Equity Crowdfunding platforms are beginning to enter the space in Australia. The Crowdsourced platforms are increasingly seeking growth through globalization as a way of fostering diversification among their investment opportunities.
Previously only wealthy individuals, venture capitalists and business angel investors, could invest in startup companies. Now through crowdfunding platforms, everyone can commit capital raising online, gain a stake and invest in start-ups, early-stage, small businesses and growth-stage businesses.
ECF is the process whereby people invest in an early-stage unlisted company (a company that is not listed on a stock market) in exchange for shares in that company. A shareholder has partial ownership of a company and stands to profit should the company do well.
Equity investing has been a long time resource for businesses but the investors were limited to those with a large amount of money to lend.
By instituting the crowdfunding aspect to the equation, the opportunity to invest has been opened up to the masses.
Investors should diversify their investment between different companies to minimise their risk, since investing in early-stage businesses is a high risk venture.
Crowd sourced equity finance is a long-term illiquid investment, so returns are gained if a company ‘exits’ through a trade sale, IPO or share buyback.
Imagine owning a piece of the next game-changing business venture or being able to invest in what might be the next Facebook of the future generation.
An early stage startup company decides how much money it wants to raise in exchange for a percentage of its company. The amount you own is proportionate to your level of investment. It works like this:
・One of the startups is seeking to raise AU$500
・It's happy to give away 20% of the company
・You invest AU$50 which is equal to 1% of AU$500,000.
・You'll earn 0.2% of the company as your equity, which is equal to 1% of 20%
If a company doesn't reach its intended target by the end of its deadline, the "project" doesn't go ahead and your money is returned to you.
Depending on the platform and also the "project", investors can invest as little as $50 into the raise company.
*Unlisted public companies with less than $25 million in assets and annual turnover will be eligible to apply for the scheme to raise funds.