Aus-merica

Early last month, I spent two days in Melbourne and one day in Sydney meeting with local companies, co-working spaces, government, funders, and startup supporters.

Australia trip

My trip had two goals. Firstly to assess where Australia’s proposed legislation on equity crowdfunding was headed and secondly to get a sense (read sanity check) of whether PledgeMe should hop across the ditch.

Apart from realising that my American heritage felt strangely at home in the rule-focused country, here are my main findings:

Change of government is helping change the law

The Australian government has recently gone through a change of leadership (to the relief of most Australians it seems), and a shuffle of portfolios means there is a new minister in charge of the changes to their securities legislation. The Corporations and Markets Advisory Committee (CAMAC) which wrote the original report around equity crowdfunding has been abolished, leaving Australia with the mouthful of a moniker “crowd sourced equity funding” for equity crowdfunding. Now, after two rounds of submissions, the equity piece is slated to enter the innovation statement set to come out by December 2015.

There is a general sense of optimism around the changes. The new Prime Minister, Malcolm Turnbull, has a background in tech. This seems to leading the industry to believe he will make changes to support SMEs. He’s already shown he is capable of doing this with recent employee share scheme changes.

We believe that government’s role is not to tell citizens, let alone businesses, what is best, but rather to enable them to do their best.” Malcolm Turnbull

However, many predict Australia is more likely to follow the American way of equity crowdfunding. People I spoke to said as much: “Australians like rules”. This means there will probably be investor caps on how much individual investors can invest, both per campaign and per year. This stems, in part, from a general fear from institutional investors that retail investors would lose all their money in this space. New Zealand originally discussed investor caps, but decided not to go down that path. We agree with this. Caps on investment assume that retail investors need protection from themselves. This could be seen as somewhat patronising and counter to Prime Minister Turnbull’s above statement.

There has been some talk recently about the law change excluding debt/peer-to-peer(P2P),  and existing only for public companies. Both of these comments are strange, for the following reasons:

 

P2P

Debt crowdfunding, crowdlending, peer-to-peer, whatever you call it, is two thirds of the international crowdfunding market. Yep, bigger than all the equity crowdfunding and kickstarter-esque platforms combined. So it seems odd that it’s being left out of the conversation. In fact, in New Zealand, equity crowdfunding was actually an afterthought added after one of the P2P platforms made a side comment about it in a meeting in the lead up to our legislation changes. And, it’s a space that we’re really interested in ourselves as it helps more than just companies find funding – it supports individuals, other organisational set up, and social enterprises. So interested in fact, that we’re exploring an SME / organisational product for kiwis.

There are P2P platforms operating already in Australia, but under the old legislation with high compliance costs.

Public companies

Company structures in Australia are different to New Zealand.

In New Zealand, the companies coming through are private companies. They are not tied to the same continuous disclosures that a public company would be required to do, and are not required to create a public prospectus for funding. While equity crowdfunding may trigger the Takeovers Code (eg. a company has more than 50 voting shareholders) and a company may be required to audit their financials if their voting shareholders do not opt out, these companies are not classified as public.

In Australia, if you have more than 50 non-employee shareholders, you immediately move from being a proprietary (or private) company to being a public company (albeit unlisted). This means you are required to have 3 directors (2 need to be Australians) and are required to provide a directors statement, financials and an auditor’s report annually.

 

 

There is a need for funding (and a crowd)

Australia is seeing more Venture Capital funds coming through for tech, a maturing startup ecosystem, and a growth in impact investment. But, there was also a general sense that while Australia is generally wealthy, it is more likely to go into traditional investments (eg. asset classes), not currently into start ups. Also, Basel III has made it harder for SME’s to access bank loans. But there are some companies that need growth funding that aren’t supported by the current ecosystem, with 10% of Australian SME’s stating they have difficulty accessing capital to grow in a recent Deloitte report. Often, these companies either wouldn’t fall in the traditional investment space or would not choose to go down the traditional investment route.

IMG_4069

My conversations made me realise that the other side of crowdfunding (the crowd) had been seriously downplayed in the discussions around legislation changes. Everyone was hung up on the funding (and potential to lose money) and overlooked the other skills, support, and insight a crowd of consumer investors could bring.

I told the story of Brianne from Sorbet pretty much on repeat. How she went out and raised $200k from her crowd in two weeks, but not only did she get cash from her crowd; she also had three chemists invest. There was a problem she’d been working on for weeks if not months, which they came in and fixed in half an hour.

 

 

It’s a big (and complicated) market

Australia is large compared to New Zealand. With five times the population, there is more individual wealth (one person ball parked 10x that of NZ), and there are more layers to bureaucracy (city, state, federal).

There was a comment that Australia is more likely to back Australian owned, and that we would need distinctive entry plans tailored to each city. Which really made us think that if we wanted to go to Australia, we’d need partners. Companies or organisations that reflect our values, but aren’t already in the crowdfunding space.

 

 

It’s a crowded market

There are quite a few players getting ready to launch in the space. Some platforms have already completed their technical development, and there is a sense of waiting to see how the legislation lands.

Some platforms believe  the changes could come through this year (as stated in one of the documents released by government) where others think it will still be at least 6 months before the first platform is licensed and launching campaigns.

There are a range of platforms getting ready to enter the space, some with project based crowdfunding experience, some currently in the equity crowdfunding space in NZ (Equitise, My Angel Invest) and some specific niche crowdfunders (all the property….).

 

 

Where to from here?

I feel like there is little sense for PledgeMe to try and enter the Australian market on its own. But, we are open to partnering with companies in Australia to set up a platform (with us bringing the tech / expertise, and a partner bringing the potential base of campaign creators / presence / brand recognition). Partnering would be a stronger proposition than setting up a new platform from scratch.

So if there are any folk that would like to continue conversations or start conversations, get in touch with me (anna@pledgeme.co.nz). We’re keen to support the democratisation of funding in Australia, and are actively waiting to see how the final legislation pans out.

 

Final thought

For all that’s good Australia, please don’t go down the path of over regulation. If you write 635 pages of guidance for platforms like the USA, you’ve already stifled the innovation of your 140 character fueled future.

 

And…

a big thanks to everyone that took the time to meet with me and share their thoughts on the future of funding in Australia.

Crowdfunding Crowdfunding: Episode I

We love crowdfunding so much that we are walking our talk to crowdfund ourselves! We just launched our very own equity crowdfunding campaign so we can grow and you can own a little part of us (Anna’s elbow or perhaps my left knee).

Equity crowdfunding is a new thing for us, PledgeMe only got its license a few months ago. We’ve worked with over 40 companies on equity campaigns, with one currently raising. Now, we’re walking the talk, giving our crowd a chance to get involved, and to show anyone thinking about doing equity crowdfunding what they’d need to think about before embarking on this track.

So here are some thoughts about the things we’ve found tricky or had to do a bit of work on before going ahead with the campaign.

Valuing yourself

Valuation is a tricky one. There are so many models for figuring out valuations (from discounted cash flow to asset valuation to market comparatives to the Berkus method). We needed to make sure the valuation made sense to our crowd (from our Board straight down to Anna’s best friend). It’s got to give investors a good deal and at the same time ensure your company gets enough capital to see through its growth plans. That balance is hard to find. Over on his blog, Rowan Simpson offers some good advice:

“Try not to get bogged down in this, whether you’re an investor or a founder. At the end of the day neither side wins because they eked the last percentage point of dilution out of a funding round negotiation, they win by working together to build a fast-growing ass-kicking name-taking business.”

In that spirit, we see ourselves as a fast-growing ass-kicking name-taking business. Our share price and minimum buy are definitely in favour of attracting investment from our crowd, but is going to allow us to go mobile and expand our team to grow the business even faster. Check out our financials here.

Conversations with your Crowd

Anna leaned across the table to me, and in a casual tone asked “Would you invest in PledgeMe?”. The answer was of course yes.

I’ve been a long time supporter of PledgeMe and have seen heaps of friends get projects off the ground because of crowdfunding. Now working for the company and being a good friend of Anna’s, I want to invest in the company to help ensure its success and place in NZ’s vibrant crowdfunding scene. And, I want to be part of the upside if it comes.

No doubt each of you will have similar people around your company or idea. We recommend making a list of 50 people you think have the money or inclination to invest in your company and personally contact each of them. This can be a daunting project, but I can see Anna dutifully making her list now and starting to follow up with her crowd.

It’s a daunting prospect, but pulling in your crowd is absolutely essential. It ain’t crowdfunding otherwise!

Creating a pitch video

Even though I once starred in a 48 Film Festival film, PledgeMe didn’t have quite enough internal experience to patch together a pitch video. Luckily we had the support of our crowd. We called in the big guns with two times successful PledgeMe user Julia Campbell, and Ro Tierney a friend of our crowd. They helped us put together this slick video which clearly explains why you should invest in PledgeMe.

We recommend keeping your video short, definitely less than five minutes (if not less than 90 seconds) and only putting essential info in there to give your company a bright and cheery human face and show what you’ve done (over just telling in text). All the complicated stuff should be left for the business plan and financials.

Here’s how we laid out our pitch video when we planned it. We shared the plan with our team and commented / live edited / perfected the wording in Google Docs over a few days. You need to make sure your pitch isn’t too long, and that it sounds good when you speak it out. Then we created photoshop visuals for the film-maker based on the script, and listened to a lot of music on Audio Jungle.

On shoot day we went through the script one more time, ate pizza, and tidied our desks… And, our office chairs might never be the same again – Ro turned from film-maker into set dresser moving chairs, boxes, and potted plants to make sure the shots he took looked good (we’re still returning the chairs back to their owners – days later).

The real magic happened in the edit. Ro turned our ideas into reality, tweaked the visuals, and after a few drafts back and forth (in our Google Drive) we had our final video ready to upload to Youtube. Check it out:

Compliance

We were in a tricky situation trying to crowdfund ourselves using our own platform. Luckily we negotiated through the FMA’s rules and have made it so we can run this campaign. This has meant Anna has had to step away from the campaign and crowdfunding consultant Kat Jenkins from Multitude has stepped up to run the campaign with support from our legal team at Buddle Findlay, Virtual CFO at Deloitte and the oversight of our independent Director, Anake Goodall. Also, people like me (aka “Associated Parties”) need to get formal approval to invest, and will get listed on the websites interest register.

While this is something you won’t have to think about, other areas of legal compliance regarding what to do with your new shareholders is something you should be taking into account. There are reporting requirements (annual, financial, and audit) as well rules for any company that has over 50 share parcels issued (The Takeovers Code). There are also certain instances where you’ll need a special resolution passed (eg. 75% of your shareholders voting yes). Most of this is just good company hygiene, but when your crowd is involved you want to make sure you’ve got your dry-cleaned suit and best perfume on.

What if it ALL fails!?

That dreaded thought that runs through everyone’s mind when they push ‘publish’ on a PledgeMe campaign.

We are incredibly optimistic that our campaign is going to go really well. We’ve got a huge crowd behind us, a solid track record of success, and wide networks of people who we know are ready to pledge.

In your case the best way you can ensure success is to make sure you activate your crowd and get them buzzing about investing in your company. That’s what we’ve done. So Anna, our board and I are just going to cross our fingers, take a deep breath and plunge into this campaign.

Check out our campaign here and get investing!

We’ll have Crowdfunding Crowdfunding: Episode II here soon.