Angels & equity crowdfunding
The oldest equity crowdfunding market in the world is the UK. That market began in 2011, and has grown with an average annual growth rate of 410%.
It took until 2013 for angels and VCs to take much notice of equity crowdfunding in the UK. Now it is commonplace to see co-investment. In the UK 43.3% of angels invested through equity crowdfunding in 2014. 30% of seed investment in the UK was sourced through equity crowdfunding platforms in 2014. That figure is estimated to be 50% in 2015.
We’ve seen the first publicly listed company raise funds through equity crowdfunding. Currently we’re watching the first offer from a company that intends to list immediately after the offer closes.
We’re keen to shortcut the time taken to get angel / VC buy-in to equity crowdfunding in New Zealand.
Here are my thoughts on how angels and equity crowdfunding can benefit from working together in 2015.
Inspiring new angels
The AANZ and angel networks across the country do a good job of shining a spotlight on funding early stage businesses. However general awareness is still low, and angel networks can appear exclusive or inaccessible to many investors eligible to participate.
Equity crowdfunding inspires new angels in a number of ways:
- Accessibility: Investment opportunities are broadcast widely, reaching many who would otherwise not hear about these opportunities.
- Small investments: Most equity crowdfunding offers have a small minimum investment amount, such as $500 or $1000. This enables people to start investing in this asset class earlier in their lives. You can easily diversify $10,000 across a range of investments.
- Learning: One problem with growing the number of angel investors is education. People will be reluctant to invest if they don’t feel that they know enough about the space. Equity crowdfunding gives newbies access to the same offer information, Q&A, and commentary as experienced investors. So everyone is part of the same conversation about an opportunity.
Many future members of angel networks will first invest in unlisted equities through equity crowdfunding. Angel networks should look at this future state identifying ways to use equity crowdfunding platforms as a feeder for their membership.
Equity crowdfunding is carving out its space in the funding ecosystem. It will never replace angel investment or the other funding sources. That’s because some businesses are simply better suited to private angel investment or other channels.
At Snowball Effect we’ve had expressions of interest in equity crowdfunding from nearly 600 Kiwi companies. We always ask ourselves what value the company should be trying to capture alongside the cash. If that value is deep domain expertise from experienced individuals, for example, we’ll discuss whether introductions to suitable angel investors is the better path.
Further, we believe that very early stage businesses are generally not suited to public offers. Companies best suited to funding through convertible notes are not right for equity crowdfunding (the regulations don’t permit offers of convertible securities).
Companies should be aware of the range of funding options, and they should pursue the option which provides most value to their business. We’re committed to referring companies elsewhere if appropriate, and hope angels acknowledge and understand the equity crowdfunding option and can provide the same guidance to companies.
Each offer through Snowball Effect has attracted multiple individual investments of $50,000 or more. Private investors are using this channel, and we’ll continue to build that part of the market.
2015 will be the year where we see the first official co-investment between equity crowdfunding investors and an angel group.
The benefits are clear:
- For angel networks, it provides an efficient way to top up a funding round.
- For equity crowdfunding investors, it provides comfort that sophisticated investors have assessed the opportunity and have committed.
- For the company, it’s an opportunity to harness the benefits of wide brand exposure and shareholder advocates that come with a public offer.
We’d love to hear your feedback on these collaboration opportunities.
Please get in touch with any thoughts or comments at [email protected]
This is a guest post by Josh Daniell who blogs regularly here.