By Crowd88

Formal equity markets are, according to many commentators, becoming hide bound, an exit mechanism for venture capitalists and private equity fund’s investments, representing fewer and fewer corporates but at higher and higher market capitalisations, overburdened with compliance and no longer the traditional avenue for growth companies to raise capital.  Almost all bourses seem to be struggling to find a reasonable number of good quality IPOs and post IPO price performance is not that good either.

Is it any wonder that many fund managers in New Zealand are looking to direct investment in unlisted corporates as a means to access the required rates of return.  The latest; Booster investing KiwiSaver funds into two wine ventures.

But adoption of new processes, flexibility and innovation is broadly evidenced at the small, less regulated, but very interesting equity crowdfunding end of the capital markets spectrum.  In fact, equity crowdfunding itself is an extremely interesting innovation in its own right.

Crowdfunding platforms, such as Crowd88, are now extending their wares far beyond the initial capped $2m vanilla offerings.  The first move was to use equity crowd funding as part of a greater capital raise using the ‘retail’ crowd for one portion and Wholesale investors for a great or lesser part where the wholesale offer sits outside of the crowd offer covered by the platforms market services licence.  In fact, the wholesale offer can either be run by the platform, thereby utilising the subscription/payment functionality of the platform (See Crowd88 for a very tight, efficient and user friendly experience), or be run by an external investment bank.

A further advancement is where offers are only offered to wholesale investors through the crowdfunding platform functionality.  These private offers, or as Crowd88 refers to them Broker Offers, may typically be where a private unlisted company is undertaking a further series A, B or C capital raising round seeking larger investors but where it is opening the offer, via a crowdfunding platform, to a wider group of wholesale investors who may take larger or smaller stakes as the case may be.  The investor may still be asked if they can deliver skills to the company and even if they wish to be a director but typically these platform based Broker offers would not be expected to deliver such requirements.  In this regard too investment banks (such as our own APP Securities) are beginning to partner with equity crowdfunding platforms and vice versa.

Targeted crowd offers can now also be made where a company wants only its customers or staff to be able to view the offer and respond to it.

Lastly, we are now seeing crowdfunding platforms delivering other funding options such as debt.

So all in all innovation and market solutions are being delivered at the crowdfunding end of the capital markets continuum.  Large public markets for large market capitalisation companies are becoming moribund.  As technology changes the business environment in a faster and faster fashion, as technology disrupts traditional business models, we are seeing the lifespan of large listed companies fall quite dramatically.  In 1958 the average lifespan in the S&P 500 index was 61 years and today it is less than 18 years.  We are seeing iconic brands disappear monthly.  And household brands just don’t attract the attention in IPOs that they once did and anyway sometimes don’t deliver the stellar outcomes required by investors.

In New Zealand we are also seeing a number of technology stocks that bypassed the NZX in favour of the ASX delivering truly horrible share returns and without raising capital in any meaningful way.  The message therefore is perhaps that for smaller growth firms, and given the innovation in the equity crowdfund space, equity crowdfunding is the solution to many problems.  And if you have an idea about raising capital or need something a little different in that corporate finance space, talk to a platform operator like Crowd88, as we might be able to design something innovative for you.