Happy 2016 and welcome to the first post on this blog – not just in 2016, but for quite a while. I had to back off from blogging in 2015 due to other commitments, but I’ve missed talking about crowdfunding, so here is to a more productive blogging year! And, if you are interested in crowdfunding and would like to contribute a guest post, I’d love to hear from you! Just drop me a line and let’s chat!
“When you buy rewards you’re buying a product or service as a first adopter, often with a delay on shipping and the associated risks as a consumer. When you buy equity, you are buying the company.”
Matthew Pinter, CFIA and TMeffect
Today on the blog Matthew Pinter, Board Chair of the Crowd Funding Institute of Australia (CFIA), is answering some questions about the CFIA and equity crowdfunding.
Crowdfund it!: Welcome Matthew, thanks for agreeing to answer some questions about CFIA for my blog. Firstly, can you give me a little background on the CFIA and what has been happening?
Matthew Pinter: In 2014 I incorporated Crowd Funding Institute of Australia and a group of us established a not-for-profit board to help crowdfunding develop here. You can see the full list of current directors and advisors here. It was around the time local regulators and politicians were taking notice of crowdfunding and Australia was falling behind in the race for government support (internationally).
The profile and adoption of crowdfunding has grown immensely since then so we are no doubt in for a big year for all types of crowdfunding in Australia this year.
Crowdfund it!: So is CFIA for crowdfunding platforms or for those who want to Crowdfund?
Matthew Pinter: CFIA is for platforms, backers, campaigners, regulators, educators and affiliates. It’s grown quickly to a crowd of over 4,000 followers across a range of channels.
We’re active right around the country and internationally; presenting directly to the crowd from China, the UK and Europe, and indirectly across all forms of media including SkyTV, CNC, CNBC, ABC and more. We’ve reached out in support of crowdfunding associations in Asia, North American, Africa and Europe.
At a local level we helped guide crowdfunding regulation on taxation, corporations law, innovation and the sharing economy.
We held the first click awards, held 23 events and a national conference in Melbourne holding numerous meetings with leading politicians and decision makers.
Crowdfund it!: As someone watching crowdfunding with a close eye, what were the highlights of this sector for you in 2015?
Matthew Pinter: I’d have to say the flow hive campaign and progress on Equity & Debt crowdfunding.
For those who don’t know about Flow-Hive I recommend you look it up, as an excellent case study on the power of crowdfunding and what a couple of humble bee keepers from Byron Bay achieved with the support of social media and a cracker invention.
Crowdfunding was always going to get commercial with the huge numbers being attached to campaigns, and the risks associated. Hence it’s no surprise that equity and debt crowdfunding are now hot topics gaining momentum.
Crowdfund it!: Most people are aware of reward crowdfunding – the concept of raising money by offering in exchange a reward. Charities and political parties have made us familiar with the concept of donating to a cause. Can you simply explain equity and debt crowdfunding – as it stands in Australia right now?
Matthew Pinter: Jumping from rewards to equity crowdfunding is quite a leap. When you buy rewards you’re buying a product or service as a first adopter, often with a delay on shipping and the associated risks as a consumer.
When you buy equity, you are buying the company.
It’s true that rewards and equity crowdfunding share a lot in common, a website, video pitch, the story, the support offered and so on. Yet, equity backers are in it for a return, typically over the long haul involving more money and complexity.
Crowdfund it!: I know that there were reports that some were disappointed with the change in legislation – what do you think would be an ideal situation to encourage investment in Australian start-ups?
Matthew Pinter: Most commentators were disappointed with announcements late last year as they don’t go far enough to remove cost and administrative barriers for start-ups.
That said, it’s important to note that they do represent a first step in the right direction, allowing promotion to large numbers of small retail shareholders (i.e. the crowd). Most retail investors have previously been blocked from seed investments so it will be interesting to watch this market develop.
To get the balance right, we need to see the proprietary company structure adopted as a vechile for early stage crowd investment as debated in the August consultation process.
It’s a much tricker model to deliver as that structure isn’t right sized for wide shareholdings, however with modification it can meet the needs of risk-based investors.
What’s been announced assumes a large established company, which is unlikely to be the case with the types of business who are seeking backing from the crowd.
Crowdfund it!: There is a lot of growth in crowd sourced equity funding sites in Australia. Are we likely to see more growth in this area?
Matthew Pinter: Given the instance on full AFSL (Australian Financial Services Licence) and AML (Australian Market Licence) requirements it’s unlikely that growth will continue. The significant investment required and history of losses in the early stage investment sector should provide a natural barrier to all but the most enthusiastic applicants.
It’s disappointing as Australia has a strong reputation for financial services and equity crowdfunding should figure amongst this if we are going to augment incomes from mining, construction, education and tourism.
Crowdfund it!: What is needed to have the best chance of succeeding with this form of funding?
Matthew Pinter: Any Angel backed business is likely to succeed with equity crowdfunding under the current model. I say this because any business that’s already attracting high-risk capital has built a team, got a market and shows traction. It may not be making a profit, but it’s going somewhere fast!
If you’ve already run a successful rewards campaign there’s another proof that equity could work for you. If you are making a profit and things are looking good, that’ll work too!
If your thinking, it sounds like I need money or the capacity to get money to try this form of fundraising…. and you are absolutely correct! Well, it’s required if you don’t have a top-tier lawyer and accountant in the family.
You’ve setup a public company for a start, and need legal and accounting advice to ensure you have the process and structures in place to handle your responsibilities to shareholders (before you have any).
You’ll need time to put a formal offer document together, providing all the validations and certifications necessary.
Oh, and did I mention you need something exceptional. Investors are not going to trust hard earned money against your well made plans if your likely returns aren’t impressive.
Crowdfund it!: If your eventual goal is to offer equity, what would be logical steps along the path?
Matthew Pinter: Not unlike regular crowdfunding you need to inspire your friends, fans and family to get involved. If you can’t convince them to invest capital then you’re unlikely to convince a mentor or angel investor to help take you to the next level. External investment will not suit every startup. Only businesses with an inspired profit potential can unlock sufficient capital to get it done.
Take a serious look at the potential return and how innovative your solution is. If it’s too good, then chances are the big companies are going to crush it, if it’s bad its bad, but if its somewhere in-between, like Airbnb (as startup), then sheer grit and determination could get you there.
Early stage equity investments carry very high failure rates and are very risky, you are going to risk your happiness, money and a good chunk of your life… Best be sure that the prize is worthy.
That said, one look at the potential returns and that idea that keeps gnawing away at you could just be your ticket to the world!
Crowdfund it!: Thank you Matthew!
Matthew Pinter is the Chairman of the Crowd Funding Institute of Australia and founder of TMeffect and Bankrolla. TMeffect is a private equity network promoting early access to funding via exempt measures available via the Corporations Act, Bankrolla is a membership based investment club launching later in 2016.