A growing number of companies are growing international business as a result of equity crowdfunding. Exporter talked to Snowball Effect’s Shaun Edlin about the popularity of this newest capital raising platform.
You have to admit the name Snowball Effect is perfect for an equity crowdfunding platform. Let’s face it, crowdfunding is indeed having a snowball effect on the growth of our emerging business economy.
The speed at which equity crowdfunding has become accepted as a leading capital raising platform has surprised many people – for early participants, the results have been spectacular.
Snowball Effect was only licensed in 2014, but its ‘head of company pipeline’ Shaun Edlin informs me that it already has the lion’s market share – around seven million of the total $9 million raised so far. All its clients have a focus on growing international capability and their investment offers have been hugely successful. Renaissance Brewery, for example, raised $700k in two weeks; Invivo Wines reached the regulation maximum of two million in two weeks; while Aeronavics raised $1.5 million in five days.
Edlin says all three of these offers received multiple investments over $50k and enjoyed a large volume of positive publicity as a result of the Snowball raise.
“All three companies were reasonably mature growth businesses, each having operated for three years or more, with seven figure revenue,” he says. “They all had an existing international presence at the time of the raise, but the funding was really to boost this presence by hiring more people, securing further quality distributors and partners, and increasing global marketing.”
Red Witch (profiled in this issue of Exporter) has also enjoyed success with its crowdfunding efforts. “The Snowball capital is largely allocated to increasing global marketing to convert positive reviews and celebrity endorsements [of their guitar pedals] into sales,” says Edlin.
He says the diversity of firms lining up for equity crowdfunding covers food and beverage, early-stage technology companies, retail, film, pharmaceutical, and more.
So what makes crowdfunding such a suitable option for raising export capital?
Export activities are expensive, Edlin points out, and it can be difficult to efficiently raise significant capital from private investors. “With equity crowdfunding you have access to a very large pool of investors, essentially the New Zealander public, and the capital can be raised within very short time-frames.”
Then there is the marketing spin-off. As equity crowdfunding is still reasonably new, offers attract a large amount of media coverage, domestically and internationally. “This can have a very positive effect on both sales and future fundraising,” says Edlin.
Shareholders effectively become brand evangelists, he adds. “They all have skin in the game and can be utilised to help drive growth. This can be through shareholders marketing the company and products through social media, or even shareholders leveraging their networks to introduce new international partners.”
For firms in a hurry to access overseas markets, provided they’re investment ready, preparing a crowdfunding offer is reasonably straightforward and highly cost effective.
“We’ve had companies go from first conversation to making an offer to the public in the space of less than a month.”
It all starts with an application form and a chat with Snowball Effect, which has an investment committee to help sort the applications. To date there have been over 700 expressions of interest on the platform – up to 20 per week.
Once the offer is launched, on-boarding new investors is a straightforward process, Edlin says, typically taking an investor around two minutes once they’ve made a decision. As with most things these days, everything happens online via ‘the cloud’.
“Investment ready” involves having a solid governance structure in place and a robust financial model, he explains. “It’s important to have your growth strategy locked down. You should be clear on exactly what you need to spend capital on to grow the business; where and how you’re going to scale; how you’re going to deal with competition, and so on.”
There are some realities of equity crowdfunding to be aware of – the most obvious being that it is a very public way to raise capital. Companies have to be prepared for their business model to come under scrutiny.
“Again, this comes back to investment readiness,” says Edlin. “For example, if the company isn’t at the stage where it can talk fully about it’s product due to intellectual property issues, then a public equity crowdfunding offer is probably not the best channel.”
For companies preferring a more private way to raise funds through the platform, the Snowball Private service allows a password protected URL to be sent to specific potential investors. The benefit of the ‘crowd’ is therefore limited, but the desired outcome is still achievable and the offer can still be made to retail investors.
The crowd effect
The equity crowdfunding industry is growing incredibly fast overseas, reports Edlin. “In the UK last year, 30 percent of all seed capital was raised through equity crowdfunding platforms; this year it’s expected to be 50 percent.”
He thinks that trend will be mirrored here, with crowdfunding becoming a common source of equity funding.
“SMEs are a fundamental part of our economy. Making it faster and cheaper for them to raise capital will have a positive effect on this sector – creating more jobs and more innovative Kiwi companies operating on the world stage.”
He believes the platform is helping move investment into wealth-creating assets and improving the financial literacy of both companies and investors. It also encourages businesses to be managed better, by promoting better governance and wider scrutiny.
And new entrepreneurs will emerge as successful fundraisers claim the spotlight.