The equity crowdfunding space is starting to heat up in the wake of legislation coming into effect in late September, with new platform Sharequity preparing to enter the space next week.
The platform, which was slated for launch today but has been rescheduled, will be similar to existing services such as Equitise, and will also seek to provide opportunities for investors through traditional routes, not just via crowdfunding.
The company is founded by Geoff Reilly, a former GMP Securities chief operating officer in the Asia Pacific, and is backed by Jack Quigley, a founding director of FinTech Australia and the founder of CrowdfundUP, who is a shareholder and will work with the company as a non-executive director.
Similar to other equity crowdfunding platforms, Sharequity is awaiting its approval from the Australian Securities and Investments Commission (ASIC) to receive its crowdfunding license, which Reilly believes will be approved by early 2018.
Recent reports have suggested Equitise is looking to fast-track its application, which was submitted soon after legislation was passed on September 29, but speaking to StartupSmart, Reilly says he would be surprised to see any company approved before Christmas.
“September was when the applications went live, and they said it could take three months. I would be very surprised if any company gets their license this side of Christmas,” he says.
“Whoever the first three or four [equity crowdfunding providers] are, ASIC will spend a fair bit of time reviewing the applications I would think.”
While equity crowdfunding is sometimes spruiked as a method to uproot and disrupt traditional investment models, Reilly and Sharequity hold a different view. They believe equity crowdfunding slots into a “natural hole” in the investing hierarchy.
That hole is between $500,000 to $3 million in capital ,says Reilly, with the funding method having a natural disposition towards early-stage companies and startups.
“If you’re a guy sitting on a desk at Stone & Chalk and you need $200,000 to get started, crowdfunding is certainly there to support you,” he says.
“We wouldn’t discount smaller ASX-listed companies either, it’s very hard to get the attention of corporates when you want to raise $5 million but they want to raise $10 million. It’s hard to get corporate teams involved in small raises.”
Sharequity has around five companies in the pipeline once its license is secured, including in the areas of medical cannabis, engineering, and fintech. The eventual goal says Reilly is to offer around two deals to investors every month.
While Australia’s equity crowdfunding regime is currently applies to unlisted public companies, work is underway to expand the regime to also include proprietary companies.
Secondary crowdfunding market a possibility
Speaking to StartupSmart, Quigley says the biggest hurdle for equity crowdfunding adoption in Australia has been the political nature of the debate about the fundraising method — something that hasn’t occurred with other legislation relating to areas such as fintech.
“Unlike other fintech verticals such as peer-to-peer lending and robo-advice, where ASIC has been able to use its powers of exemption, equity crowdfunding had been dealt with by parliament, and as such became a bit of a political hot potato,” he says.
Quigley is also bullish on the potential for an equity crowdfunding secondary market in Australia, which he hopes will be in existence “shortly”. This would look to solve one of the bigger concerns around equity crowdfunding — the lack of liquidity and exit opportunities for investors in these early-stage companies.
Reilly says as much as Sharequity would “love” to be licensed as a market maker able to facilitate the trading of shares, it’s currently out of reach. Attempting to facilitate such transactions with regulators in the current environment would be “death by one thousand cuts”, he says.
“There is undefined liquidity in the equity crowdfunding space right now, if someone wants to get out they have to approach a company and discuss it with them,” he says.
“That’s definitely one of the downsides of crowdfunding currently.”
Sharequity will look to cover investment from crowdfunding all the way to sophisticated and wholesale client bases, with Reilly saying solely relying on crowdfunding isn’t viable right now. The platform will also offer a way for advisors to partner with startups, but will not provide any advice itself.
For startups considering equity crowdfunding, Quigley says it will be the ones with “strong fundamentals” that will thrive on the platform.
“I believe that startups that display strong fundamentals as a business will be best suited to equity crowdfunding in Australia,” he says.
“This might be a startup that is looking to scale and has successfully displayed a proof of concept to the market, but make no mistake, it won’t just be startups utilising equity crowdfunding.
“Companies that meet the regime’s eligibility requirements should strongly consider utilising equity crowdfunding for their next capital raise.”