Investors eye start-up investing in hopes of backing a billion-dollar winner

More small investors are willing to back start-up businesses in the hope of striking it rich, taking advantage of changes to regulations that allow up to $10,000 to be invested through equity crowdfunding platforms.

Regulatory red tape was cut five years ago to make it easier for start-ups to raise money from small investors on the platforms. Crowdfunding has developed rapidly in the United Kingdom since it started there more than a decade ago, and has been slowly gaining popularity here.

Garry Williams invests his own money in start-ups and works for Tractor Ventures, a company that backs tech start-ups and maturing tech companies.

Revolut, the London-based neobank, was one of the beneficiaries of equity crowdfunding in the United Kingdom. It received millions of pounds from tens of thousands of investors in 2017. It is now valued at more than $US30 billion – one of Britain’s most valuable private companies – making colossal returns for early investors.

Local equity crowdfunding platform Equitise estimates about $73 million was invested by Australian investors in start-ups through equity crowdfunding platforms by the end of 2022, up from about $30 million two years earlier.

Under the changes made five years ago, an individual can invest up to $10,000 per company per year through appropriately licensed equity crowdfunding platforms.

‘I am not [risking] my life savings in one particular company, but [invest] alongside other experienced investors.’

Companies seeking investors through the platforms must have less than $25 million in assets and under $25 million in turnover. They cannot raise more than $5 million in any 12-month period.

Investors would not normally expect to see a return on their money, if at all, for at least five years. As the regulatory rules in Australia only changed five years ago, it is too early to point to successful exits – where the start-up is sold to another investor or listed on the sharemarket and investors pocket a profit.

Jonny Wilkinson, co-founder of Equitise, says the platform accepts fewer than one in ten of the pitches it receives from those looking for funding of their businesses.

“We want to make sure that these companies have a reasonable chance of generating some returns and … people understand what they are investing in,” Wilkinson says.

“Not all companies are investible for a host of reasons – the stage they are at, what they are doing, the risks – we want to make sure that investors are making investments with their eyes wide open,” he says.

Venture capital is another type of early-stage investment, but they usually raise money from sophisticated investors – defined as having an annual income of at least $250,000 or net assets of at least $2.5 million, as verified by an accountant.

Garry Williams, 40, from Melbourne, invests his own money in start-ups and works for Tractor Ventures, a company that backs tech start-ups as well as those that are more mature in their development.

Some of his personal investments include ticket resale marketplace Tixel, and Qsic, which creates AI-driven audio retail media channels for large physical store retailers in North America and Australasia.

Williams offsets the risks of investing as an individual by investing alongside other investors, including through investment vehicles such as syndicates.

“I am not [risking] my life savings in one particular company, but [invest] alongside other experienced investors,” he says.

Williams also recently completed the Wade Institute’s VC Catalyst program at the Wade Institute of Entrepreneurship. Rachael Neumann, the lead instructor in the program and co-founder of venture capital investor Flying Fox Ventures, says her role is to find the “best and the brightest entrepreneurs out there and pour fuel on the fire in the form of capital support”.

She says investors in early-stage companies have to be very patient for a pay-back. “It tends to be higher risk … but that means there is a higher potential for… outsized returns,” she says

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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