Crowdfunding can change the way businesses secure capital. But is it right for your business? Josh Daniell from New Zealand equity crowdfunding platform Snowball Effect has some advice you need to consider.
New Zealand’s first ever equity crowdfunding offer was successfully completed in August when Renaissance Brewing raised $700,000 through Snowball Effect.
A few of the highlights:
- First equity crowdfunding offer in NZ
- $700,000 raised from 287 Kiwis in less than 2 weeks
- $218,102 raised in a single day
- Average investment of $2,436
- 2 single investments over $50,000
Since Renaissance reached its target, dozens of companies have approached us to ask how equity crowdfunding works and whether it might be right for them.
While equity crowdfunding is exciting, and we think it will transform the fundraising options for Kiwi companies, the reality is that equity crowdfunding isn’t right for every business. For example, low growth businesses and very early stage businesses are generally not suitable.
Business owners should think carefully about whether they actually need to raise capital, and how equity crowdfunding compares to other sources of funding available to them. Bank debt, private loans from friends and family, funds from contestable grants or venture capital might be the best funding option.
The first thing to consider in relation to equity crowdfunding is something obvious – is your business likely to attract investors and is the offer likely to be successful?
International experience shows that businesses with a track record of revenue (and sometimes profits) are more likely to succeed than very early stage startups. More established businesses have a larger audience, which is an advantage when marketing the offer. Also, companies with products or services that can easily be explained and that investors can connect with emotionally are more likely to attract investors. Having pre-committed funds from family, friends and supporters is another important driver of success.
The second thing to consider is how your company could harness the power of your “crowd” of investors after a successful offer.
The crowd can provide free marketing – they are walking, talking advocates for your business. There is consistent international evidence showing significant increases in revenue in the period following an equity crowdfunding offer. The crowd can also provide valuable market feedback and idea validation, and they may have skill-sets and capabilities that are missing in your company. To get the real benefits of equity crowdfunding the capital raise should be about more than simply raising funds – it should also be about connecting with and growing your fan base.
We believe that equity crowdfunding can help unleash the growth potential of many Kiwi businesses. The crowd brings more than just cash, it brings a groundswell of support to accelerate growth. Judging by the interest from both companies and investors, we expect to bring a number of exciting investment opportunities to the New Zealand public over the coming months.
Josh Daniell is Head – Platform and Investor Growth at Snowball Effect. He began his professional career in the corporate department of Bell Gully, with a focus on M&A, public securities offers, and commercial law. Josh then started and operated a freelance business consultancy, Soup Kitchen.
Building on his passion for New Zealand SMEs and the fast-growing crowdfunding phenomenon, Josh joined the Snowball Effect team as employee #1 in 2013.