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Equity crowdfunding has been operational in Australia for four years. Only four years! As this method of funding and investing is relatively new to us living here down under, there are many misconceptions and myths floating around that we wanted to address. How do you know you can trust us? Well, OnMarket was amongst the first intermediaries to receive their equity crowdfunding licence in Australia. We’ve built, learned, and grown with the industry - and like to consider ourselves knowledgeable in the space.
The below eight myths have been put together based on real-life conversations and inquiries.
Myth #1: It’s very expensive
Many people believe equity crowdfunding is an expensive method to raise capital. This is a myth that requires immediate debunking. Regardless of the capital raising method you choose, there will be costs involved. If you consider a debt-financing method, your cost would be the interest on the loan (not to mention the personal liability if things don’t go to plan). If you are one of the few selected to be funded by a VC, the cost is the loss of control and equity (at a valuation they deem appropriate).
Here’s the truth: raising capital costs money. There is no ‘free way’ to obtain business funding (unless you receive a very kind donation, in which case please forward on the details…). There are costs involved in running an equity crowdfunding campaign, but the cumulative amount will vary depending on your needs and skills.
The only definite fees you will pay are the costs of using a registered intermediary platform - and only a small percentage of this amount is to be paid before you can launch your campaign. Other costs you might experience are for a videographer for your campaign video, a graphic designer, PR, digital marketing, and copy writing. If you or your internal team are skilled in the listed areas, you will not have to incur these costs. When it comes to costs, a logical approach is to keep in mind ‘the better my company is represented, the more attractive my campaign looks, and the more people i can inform about the campaign, the larger the sum of capital raised’. Whilst there are costs involved, consider each cost an investment. An investment into your campaign, into your company growth, and into the success of your offer.
Additionally, your intermediary platform will have partners in the above areas to introduce you to. Their partners are companies who specialise in the equity crowdfunding space - and because they are experts in the space, they usually offer flexible payment schemes. For example, your videographer may take a small percentage of their fee upfront, and allow you to pay the rest once you have received the funds from the campaign.
Myth #2: It’s only suitable for small start ups
In our opinion, we think this rumour started from onlookers noticing start-ups were leveraging equity crowdfunding campaigns, and turning this observation into an assumption in regards to the types of businesses that can run a campaign. Truth be told, any unlisted company can partake in an equity crowdfunding campaign - regardless of their current growth stage. In fact, many companies opt to raise capital via equity crowdfunding multiple times. Why? Because of the multi benefits of crowdfunding. See myth #3 for more insight on this.
Myth #3: The only goal is to raise money
People view equity crowdfunding as an ‘easy’ method to raise money, and quickly. We think this is because of social media and how through a friend of a friend you heard about a GoFundMe going viral - however, we want to make it clear, this is not the case with equity crowdfunding. GoFundMe is a donation based crowdfunding regime - meaning, you give a donation to a cause that resonates with you and expect nothing in return. This is not the same as equity crowdfunding - when you give monetary support (aka. invest) you become a shareholder of the company running the campaign. This is a significant difference - for as little as $200 you can become a shareholder in a company. As I’m sure you’ve picked up, because there are legitimate finances and shareholders involved, an equity crowdfunding campaign is more time consuming and requires more work. Therefore, the people who plan to raise capital using this equity method are also looking to leverage the campaign to grow their business.
The direct and indirect benefits of an equity crowdfunding campaign include:
New brand ambassadors
New shareholders to offer advice and feedback
Lower customer acquisition costs
Increased brand awareness and exposure
Social proof of the market’s support towards your company
Refinement of key brand messages, visuals, and aesthetic
Here’s what Lauren Button from DashDot, who worked with OnMarket on an equity crowdfunding raise, has to say about equity crowdfunding.
“One major benefit of crowdfunding is getting your brand out there to thousands of people. It's also valuable to create an army of investors who will now help spread brand awareness and encourage the business to grow. Crowdfunding has helped us to tap into a pool of investors and advocates we wouldn't have otherwise had access to.”
To learn more about the five key benefits of equity crowdfunding for companies, click here.
Myth #4: Longer campaigns are more successful
We believe common logic is to blame for the circulation of this myth. Logically speaking, it makes sense to assume the longer the campaign the more successful it will be - purely because having it open for a longer period of time means more people will see it and therefore more people will invest. Thus, more capital will be raised. Right? Makes sense. Unfortunately, this is not the case.
An equity crowdfunding campaign usually runs for roughly 7 weeks, or 49 days. This does not include the preparation period which usually takes 6-10 weeks. During the preparation period you create your company video, marketing plan, landing page on the intermediary platform, offer document, etc. The purpose of this preparation period is, well, as it sounds. To completely prepare you for the raise. It is during this preparation period that you begin to map out your marketing - How will you reach people? How will you tell them about the raise? Who are you targeting? What should your key marketing messages be? Who can you ask to introduce you to someone? Can you speak at an event or get PR?
This preparation period is crucial. After the preparation period, you are ready to rock and roll. Of course there will be speed bumps along the way, but for the majority of the campaign, you have a well throughout plan.
Due to your planning, you will not require a longer campaign. Campaigns typically go through the motions of: fast paced at the beginning, slowed down during the middle, and fast paced at the end due to a rush of people trying to get their bids in before the campaign closes. The issue with extending your campaign is that you risk your offer going stale, therefore risking the final rush during the end period of the campaign. Additionally, if your campaign becomes stale and slows down, it may scare existing investors and they may decide to pull out their investment (which they can, by the way).
Myth #5: It’s a part time job
As you (hopefully) would have gathered from the above myth debunks, in order to execute a successful crowdfunding campaign you will need to dedicate a significant amount of time and resources, especially during the preparation period of your raise. If you commit to part time hours you may become disheartened as you are not getting through the work required as quickly as you could. Additionally, if you are trying to complete a crowdfunding campaign whilst juggling multiple other projects it may result in a less successful campaign - as you haven't given 100% of your attention to accurately portraying your business vision and potential.
Before deciding to run a crowdfunding campaign, we recommend having an internal discussion with your team and stakeholders about:
Your ideal timeline. → How quickly do we want to complete this?
Who will be leading the campaign. → If I lead the campaign and delegate appropriate tasks, who will be responsible for my usual workload?
Your communication strategy. → Whilst I’m running the campaign, should we have a weekly business update to keep me in the loop & create a time for strategising?
Whilst it takes a team to run a crowdfunding campaign, it only takes one person to lead the team and ensure the tasks needed for the raise are completed in an efficient manner.
Myth #6: You can hire someone to do it for you
Let’s start with a simple yes - you can hire experts to complete your offer video, write your offer document, and execute your digital marketing ads. HOWEVER, the content of each element is related entirely to your team and your business. In order to personalise your campaign and shine the best light possible on your vision to attract a crowd of investors, you will need to work with the experts you hire. No one knows your business like you do and no one has the same passion as you. You must ensure what is being said to the public aligns with what you do and how you want the public to view your business. To keep your brand image and persona intact, they must be consistent during and after your raise.
You will work together with the experts to uncover your core marketing messages, analyse audiences to uncover what images, colours, and content resonates best - and, after the campaign has ended, you will be able to use the learnings to accelerate the growth of your business.
Myth #7: Your cap table will be ruined
We love this myth, because it is so easily debunked! This is not an opinion piece, and we do not have to do any convincing. The shareholders who are welcomed into a private company who raises capital under the ASIC CrowdSourced Funding Regime are exempt from the 50 shareholder cap. True facts. Read here for more.