You’ve got an idea for a business or you want to expand. Your own funds are limited, the bank’s said No, and you don’t want to approach friends and family. Somebody says to you ‘Have you thought of crowdfunding?
A ‘crowd’: lots of people, most of whom you don’t know. ‘Crowdfunding’: getting these people to finance your business.
Page 1 of the usual Google search gave me a lady who seemed to know the Australian crowdfunding scene, Anna Maguire, and her website, Crowdfund it! And a newish body that represents the industry, the Crowd Funding Institute of Australia.
Anna has a list of Australian platforms and the Institute lists its founders and members. After eliminating one that shouldn’t have been listed because the site is ‘in private beta’ (CrowdfundUP), and adding Kickstarter. I had a list of 22 platforms. From these I thought I would get a pretty good idea of what was available for small business.
The only reason the public would send money to your business is in order to get something in return. This can range from a warm feeling from having helped you (they donate) through to a share in your profits (they invest capital). In between these two there are those who might want your new product or service (they are customers), or to earn interest on their money (they lend), or a reward of some sort (they are givers who want a little something in return).
So here are, grouped according to what you have to give in return, and in order of cost to you, the results of my research.
Equity in your business
Of the five platforms soliciting equity, only two are operating: the Australian Small Scale Offerings Board (ASSOB), and Venture Crowd. The ASSOB, with a minimum campaign of $250,000, is a matching service operating under an ASIC Class order that makes the law on small scale personal offers less restrictive. Venture Crowd offers a managed investment scheme under the same exemption. (It would be the investor in your business.)
Equitise and TMeffect are waiting on the liberalisation of the equity funding rules in Australia. (See, for instance, this story.) OurCrowd may be about to start, but it only invests in businesses in Israel.
Interest (on a loan to your business
None of the platforms allow you to solicit loans.
Your product or service
This is the category with the most platforms (eight), where crowdfunding began, and what most people think of when you say crowdfunding. Unsurprisingly therefore, it includes both Kickstarter and Pozible.
All eight are open to businesses, so long as you can express your need as a project and, in some cases, fit it into pre-defined categories. However,
- CleantechFundr is restricted to – well, it’s not defined, so whatever you think ‘cleantech’ covers.
- Sportaroo is only for sporting campaigns.
- Startsomegood is only for ‘broadly-progressive social impact projects’.
Whether these platforms are right for business is another matter though. There have been 186 Australian projects in the Food category on Kickstarter since 29 December 2012. Only 12 were ‘successfully funded’, a success rate of only 6.5%. And the highest amount raised was only $26,515.
Pozible doesn’t have a category for either business or retail. The closest is ‘social enterprise’. A search on this category, and restricted to Australia and ‘successful’ gave 46 projects. Although the success rate was much better than Kickstarter at 46%, this is ‘social enterprise’, not conventional business, and only eight of the 46 raised over $22,000.
iPledge has a ‘commercial and business initiatives’ category. Of the four current projects, none were in this category. 42 projects have been ‘successful’ so far; of those, only one was definitely ‘commercial’, another possibly.
There are three platforms that offer primarily a warm feeling and information in return for money. One of them, Thinkable, is not for businesses (unless you run scientific research as a business), another, Chuffed, is only for you if you are a ‘social enterprise’ (which is undefined). But the third one, OzCrowd, invites regular businesses to seek donations, with rewards being optional. Good if you can get it. The information on the site is not organised so as to allow an extraction of the business projects, plus the platform hasn’t been going very long.
A combination of the above
The remaining two platforms offer more than one of the above returns. On Thunderfunds you can seek either equity or donations. The equity is offered under the restrictive rules of small scale personal offers (see above), while the donation campaigns can be either for something you are creating (suitable therefore for business), or a personal cause (and therefore not applicable to business.) Teambus is only for sporting teams.
I think a fair conclusion from the above survey is that, at the moment, unless you have a proposition attractive to hungry investors, and are prepared to give away a significant slice of your ownership, the opportunity for business financing from crowdfunding is limited to a relatively small project that’s a bit out of the ordinary or benefits the community. Even then I don’t think the chances of success are high.
20.01.2015: “(Anna had included Pozible even though it wasn’t Australian),” deleted, because as kindly pointed out by Anna herself, Pozible is indeed Australian.