Equity crowdfunding comes to startup scene

Australian startups struggling for cash have a potential new source of funding with the launch of VentureCrowd, an online equity-based crowdfunding platform developed by Artesian Venture Partners.

VentureCrowd opened this morning with more than 200 registered investors and 36 startups that have been pre-screened by about 20 Australian accelerators, incubators, angel groups and university programs.

The launch comes only days after the Australian launch of OurCrowd, a platform with a similar business model from Israel. The launch of VentureCrowd also follows expansion into Australia by Indiegogo, a rewards-based crowdfunder that works similarly to Kickstarter.

Like OurCrowd — and unlike Kickstarter — VentureCrowd selects the startups that can receive funding and is only open to sophisticated investors. Those who decide to invest get equity in the startup.

However, VentureCrowd is focused squarely on Australian startups. In comparison, OurCrowd allows investment in startups from around the world and only plans to select three to five Australian tech startups for investment in its first year here.

One of the benefits of equity crowdfunding platforms like VentureCrowd or OurCrowd is their ability to lure new investors who might have been intimidated by the amount of time and money required to select and fund a startup.

“The wholesale investor market in Australia is large with 207,000 wealthy individuals in Australia sitting on $US625 billion [A$684 billion] worth of assets,” said Artesian managing partner Jeremy Colless.

“Until now there have been major barriers to entry for investors in startups,” he said.

“An investor either had to have a large amount of money and time available to screen and review each potential startup investment personally, or had to commit as much as $250,000 to a venture capital fund to qualify as a limited partner.”

VentureCrowd allows investors to invest as little as $1000 in an individual startup, and defer the risk by investing in multiple companies.

“What VentureCrowd will do is provide new avenues of funding for startups, enable a new generation of investors to take an equity interest in early stage ventures that could potentially be the next OzForex, Freelancer, Atlassian or Bigcommerce,” said Colless.

Steven Maarbani, a director at the venture capital team at PriceWaterhouse Coopers, said equity-based crowdfunding is on the rise around the world.

“The gap in supply of early stage capital is gradually being filled by equity based crowdfunding platforms that are able to provide a more efficient and cost effective way for SMEs to obtain growth capital than traditional methods,” he said.

“Equity crowdfunding platforms are opening up the early stage securities asset class to a new group of investor, characterised principally by a desire to have greater control over their investment decisions and the flexibility to make small investments in a wide range of early stage companies.”

Adam Bender covers startup and business tech issues for Techworld and is the author of a dystopian novel about surveillance. Follow him on Twitter: @WatchAdam

Follow Techworld Australia on Twitter: @Techworld_AU

Copyright © 2014 IDG Communications, Inc.

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