Category Archives: CROWD FUNDING

Crowdfunding $$$ source for Australian small businesses

Tom Baker, 26, used Pozible to source funds for his coffee liqueur business image www.money-au.com

Caffeine boost: Tom Baker, 26, used Pozible to source funds for his coffee liqueur business based in Central Coast NSW. Photo: Smudge Publishing

When Jules Donovan and Sam Colligan needed capital to kick-start their business they turned to an unconventional but increasingly popular source of finance – crowdfunding. Crowdfunding involves raising lots of small pledges of money – generally via the internet – to help fund a project or venture.

From their kitchen in Wallan, Victoria, Donovan (a personal development therapist) and Colligan (a chef) began selling vegan butter and ice cream at farmers’ markets in January 2014. The response was good. “From that we thought, ‘This could be a thing’,” Donovan says. However, to transform what had started as a passion into a viable business, the pair needed more money. Turning to crowdfunding, they raised $25,000 in 2014 through Pozible, Australia’s biggest crowdfunding platform. “With that we built a walk-in cool room and walk-in freezer in our garage,” Donovan says. “We converted the front half of our house into a commercial kitchen.”

Under the name Half Pint Vegan Dairy they now supply their products to 150 stores across Victoria and are one of a handful of Australian vegan ice cream suppliers. Donovan credits their success to the vegan community. “They’ve been right behind us.”

Twenty-six-year-old Tom Baker, co-founder of The Mr Black Spirits Co, is another Pozible success story. Despite the business starting out as a few guys in a shed, Baker says Mr Black was a single-minded vision to make “the best coffee liqueur in the world”. Since raising over $26,500 on Pozible in 2013, the small Central Coast NSW based craft distillery sells hand-ground cold-extracted coffee liqueur – what Baker describes as “alcoholic espresso” – to 550 venues in Australia, Hong Kong and Britain.
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“I say to everyone, crowdfunding is so much about the crowd more than it is about the funding,” he says. “These people that supported us are very much our No.1 fans.

“Crowdfunding is a great way to test your idea and gather early support for your product or brand before you actually make it,” he advises. “If we just put it on the bottle shop shelf from day zero we wouldn’t have sold any.”

Rick Chen, co-founder of Pozible, has seen a rise in the number of small businesses founded by crowdfunding. “It’s been growing very fast and it’s a very exciting field to watch,” he says. He reports an increase in farming projects and home-brewed alcohol funded through Pozible. “In the urban areas we’ve funded heaps of cafes, little bars and quirky little businesses. Crowdfunding is not restricted only to creative projects although that’s quite well known because it started from that.”

According to Chen, there are about four Australian-based crowdfunding platforms including Pozible. Since beginning in 2010, Pozible has raised over $42 million in pledges and launched more than 10,500 projects.

Globally, crowdfunding is helping more new businesses than venture capital, according to a 2015 report by Massolution (a research and advisory firm specialising in the crowdsourcing sector). Global crowdfunding is expected to reach $34 billion for 2015 with business and entrepreneurship accounting for 41 per cent of funding. By contrast, venture capital accounts for $30 billion of investment a year.

Crowdfunding offers few barriers to entry. However, it’s no guarantee of success. Pozible claims a success rate (determined as meeting the funding goal) of 57 per cent.

Chen suggests: “Know your target audience and how you’re going to reach out to them. An existing audience base is always important – from Twitter followers to Facebook friends.” He also recommends attending one of Pozible’s free workshops.

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Henry Sapiecha

What’s the future of crowdfunding?

Leader-Jon Medved's site OurCrowd has described itself as Kickstarter for rich people image www.money-au.com

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.

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Henry Sapiecha