Leader: Jon Medved’s site OurCrowd has described itself as “Kickstarter for rich people”. Photo: Bloomberg
Instead of taking pledges from individuals in return for a reward or service, such as the campaigns offered by Kickstarter and Pozible, equity crowdfunding allows individuals to invest for financial return in the business.
Described by Forbes as “one of the largest crowdfunding organisations on the planet” and The Wall Street Journal as “Investment of the Week”, Medved’s pioneering site OurCrowd has raised $60 million for 47 portfolio companies since its launch in February 2013.
Self-described as a “Kickstarter for rich people”, OurCrowd links accredited investors willing to put forward a minimum of $US10,000 with carefully vetted start-ups looking for funding, and joins AngelList, CircleUp and the UK’s Crowdcube as the current leaders in the industry.
It’s the kind of investment, Medved says, that will soon change the world of innovation finance as we know it.
“Equity crowdfunding is one of those hugely under-hyped things. People don’t understand how massive it is going to become. There is real science behind the wisdom of the crowd. The difference between now and 10 years ago is that we had no way to harness this wisdom or power,” says Medved.
“Just think – the iPhone is less than seven years old; the iPad three or four. People make fun of Facebook or Twitter, but they have unleashed a series of platform capabilities that are changing the way that we do business, and in terms of finance and funding, the impact is absolutely fundamental.”
Australians will particularly benefit from the “level-playing field” that equity crowdfunding creates in a hitherto “stuffy” market, says Medved.
“The whole innovation finance world has been closed and restricted, geographically as well as by class and economic status. If you were outside of Silicon Valley or Israel then tough luck,” Medved says.
“Until now, the average Aussie ran a wonderful super plan but has been frozen out of most of the innovation because of the tyranny of distance and lack of connections. We already have 500 people from Australia active on our platform with tens of millions of dollars invested in crowd-funding.”
The advantages also extend to isolated start-ups in need of funding, such as the second Aussie company about to be endorsed by OurCrowd.
“Imagine you live in Bulgaria or Thailand and you have a cool idea for a start-up, but no money and no culture of investment. Crowds are now transnational – we have people from 114 countries investing in what could be two men and a dog in a garage with a brilliant idea,” says Medved.
“The future of Aussie tech is hugely positive, especially in a market where minerals and mining are less attractive and Aussies are looking for a little buzz in their portfolios.”
Equity crowdfunding is not yet legal in Australia. A report by the now-defunct Corporations and Markets Advisory Committee last year recommended it be formalised, saying crowdfunding may play a key role “in the development of innovative start-up and other small enterprise companies”.
Aussie crowdfunding platforms Pozible and OzCrowd along with incubators York Butter Factory are currently in round table discussions with Small Business Minister Bruce Billson about the best approach to legalise equity crowdfunding.
Claire Merquita, HR manager at Pozible, says the company are buoyed by Billson’s stated intention to have legislation put before parliament in spring this year.
“It’s still early days for us and a lot depends on the outcome of the registration process, but we’re planning to be key players in this arena,” says Merquita.
Started in 2010, Pozible has so far raised over $31 million for over 8000 projects, experiencing a 50 per cent increase in revenue raised in the last year, and launching in China.
Pozible are currently focusing on creative partnerships with federal and state governments that match creative projects dollar for dollar up to $10,000.
“Crowdfunding started very grassroots and emerged from creative industries. Now we’re seeing it move on to other industries, including the private sector very fast,” says Merquita.
Medved agrees that getting the regulations right is important.
“Equity crowdfunding is just getting start and we need to make sure it’s being done responsibly. The consumer is going to have to be careful and the regulators working over time,” says Medved.