What is Equity Crowdfunding?

Highlights

  • Crowdfunding gained lot of importance during pandemic times.
  • To figure out the difference between equity crowdfunding and regular crowdfunding, read the full article.

The equity crowd-sourced funding system in Australia’s economy has grown in popularity and become more resilient to market movements through the pandemic era. Small businesses and entrepreneurs have been accessing the support equity crowdfunding can offer since 2018.

How equity crowdfunding is different from regular crowdfunding?

In equity crowd-funding public investors are given a cut into the business ventures that they choose to invest in. In many examples this replaces appealing to angel investors, venture capitalists and even applying for a bank loan. Analysts at Valuates, suggest the industry shows potential for strong growth over the next 5 years, tipped to reach $25.8 billion by 2026 after being valued at $12.27 billion in 2019.

Related article: What is Crowdfunding? How is it Different from Conventional Fundraising?

The most popular equity crowd-funding platforms are Birchal, ClearCo, Republic and Venture Crowd amongst others.

Birchal

It created a report in 2020 on the industry and found that 55,000 investors had participated in equity crowd-funding campaigns.

What is Equity Crowdfunding?

Findings from Birchal’s research show that the most popular industries to gain traction from this type of equity crowdsourcing were:

  1. Health Care the most prevalent sector to invest in using equity crowdfunding. The majority of these campaigns surrounded the medical marijuana research and development and total funds invested reached close to $7 million.
  2. Food and Beverage- It was the 2nd most popular industry to invest in through equity crowd sourcing. Funds raised in 2020 reached AU$6.45 million through 8 successful campaigns.
  3. Sustainability and financial services were ranked closely almost sharing the spot as third most popular sector for equity crowd funding campaigns.

Since its emergence, 118 Australian SME’s have raised a total of $75 million from online pledges made from investors. Interestingly this fairly new and innovative form of equity raising seems to privilege the organisations that have female founding partners, with female led campaigns claiming 25% more interest in their campaigns. 

Bottom Line

Although this modality of equity raising sounds too good to be true, it has given many seed business ventures a chance to put their strategy into action in lucrative markets. However, it does come with more risks including increased chance of fraud, business collapse, uncertain and low returns and cyber-threats. On the flip side it has also proven to offer substantial returns on well-timed and developed projects and personal fulfilment through stimulating the business and liquidity of the economy through playing a part in the creation of jobs.

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