interest payments on their investments. This type of crowdfunding is regulated by the Australian Securities and Investments Commission (ASIC).
This type of crowdfunding, also known as peer-to-peer lending, includes requesting a crowd to fund a project or business in exchange for a potential cash return at a later date. You may be able to access dividend-like returns from the business you invest in if you use debt-based funding. The terms of your investment will determine whether you can or cannot. The maximum amount that can be raised is $5 million in a year.
In order to participate in debt crowdfunding, the company must:
- Have two directors;
- Ensure that its primary business location is in Australia
- Have consolidated gross assets of less than $25 million and yearly revenue of less than $25 million, and
- Raise donations through a reputable intermediary (for example, Thorn Group Limited.)
For more information on debt crowdfunding, start-up businesses should visit the ASIC website.
Here are our favorite debt-based crowdfunding websites:
Society One
Society One is an online lending platform based in Australia. They offer low-rate personal loans to eligible applicants. There are no program fees and the entire process is conducted online. To be eligible for a loan, applicants must be over the age of 18 and earn a minimum income of $400 per week. Loans can be for any purpose, such as home improvements, debt consolidation, or unexpected expenses. Loan amounts range from $2,000 to $50,000, and repayment terms range from 12 to 84 months. Society One is committed to responsible lending, which means that we will work with you to create a repayment schedule that fits your budget and timeline
Prospa
Prospa is an Australian-based crowdfunding site that primarily caters to small businesses. The site offers a range of program fees and eligibility requirements, as well as a timeline for each program. Prospa also has a number of features that make it unique among other crowdfunding sites. For example, the site offers a “Business Booster” program that provides small businesses with access to business coaching and mentoring. Prospa also has a “Success Stories” section which showcases businesses that have been successful in raising funds through the site. Overall, Prospa is a well-rounded crowdfunding option for small businesses looking for alternative financing options.
RateSetter
RateSetter is a peer-to-peer lending company that can offer small personal loans to huge business loans with reasonable interest rates. Its origination fee of 1% to 6% is charged when you first take out the loan. The term of the loan can be 3 years to 5 years. To be eligible, you must have a minimum credit score of 640 and annual revenue of at least $50,000. RateSetter also requires that you have been in business for at least 2 years.
What is reward-based crowdfunding?
Reward-based crowdfunding is where people invest money into a project or product in exchange for rewards. Rewards can be anything from a thank you email to a prototype of the product. This type of crowdfunding is not regulated by the Australian Securities and Investments Commission (ASIC).
You can visit the following reward-based crowdfunding platforms:
ReadyFundGo
ReadyFundGo is an Australian-based platform that provides live support and campaign management services to company start-ups, scale-ups, innovators, researchers, and community projects. The program fees are based on a percentage of the total campaign goal, and the timeline and eligibility requirements vary depending on the project. However, all projects must be registered with the Australian Securities and Investments Commission (ASIC) before they can begin fundraising. ReadyFundGo offers a number of benefits to program participants, including access to a network of over 200,000 investors, exposure to a global audience, and promotional support from the ReadyFundGo team. In addition, program participants retain full control over their project goals and how the funds are used.
Kick-Starter
Since 2009, Kick-Starter has been a major force in funding some of the most significant projects. The program offers fees as low as 5%, making it an attractive option for those looking to raise money. The program is also flexible, allowing people to set their own timelines and eligibility requirements. In addition, Kick-Starter has a wide reach, with over 9 million backers in over 200 countries. As a result, the program has helped to fund a wide range of projects, from start-ups to charities.
Indiegogo
Indiegogo is a global platform that was one of the first to launch the crowdfunding. It offers program fees, timeline & eligibility for entrepreneurs, artists & cause enthusiasts to find new supporters and raise money for their projects & causes. The company has been credited with helping to launch the careers of many now well-known entrepreneurs, including James Dyson, Elon Musk, and Jack Dorsey. In recent years, it has also become a popular way for people to fund medical expenses not covered by insurance, as well as other personal causes. Whether you’re looking to support a friend’s new business venture or raise money for a worthy cause, Indiegogo is a great way to get started.
There are many benefits to crowdfunding. Some of the particularly noteworthy ones include:
- You can get your start-up off the ground quickly with less capital.
- It’s a great way to validate your business idea with the market. If people are willing to invest in your start-up, it’s a good sign that there is interest in your product or service.
- It’s a great marketing tool. You can use crowdfunding to raise awareness for your startup and build a community of supporters around your brand.
- Crowdfunding can be a great way to get feedback from potential customers on what they want from your product or service.
So, before you decide to go down the crowdfunding route, make sure you understand the risks and benefits involved. Crowdfunding can be a great way to get your start-up off the ground, but it’s not right for everyone. Do your research and speak to other entrepreneurs who have used crowdfunding before making a decision.