Australian Small Scale Offerings Board

19 Hot Australian Startups to Watch in 2015

Ed: An edited version of this article will be published in the December edition of My Business Magazine

Introduction

I spend a lot of my time reviewing inventions and startups ideas and attend numerous pitch events, mentoring programs so I see a lot of pitches, some are great, others less so.

So I know bad when I see it, likewise occasionally I come across companies that I think are on the path to success.

There a few things we look for reviewing a startup.

Solving a Real Problem.

We really need to believe it’s real and significant pain to someone. I see a lot of businesses solving non problems (I have been guilty in the past) or me too providing solutions. If no one really cares about the problem you are solving, then your business doesn’t have a future.

Team and Execution

We look for teams that are strong both technically and commercially with evidence they can execute. I met some the companies listed below when they were still at the idea stage and since seen them build working businesses. That gives me a lot confidence in the entrepreneur that they are going to continue to execute.

Scalable Customer Acquisition & Service Delivery

Have they worked out how to cost effectively acquire new customers. Can they scale service delivery with minimal effort, if they are doubling users every month, do they have to recruit 100 new staff each month or press a button and launch 30 virtual cloud servers? Most businesses are not built to scale, either the product, people or the process will break. Generally they either can’t acquire sufficient customers or the product/service can’t be replicated at high volume without increasing costs or headcount even faster. This is typically why we see software/ web application businesses being valued at such high multiples or even pre-revenue.

A great example is the new business software app called Slack.com from the US. In less than a year they have grown from launch to 120,000 paying business customers, TinyBeans has grown zero to 500,000 users in under two years, Canva has gained 1 million users in a year.

Software driven businesses are one of the few ways companies can create massive levels of growth without increasing headcount, each new customer provides incremental revenue with almost negligible cost increase.

Electronic Hardware is much harder but will scale well if you have great product design, customer acquisition, rock solid manufacturing, logistics and a reliable product. If you have a reliable product you will do well, however if you ship a batch of product with problems it will sink your company.

Some of these businesses have already raised capital and have serious revenue or users and valued at $100 million plus, others are still at a very early stage but appear to have their business model working and may be looking for capital.

Its probably too late to invest in the former, once professional investors are involved its almost impossible to get into a fund raising but some of the later group may be looking to raise money in the new year.

If you are interested in Angel investing you could start by registering on Angel list or our local crowdfunding platforms ASSOB  or attending some of the Sydney Angels events. Also launching next year is

If you want to see more early stage companies follow me on Twitter @MikeNicholls88 or subscribe to our regular email updates in the sidebar.

I believe the 19 businesses listed below are going to have a great 2015.

High Growth

Pocketbook

Pocketbook-App-img-all-devices-1

What? Online personal finance service which aggregates all of your personal finance statements, income, spending and budgeting.

Why? No one has done a good job of this in Australia. I met one of the founders a few years ago when he was pitching at a Sydstart (the biggest startup conference in Australia). He told me he was going to create a service that allowed people to see all their finances across all their bank accounts and credit cards.

I though he had no chance of convincing the 20 or so banks that matter to give him access to their systems, I also though he would have a hard time engineering a web application that would pass the banks security requirements.

Turns out two years later they have managed both and are growing quickly and have raised a small funding round and are frequently near the top of the Itunes Finance App list.

I expect they will either raise additional capital to continue growth or someone with deep pockets will make them an offer they can’t refuse.

Stockspot

Stockspot

Stockspot

What? Online automated fund management service with lower management fees and less human error.

Why? The managed fund industry is ripe for disruption. Humans suffer from a lot of biases, Fund Managers try to outperform the index by trying to pick winners but 70% of them under perform the general market after their fees are deducted.

Stockspot is a similar business model to Wealthfront in the US which has been wildly successful growing faster than any fund manager in US history.

This is not an easy business to setup, barriers to entry are relatively high to new competitors, existing fund managers are conflicted and probably can’ adjust their business models or costs to compete.

Their website offers a very compelling story, their business model is clear cut and will scale very well if they can keep customer acquisition costs under control.

This is also a very sticky business, customers rarely switch fund managers. I believe there is an general mistrust of the funds management industry so a manager who is aiming to reduce management costs and provide transparency around the investment process with a slick customer acquisition routine is probably going to be successful.

Vinomofo

Vinomofo

Vinomofo

 What? Wine Ecommerce

Why? These guys are simply the best online email and video marketing company I have ever seen.

Wine is not a particularly easy e-commerce business, the freight costs are high and its tough to deliver a single case of wine to the consumer at a cost that matches the big liquor chains sale price at the store and the whole industry has an endemic discounting culture.

The one thing that singles these guys out is their relentless marketing execution and customer acquisition and in most businesses that is the biggest battle.

Shoes of Prey

Shoes of Prey

Shoes of Prey

 

What? Online custom shoe maker who lets you design your own shoes and then makes them and ships them to you.
will make a shoe to your design and ship in

I like the concept and they have traction, most e-commerce companies resell other brand merchandise which is a high volume low margin game and most of them struggle to get scale.

Marketing, shipping and inventory costs make it a tough business for all but the enormous and the very niche.

Shoes of Prey own and make the product so they capture a much larger share of the margin in the supply chain and they have an incentive to invest in their own brand.

This model also benefits from not having to stock which is attractive, I imagine they actually generate net cash as they grow as they probably don’t have to pay the suppliers for a few weeks after receiving the cash from the buyer, I like this concept a lot and there isn’t many businesses that can pull it off.

They have also just struck a deal to expand in the US by opening counters in Nordstrom department stores which is a massive win.

Airtasker

Airtasker

What? Airtasker.com is a web service that allows consumers/businesses to post tasks or jobs they want performed and service providers or individuals to bid for the jobs.

Originally it was pitched at individuals doing tasks for other individuals but has turned into a significant lead generation service for businesses.

Why? They fill a gap in the employment market and are producing good gross margins (~15%) with strong growth on approximately $1 million in revenue a month.

They have traction in a double sided market, these are hard to attack, in order to be successful you need to have both critical mass of both consumers and service providers, if you are missing either you don’t have a service.

Generally double sided markets end up with a few large competitors and are tough to crack once established, it appears Airtasker is going to be one of the winners for casual labour.

Canva

Canva
What? Canva is an online graphic design tool that does just about everything your average user needs to create great quality banner ads, newsletter designs and other business graphics with prebuilt templates and thousands of images and effects available with templates setup for creating and operating Social Media accounts.

Professional quality graphics design is typically the domain of hipster designers who speak a different language, wear different clothes and generally don’t work for you. They use tools like Adobe Photoshop and Illustrator that cost $1000s and have all sorts of tricks to create beautiful work.

Why? The company hit a million users within 12 months of launching. The app is slick and works extremely well and replaces a very expensive suite of products for the majority of business users.

The CEO is the networking master of the universe and has convinced a very high profile set of investors to both invest and publicly promote the platform including Guy Kawasaki who is an icon in the tech and startup industry.

This will be a major business.

TinyBeans

TinyBeans

What? Social Network for new parents

Why? This site is experiencing hyper growth, in October 2013 they had 40,000 users, in October 2014 they have over 500,000 users. Just raised $2 million in September. Great monetisation opportunities.

Catapult Sports

Catapult-Sports Catapult

What? Catapult Sports is a wearable sensor package for professional sports people that tracks their training and game performance and provides performance data back to their coaches and trainers in real time. Think of it like a Fitbit on steroids

Why? Catapult is on fire, they recently raised capital from Mark Cuban the US Billionaire owner of the Mavericks Basketball team.

They dominate a new market which is growing very quickly, they have hundreds of professional, national and Olympic teams using their product with strong positions in US NFL, Rugby League, Rugby Union, Soccer (football), every Australian Football team, Basketball and various athletic disciplines.

Expect a year of strong growth, expect to see the data gathered from the athletes shared on the TV/Web and possibly an acquisition offer from a large player such as Google, Apple or Nike (yes, completely different industries) or Fitbit.

wattcost

What? Wattcost is a smart power meter that can adapt to existing meters both digital and analogue and provide power monitoring and help reduce power consumption.

Why? This industry is ripe for efficiency gains, we have no idea how much power we use until we get the bill. We would however like to reduce our costs and consumption, but its not possible to get this information in real time.

Existing smart meter solutions require an electrician to attend the site and remove and replace your meter with a smart meter. The costs can be significant.

Some newer homes have smart meters but are primarily for the benefit of the energy company, there is no software or systems to help the user save energy.

Wattcost is user installable and works with both digital and analogue meters and is shipping now. Expect either a huge capital injection or a big acquisition offer in 2015.

Special Mentions

These companies are still very early stage, some have only just started shipping product but I think they are going to be special.

Tzukuri

TzukuriSmart fashionable glasses with bluetooth embedded in the frame so you cant lose them. Massive press coverage in the last few months and rumoured to have a deal with a large Multinational electronics company to sell these in their stores.

Vistr

Vistr-Screenshot

What? Cash Flow Management for Businesses – Integrates with Xero

Why? Real Problem, cashflow management has been a problem for businesses forever, very few workable software solutions exist, most small business accounting software does not solve this problem well.

I met the founders a year ago when this was an idea on a whiteboard, they have executed well and now have a working business model and paying customers.

Cartesian

cartesian-argentum-1024x575

Launched the Argentum printer earlier this year which prints PCBs (the green boards in electronics) Given electronics hardware has seen a massive resurgence in funding in the last year, I expect their product to be very popular.

Podplants

Podplants

New hydroponics solution for making greenwalls in commercial buildings (ie walls of flowers and plants). I have seen this founder iterate his initial concept through a bunch of variations from idea to shipping product and he now has a great product and is winning commercial business.

Farmbot

Remote sensing and communications for farms and the environment.

Agtech is one of the key opportunities for startups in the next decade. Demand for food and efficient production methods will continue to grow. Sensing and communications on the farm is a big problem and these guys have a good solution. Once they are established this will be a solid recurring revenue business.

Ninja Blocks

NinjablocksWhat? Smart home automation hardware devices and Apps to allow home owners to monitor and control security, air-conditioning/heating, lighting and other power related utilities. Home automation and monitoring is another of the top 5 market opportunities for the next decade, due to low costs micro-controllers and components companies such as NinjaBlocks are able to drive prices down to mainstream pricing.

Asset Guru

Provides Asset Tracking for Enterprise & Businesses. This is a big problem, most companies just use a spreadsheet which doesn’t work very well. Recently launched so no customer data yet but they look like they have a credible solution to a real problem with slick customer acquisition. Could develop into a solid recurring revenue business.

PicPac

App for stop motion & time lapse video and photography – Grown from 80,000 to 140,000 users in the last 6 months.

Makeupsocial

Social network for sharing your cosmetics and beauty tips. I know this is not exactly solving a big problem but you cant ignore the fact that they have 80,000 users up from around 10,000 a year ago months ago.

SwarmFarm

Robotic Farm machinery, using GPS and sensing can handle routine farm jobs such as spraying using a robotic lightweight tractor. Based in Queensland and with help from Queensland University of Technology and The University of Sydney Field Robotics team this is a low impact, low cost solution for a farm to cut their labour and fuel costs.

I spoke to the founder about a year ago and instead of spending a year building out a special farm robot, they simply equipped a relatively cheap lightweight farm UTV (pictured below) and spent all their time and effort on the robotic control systems (which is where the problem really is, not with the actual machinery).

Swarmfarm-Agbot - Credit QUT

Swarmfarm-Agbot – Credit QUT

Once they had the robotic control system working in the proof of concept vehicle they have now built a very lightweight sprayer system which is perfect for spraying, cheap to run and low impact on the soil.

Swarmfarm-new

3 Equity Crowdfunding Platforms Australians Can Use Now

Three months after the submission of the CAMAC Crowdfunding Legislation recommendations we are expecting further delays of 12 – 18 months before we see meaningful change in Crowdfunding legislation in Australia.

Clearly this government has more pressing issues at hand including passing even a few of their budget measures, acting on the recommendations doesn’t appear to be a priority as nothing has been heard of the recommendations since being lodged some months ago and CAMAC has now been disbanded.

Unless it’s a legislative change the Government of the day is sponsoring the process will probably go something like this

  • Government delays action for 6-12 month until the noise gets too loud
  • If they are being pushed into the change it will take two years to work out what they want to implement
  • Political announcement to gain mileage Month 1
  • They form a working group and terms of reference – Month 3
  • Working Group calls for submissions – Month 6
  • Working group study the submissions Month 8-12
  • They complete their report and submit their recommendations to the Government, Month 12
  • The Government reviews the report month 12-18,
  • They work out what is manageable given the political tone of the day,
  • They make pubic political mileage announcements Month 18
  • They request a draft amendment to the relevant Act to be drawn up Month 18-20
  • It goes through many rounds of negotiation, review and amendments in the party room and then the Lower and Upper house Month 20-24
  • Gets stopped at the Senate so they can bend the Government over the pork barrel to get whatever that particular Senator wants for his district that month,
  • Gets amended again
  • Then 18-24 months after the initial a watered down version emerges from the mess, but by the time it is enacted the party is now in election mode and a few months later after a either a leadership or Government Change the amendments get pushed aside…….

Despite this local Crowdfunding players are not sitting on the sidelines waiting, these companies are getting on with crowdfunding or near-crowdfunding platforms or establishing their platforms overseas.

Pozible, i-Pledge, The Crowd (as proposed by Mark Carnegie) and CrowdfundUP have all announced they will provide equity platforms when legislation allows.

The delay in updating Crowdfunding legislation is causing major headaches with some of the Crowdfunding platforms deciding to focus their efforts overseas and others using non obvious paths via New Zealand to provide a workaround.

ASSOB

After raising $140,000,000 over the last 6 years ASSOB is claiming its place as the oldest and most successful equity crowdfunding platform (Ed: ASSOB was crowdfunding before it was called crowdfunding). They have been operating in accordance within a well-defined exemption of the Corporations Act.

ASSOB-Funded

ASSOB can only act as a business matching service and can’t advertise deals publicly or allow participants in the market to do so using social media tools that have become “tools of the trade” in crowdfunding generally.

ASSOB however is ready to transform Crowdfunding locally and recently struck a deal to license its IP to OfferBoard in USA and OfferBoard now has active fundraising campaigns underway.

Offerboard

Offerboard

Offerboard

Offerboard

Yes it appears that despite our home-grown world-class Crowdfunding talent and technology, we can only export it at the moment.

ASSOB has also started a Regional Hub strategy that allows the local community to fund local businesses within the processes of ASSOB and the existing law.

They have started with Far North Queensland (Cairns) and have plans for another 7 Hubs in the near future.

ASSOB is well positioned to spread the word and capacity of local businesses to get funding.

Local Businesses and communities rather than high tech businesses may have a greater appetite for Crowdfunding judging from some of the results from both the UK and USA.

VentureCrowd

VentureCrowd is the well-backed fund-of-funds operated by Artesian Capital – one of the most active VC’s in the country.

VentureCrowd

VentureCrowd

Their platform is only open to Sophisticated Investors ($250k, PA income + or net assets of $2.6m).

This method is legal and probably very good for high net worth individuals that want to play in the startup ecosystem and “pick winners’.

But this model necessarily leaves out a crowd of people that are not Sophisticated and who would like direct equity in the company they support, its a very narrow base.

Equitise

Probably the most interesting player at this stage is Equitise . Equistise has launched a licensed equity crowdfunding platform within the NZ regulatory framework.

Equitise - NZ Based Crowdfunding Platform

Equitise – NZ Based Crowdfunding Platform

The Australian Law Society advocated such a strategy 3-months ago which is achievable due to the longstanding bilateral trade agreements between Australia and New Zealand that encompasses aspects of financial products and markets. As a result Equitise can now offer a Crowdfunding platform to Australian companies and investors  as long as their plans include a NZ branch of the business.

They are in effect an Australian equity crowdfunding platform with access to the Australian market but governed within the New Zealand laws.

This is not a situation any proud Aussie should ignore. We are losing talent and markets for funding businesses to New Zealand!

When we hand New Zealand the mantle of being more innovative than us we might as well collectively pick our sorry butts up and go back to mining.

By delaying Crowdfunding Legislation Amendments Australia has stupidly and unnecessarily ham-strung our startups at a time when sophisticated capital markets of the USA are evolving quickly and the red-hot Asian markets like Singapore or Hong Kong are taking off.

For many years our established startups have had to move to the US to access growth capital, while access to local Angel & early stage funding market appears to be improving Crowdfunding holds the promise of allowing startups to access a wide base of local funding, but continued delays along with the destruction of Commercialisation Australia means that the startups of 2013-2015 will probably have to go offshore to get funding.

Despite the self harm our government is causing with the delays to Crowdfunding legislation it is great to see the likes of ASSOB, VentureCrowd and Equitise finding ways to meet the market needs.

The metrics behind the top Equity Crowdfunding Campaigns

Paul Niederer CEO of ASSOB, Australia’s longest running and most successful Crowdsourcing platform shares the best in class results from the last sixteen capital raisings on the ASSOB platform.

Success leaves clues

I wondered, what is “Best in Class” in raising funds from predominantly retail or unaccredited investors.

Best way to find out was to look at 16 of the most successful, recent Startup equity raises on the ASSOB Equity funding Capital Raising platform. These 16 raised over 11 million dollars together on ASSOB.

Most of these companies were after their first capital, meaning there was usually some sweat equity already, maybe some family money, but most were not ready for Angels or VC’s. Thats why they came to ASSOB.

Bootstrap, then ASSOB, then Angels then VC’s.

ASSOB-Infographic

Best in Class

Lets determine what is “Best in Class” from the sixteen recent ASSOB raises that raised on total $11.4 million.

  • Raise size. $425,000 to $1,592,000 with an average of $637,666. You may seek to raise less or more than $600k but our experience has shown that an opportunity with a convincing, compelling and credible story, coupled with a balanced, passionate and likeable team generally raises from $500k upward for an equity raise.
  • Average amount raised daily. $680 to $6,076 with an average of $1685. So if you are out to raise some equity funding from unaccredited investors $1685 per day is a good figure to start with to work out how long you will need to raise your money. Best in class $6,076 a day. Lets say $6000.
  • Crowd size. Generally the larger your crowd  the more you raise. Gathering a crowd is essential to a raise. The stats show that the crowd size is usually between 335 and 991 people. These are people that have visited your profile page and have had more than just a brief look. The average crowd size is 667 people. Of these 667 people around 40% actually download details about the offer including the offer document. On average 8% of them invest. Best in class is a crowd of 991. Lets round that off at 1000.
  • Investor locality. 60% of investment comes from the same state or province so geography matters.
  • Investor type. Over half of investment came from retail or unaccredited investors. While the average was 56% the number of retail investors in raises ranged from 32% to 79% Usually the first $200,000 to $300,000 came exclusively from this group. Here is the breakdown.
    • Retail  / Unaccredited investors 56%
    • Existing Shareholders 17%
    • Sophisticated / Accredited investors 15%
    • Overseas investors 6%
    • Associates of he business 4%
    • Professional / Accredited investors 2%
  • Raise Sectors. Not every company is headed for a Silicon Valley exit. Most are not as exciting as the SnapChats and Ubers of this world. The 16 raises included here covered a broad range of sectors. All companies were Australian with Australian innovation. Fitness, Pharmaceutical, Welding technology, Cloud technology, Designer Furniture, Robotics, Wealth Management, Risk Management, Dental Technology, Online Photos, Open Source Software and Senior Welfare.

What will it take?

So what does all this mean if you are seeking equity capital?

If you are preparing for an equity crowdfunding raise, including retail/unaccredited investors, then it is well worth playing around with these “Best in Class” stats to get a feel about where your investment could come from and in what amounts.

Say you want to raise $600,000 based on performing like the “Best in Class”.

  1. If you do a good job, and work hard, the fastest you should be able towrap it up is in 100 days
  2. You need to gather a crowd of just under 1000. That means you need to drive 1000 interested people to your profile page on the equity funding platform.
  3. Focus at least 60% of your effort on local investors.
  4. Retail investors are needed to get initial traction. By the end of the raise you will have at least 32% of your investment from this group and in some cases as high as 79%.

In a sentence ?

$600k in 100 days from a gathered crowd of 1000 with 60% local investors and over half retail/unaccredited investors.

paul-niedererPaul Niederer is the CEO of the Australian Small Scale Offerings Board (ASSOB), Australia’s largest and most successful business introduction and matching platform and one of the more structured methods of raising early stage investment funds with a focus on compliance, disclosure and corporate governance.  To date ASSOB has raised over $135 million for Australian startups. You can read more of Paul’s thoughts on crowdfunding and early stage investing at his blog Paul Niederer.

About : http://paulniederer.com/

Crowdfunding Update – Interview with John Kluver CAMAC, Alan Crabbe Pozible & Paul Niederer ASSOB

A few weeks ago CAMAC released the Crowd Sourced Equity Funding Report May 2014. (right before being axed in the Federal Budget)

Join us on the 26th of June for a Google Hangout with Startup88.com contributor and Crowdfunding proponent Andrew Ward from 3Minute Angels interviewing John Kluver (CAMAC), Alan Crabbe & Rick Chen (Pozible) and Paul Niederer (ASSOB) to discuss CAMAC recommendations and ask your questions.

If you want to put a question to the panel please ask it here

 

 

 

 

We only need a few simple changes to enable Equity Crowdfunding in Australia – Paul Niederer CEO ASSOB

paul-niedererAfter our post last night regarding Crowdfunding & The Submission of the CAMAC report on Crowdfunding Regulations, Paul Niederer, CEO of ASSOB wanted to throw some weight behind the discussion. He clearly outlines the actual legislative changes need to allow Equity Crowdfunding to operate in a meaningful way. 

 

Most people haven’t heard of Crowdfunding let alone equity crowdfunding. What that means is that if regulatory change is required there isnt a lot of domain knowledge about to ensure that what gets implemented is practical and workable. Witness the U.S.A. The path taken is legislative change, then regulatory change then industry implementation.

Already most participants are saying what has resulted is unworkable.

The United Kingdom has taken a more measured approach. The regulators worked with industry participants like Crowdcube and Seedrs to test and refine methods so that eventual changes have been road tested.

Australian regulators are waiting on the outcome of CAMAC’s study of submissions and other countries findings before making a move in the equity crowdfunding space. Hopefully this wont mean a U.S. style implementation.

Legislation, then regulation, then implementation with feedback cycles from industry then updated legislation and regulations.

There is an easier path because Australia has 20 odd years of experience in managing investment from retail investors which has spawned ASSOB the oldest and longest running equity crowdfunding platform in the world.

Eight years, 300 Startup / Early stage raises and $138 million later we believe there is an easier path than the path most countries are taking.

At the end of the day most equity crowdfunding is about legitimising transactions that take place from money invested into the early stage space that comes from friends, family, fans and followers. High net worth investors are already covered by adequate legislation.

A recent article in Forbes stated “For the vast majority of people, money is raised from banks, from personal savings, and from family and friends.” The task of equity crowdfunding regulations is to properly legitimise this.

This is not a new area for Australian regulators as small scale offerings legislation has operated in this space for a long time.

So what is the suggested pathway forward?

Australian regulators are able to modify the fundraising provisions of the Act for ‘minor and technical relief’ without the need of a full parliamentary enquiry or indeed a report from CAMAC or any other government body.

Like the U.K. regulators they can sit down with industry participants and see what would work in practice.

Here are some of the changes that would enable Australia to embrace two huge trends that are driving crowdfunding. Technological Disruption and Meaningful Investing. For a more detailed discussion visit here.

  1. A new category of Equity Funding Portal be established for “Crowd Sourced Equity Funding” CSEF. Maximum $1 million per company per annum with a $2,500 max per investor.
  2. Small Scale Offerings 20 retail investors in a twelve month period should be lifted to 100 but there should be a cap of $25,000 per investor per annum. A maximum of $2 million can be raised per annum including the “CSEF” exclusion.
  3. Broaden the definition of Associates. This group is not fully handled sufficiently in existing legislation.
  4. Add  category of “Experienced” investors. These could be for example people that have reached a certain level in Angel and Director organisations
  5. Recognise that consultants can accept shares for services rendered but cannot invest funds. This will assist cash-strapped companies in obtaining the corporate advice they need, without burdening operational cashflow requirements.
  6. Portals cannot give advice or have a pecuniary interest but can curate offerings.
  7. Registered Portals can disclose summaries of the offer information to the public but prospective investors need to log in to see full deal details. Promotions must follow rules as per small scale offerings regulations.

A graphic that summarises this is as follows:

NiedererCFregulatoryOverview.001
All the changes above can be implemented by the granting of relief from the relevant provisions of the Corporations Act, consistent with ASICs power under s741 (ASIC’s power to exempt and modify) and 1020F (Exemptions and modifications by ASIC) to modify the fundraising provisions of the Act for ‘minor and technical relief’ without the need of a full parliamentary enquiry.
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Pozible shifts focus to China – Industry appeals to the Federal Government to act now on Crowdfunding Reforms

On the 28th of May 2014, the Corporations and Markets Advisory Commission (CAMAC) hands to government its policy opinion on Crowd Sourced Equity Funding (CSEF).

What happens next is likely to be nothing (but possibly interesting).

There are a few options from here.

  • The government takes the policy opinion as writ and starts the process of enacting legislation.  However, given the current horse-trading and issues with the budgetary legislation the government is trying to get through, the swift introduction of new legislation seems unlikely.
  • The government takes the policy opinion as being in the “too hard” basket or “too risky” basket and shelves it.  Essentially meaning nothing will happen.
  • The government takes the policy opinion as out-of-date, lacking industry consultation and therefore concludes that more consultation is required.  The effect being that nothing happens.

So in all likelihood Equity Crowdfunding in Australia will not happen in the next 12 months.

Is this a problem?  Yes.

Why?  Well it’s a problem because we are missing out on the benefits of CSEF.

Australia is missing out on the benefits of releasing small amounts of money from large numbers of citizens to support causes, business, inventions, research and innovation.

At a time when the government has withdrawn money from Science, Innovation and Commercialization through various budget cuts to the CSIRO, IIF, Commercialisation Australia and the likes, having the citizens “fill the gap” makes inherent sense.

As an example, the recent budget has withdrawn many of the match-funding grants for the startup ecosystem.  These grants meant government would help Series A stage startups with match-funding.  That means whenever private funding contributed a dollar, so too would the government via Commercialisation Australia.  Not anymore.

With CSEF legislation likely on ice, there isn’t another viable means of plugging that funding shortfall from within the ecosystem.

This is not good news for the startup ecosystem.  This interview from Jonathon Barouch sums up brilliantly the state of play for the startup ecosystem post budget.

The second issue is the infant crowdfunding intermediaries (the ones that would be market-makers) in Australia are withering, dying or packing up for greener pastures.

The most successful non equity platform from Australia is Pozible with over $20 million in pledges.  Pozible is also the most interesting case study.  They have built and are ready to fire with equity-based crowdfunding platform under a separate brand, but have basically put their plans on ice.

Instead they have continued their rewards-based crowdfunding success by taking on new markets like China.

Yep, you heard it right.

Pozible will be the Kickstarter of China, not Kickstarter.

Much of this is credit to Rick Chen (originally from China) and Co-Founder of Pozible.

The withering intermediaries include the Australian Small Scale Offer Board (ASSOB).  ASSOB claims to be the oldest Equity Crowdfunding platform in the world operating for nearly 12 years under an exemption in the Corporations Act.

They are not small by any means having raised $132m over 12 years via this exemption for companies using their board.   But let’s assume a commission to the intermediary of 5% was in place, that’s still only a run rate of $500k per year. (Ed: Many of the sponsors make their money from consulting and preparing information memos)

The lack of clarity and legislation around CSEF is stopping ASSOB growing to levels approaching that of foreign contemporaries like Seed.rs or Crowdcube in the UK.

The “dying” intermediaries are those that launched with the expectation of CSEF legislation coming quickly, meaning they could benefit from rewards-based crowdfunding and equity-based crowdfunding and along the way pickup bigger deal size and deal flow that would make them sustainable.

The legislation hasn’t come (and probably won’t) and they’re essentially run out of runway.  For example, iPledg, who’s CEO, Bryan Vadas states “iPledg continues to march on with its head above water, yet is denied the opportunity of generating substantial revenue by providing equity crowdfunding for creative, commercial, charitable and community spaces”.

Perhaps the most telling example is Australian crowdfunding platform Sproutback.  Sproutback CEO Brett East says “because of a lack of equity crowdfunding within Australia, we are forced into licensing or selling our technology platform in order to be sustainable.  There is no other viable way at this stage”.

Crowder, and events based crowdfunding platform has also disappeared from the local scene (and online) with key staff now residing in New York.

So there you have it.  The delays, stalls and likely non-action of the government will mean that a promising line-up of intermediaries in Australia are “withering”, “dying” or heading “off to greener pastures”.

When (or if) Australia does engage like the rest of our trading partners in equity-crowdfunding there will be no home grown talent to make it work.

Perhaps this is why Malcolm Turnbull decided on the day that VentureCrowd launched its retail fund (VentureCrowd is operated by an Australian VC firm with access to the best of the Australian startup ecosystem), Malcolm was spruiking on behalf of Israeli equity-crowdfunding platform OurCrowd.

You may gather from this article a level of pessimism about the future of equity-crowdfunding here in Australia.  But the author would like nothing more than to be proven wrong.

All is not lost.  The government could;

 

  • Act swiftly to engage the willing known intermediaries like ASSOB and Pozible.
  • Enact new legislation (as we hope is suggested by CAMAC) that could remove the current barriers (like the 20/12 rule and non-solicitation rule) and encourage mum-and-dad investors (not just sophisticated investors) to join the crowd.
  • If such legislation were to be enacted, say before the end of this financial year the startup ecosystem would embrace it and it would take some of the sting out of the budget cuts.
  • In turn, this would encourage new intermediaries to establish quickly and drive capital flows from citizens to projects that inherently had the backing of the people from a financial and market sense.

 

Lets hope we see swift sensible action, but lets plan like there won’t be.

Andrew Ward CEO 3 Minute Angels

Andrew Ward CEO 3 Minute Angels

Andrew Ward is the CEO of 3 Minute AngelsAustralia’s largest massage company and one of my old fellow members of Entrepreneurs Organisation+

Andrew is actively involved in shaping the debate on Crowdfunding and has created a community website www.csef-Australia.com.au to help stimulate discussion and formulate a submission for the Australian Crowdfunding Legislation review.

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Australia’s Small Scale Offering Board has been Equity Crowdfunding for 8 years, here is what they learnt

 

Paul Niederer CEO ASSOB - Credit dagvandeinformal.nl

Paul Niederer CEO ASSOB – Credit dagvandeinformal.nl

One of our regular contributors David Drake visited Australia last year speaking at a number of events on crowdfunding and equity raising, he interviews Paul Niederer CEO of Australian Small Scale Offering Board about their experience over the last eight years.

 

Even before crowdfunding became a global phenomenon on the rise, investors in Australia had already been funding startups through equity investments that work a lot like crowdfunding.

And they’ve been doing it for almost eight years: long enough to learn quite a lot about what works.

ASSOB (Australia Small Scale Offering Board) has been funding startups through equity investments, limited to only 20 unaccredited investors. This may not be entirely the same as the equity crowdfunding that is now shaking the 80-year-old securities law in the U.S., but needless to say, ASSOB has made great and impressive strides in the last eight years since taking its approach to crowdfunding online.

I was down there early last year to speak in several conferences, and I have met with ASSOB to discuss developments in Australia. I was fortunate to catch up again this time with Paul Niederer, CEO of ASSOB. From years of offline equity funding to the digital leap made in 2005, we can learn lessons from the ASSOB experience that will be useful as the rest of the world maps out its road to equity crowdfunding success.

While you may dispute that Kylie Minogue is the best thing that ever happened to the Australian music industry, you will have to agree that the pioneering ASSOB is the best lesson that ever happened to equity-based crowdfunding.

The following interview with Paul provides rich insights on the keys to a successful equity crowdfunding platform. Experience is still the best teacher, and ASSOB has loads of it.

David Drake: You are the longest running crowdfunding for equity platform there is. What can you tell us about the history of ASSOB?

Paul Niederer: In 2005 we decided to take an offline unaccredited and accredited capital raising business online. Eight years later over 300 raises have been handled with over 2,500 investors having invested. Only equity transactions are handled, and nearly $140 million has been raised to date. The smallest raise is $55,000 and the largest $3.5 million.

David: What are three of the strengths of ASSOB?

Paul: 1) Internal legal monitors [for] people, entity and offering compliance. 2) Handholding through the process by ASSOB Partners and ASSOB. 3) Templated process to make it easier for capital raisers.

David: What were three of the weaknesses in the past?

Paul: 1) Not having oversight of the issuers share registry. 2) Thinking it could be all done online. 3) Expecting issuers could manage large parts of the process themselves.

David: How is ASSOB going to operate in the US now with your new investors, and what are the synergies you see?

Paul: ASSOB has licensed the platform to Offerboard.com. They will be using the ASSOB capital raising engine, but their implementation will be different than ASSOB’s — understandably so, as Title III (unaccredited investors) will not have access to the platform until part way through 2014

David: ASSOB platform exemption only allows 20 investors, so how do you engage the crowd and the crowdfunding in this limitation?

Paul: Every raising builds its own crowd. Some raises have hundreds in their crowd, others have thousands. In this respect it does not differ from the majority of reward crowdfunding platforms. Unlimited accredited and overseas investors can exist, but only 20 unaccredited investors per annum. This is strictly monitored. Issuers need to ensure that when they accept investment from unaccredited investors, they choose the 20 largest suitable applications and return the funds for the others.

David: What do the Aussies have that the U.S. doesn’t? You have been on this longer than we have.

Paul: There is more emphasis in the Australian legislation on putting the onus of responsibility on the investor. If they have acknowledged the warnings that they may very well lose all their money, then provided the offer has been marketed compliantly, the onus is on the investor.

David: Tell us about a success story — in your eyes — in one of the investments.

Paul: We have had mining companies go from an ASSOB raise to international stock exchanges. Other companies have exited through trade sales.

David: What are three things you advise investors to take away?

Paul: The relationship is always between the issuer and the investor. We purposely do not give advice. However, we do suggest they take independent advice. If they have doubts, they have 10 days to seek a refund, and they should thoroughly do their own research as there is a chance they could lose all their money.

David: What are three things you advise issuers to take away?

Paul: Teamwork is required to raise the capital you need. You need a good story, team, followers, and an aggregating platform that keeps your raise compliant and is proven to raise capital. Only make promises you can deliver on.

David: Where is the scale of this industry? We see LendingClub hitting $2.1 billion and Kickstarter potentially doubling its $275 million last year. Crowdcube has done $30 million, and you have done 6 times more than them. So where do you see the scale for yourself in Australia?

Paul: At present the average investment per investor on our platform is around $30,000. With regulation change, we hope that the number of unaccredited investors per raise will move from around 20 to 100 or 200. This will allow platforms to scale. However, there is a difference between pledge crowdfunding and equity crowdfunding from an operational point of view. With “pledge crowdfunding,” the contributor is expecting a reward. A gratification. Probably instant gratification. Meaning if they contribute $100 for a watch, they are pretty sure they will get the watch within a few months.

However with “equity or investor crowdfunding,” there is uncertainty and hope. The investor hopes that when they invest they will get their money back or better, but it is uncertain as to when this will happen. Meaning if they contribute $20,000, they trust that the founders of the company will be good custodians of the money and will deliver on the promises they have made or the picture they have painted. Hope also must endure. From the time of the crowdfunding investment until its return, or not, communications need to be maintained with investors because they are still living on hope.

They hope that they will at least get their money back, and it should not be a surprise after three years if they don’t.

Ongoing communication is essential.

David: Where do you see the scale in the U.S. with your new investors?

Paul: Scale in the U.S. will come through lowering the cost structure of running raises. It is prudent to have some upfront costs to discourage the non-serious, but the majority of fee income should come from actually raising the funds.

David Drake

David Drake

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity advisory firm, and The Soho Loft – The Voice of Capital Formation – a global financial media company with divisions in Corporate Communications, Publishing and Expos. You can reach him directly atDavid@LDJCapital.com.

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Crowdfunding & Innovation – Paul Niederer – ASSOB

Paul Niederer CEO ASSOB - Credit dagvandeinformal.nl

Paul Niederer CEO ASSOB – Credit dagvandeinformal.nl

Paul Niederer is the CEO of the Australian Small Scale Offerings Board (ASSOB), Australia’s largest and most successful business introduction and matching platform and one of the more structured methods of raising early stage investment funds with a focus on compliance, disclosure and corporate governance.  To date ASSOB has raised over $135 million for Australian startups. You can read more of Paul’s thoughts on crowdfunding and early stage investing at his blog Paul Niederer.

Introduction

Many a good innovation dies on the vine due to the lack of funds to make a prototype or take it to market.

Crowdfunding is bridging this gap.

The main idea with reward and equity crowdfunding is that the innovators and their helpers set up a fund raise as a new project on a crowdfunding platform. The innovators, now promoters, invite others to assist them with funding their goal within a specified timeframe. Most projects have a funding goal that if reached makes their project worthwhile. Depending on whether the crowdfunding is donation, reward or equity based backers receive a gift, product, a good feeling or shares.

In a recent Indiegogo (a popular crowdfunding site) presentation I attended it became obvious to attendees that reward crowdfunding is not just about the money. Innovation is at the core of virtually all raisings. The presentation highlighted five reasons innovators may use a rewards crowdfunding platform to raise capital.

Validate the market. 

The innovator wanted to open a “Cat Cafe” in London, needed £108,000 to do it, but was unsure if there was enough interest. The campaign raised £109,510 in two months which validated the idea of opening a cat cafe where visitors will have the opportunity to kick back and relax with a cup of tea and spend time in the soothing company of our purring feline friends. (Ed the facebook page for Lady Dinah’s Cat Cafe now has 13000 likes)

Test a market.

Canary Smart Home Security Device
Canary Smart Home Security Device

 

Canary pitched itself as the first smart home security device for everyone. Canary is a single device that contains an HD video camera and multiple sensors that track everything from motion, temperature and air quality to vibration, sound, and activity to help keep you, your family and your home safe. Unsure of the market the promoters pre-sold their units in a crowdfunding campaign with an initial sales goal of $100,000. The market responded with orders for over $1.9 million. Over 7000 units were sold. A very successful market test.

Get extra promotion.

Robot Dragonfly - Credit Kickstarter.com

Robot Dragonfly – Credit Kickstarter.com

Sometimes your sales may be confined to the market as you know it and need a wider audience.  Take the Robot Dragonfly for example. The Dragonfly was developed at the Georgia Institute of Technology, as a joint effort between 20+ researchers, PhDs, professors and students from multiple universities across the world. Through their crowdfunding project they raised over $1.1 million and gained 3200 customers.

To capture data.

Scanadu Scout Personal Health Sensor - Credit Scanada.com

Scanadu Scout Personal Health Sensor – Credit Scanada.com

The Scanadu Scout is a personal scanner packed with sensors designed to read your vital signs and send them wirelessly to your smartphone in a few seconds, any time, anywhere. The device promoters used crowdfunding to target the consumer market but the backers they attracted, and the data generated by these backers, is certain to capture the attention and significant budgets of the medical industry around the world.

 

Money and matching money. 

Sometimes it is about the money. This was the case when Tesla’s final laboratory came up for sale. A non-profit wanted to buy the property and turn it into a Nikola Tesla Museum. The property was listed at $1.6 million, and this non-profit would receive a matching grant from New York State of up to $850k if it raised the money.  33,253 contributed over $1.3 million and the building was saved.

Equity crowdfunding and innovations also go well together. On the ASSOB platform hundreds of products and services have reached the world due to raises on ASSOB’s proven capital raising platform. The examples that follow raised a total of $16.8 million  include plastic wine barrelspressurised fruit juicedental plansa self managed superannuation portal, open source network management softwareproximity advertisingchildrens’ designer furnitureencryption softwaremining tenementswelding technology and an on-line photography marketing site.

There are now thousands of examples world-wide where innovation and crowdfunding go hand in hand.

And … this is just the beginning.

 

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