22 November 2021 @ 12:00AM Equity Crowdfunding Investors
Written by Cassandra Diamantis, Marketing Manager at OnMarket.
The Equity Crowdfunding space has taken off – both in Australia and internationally (U.S, UK). With so many small businesses opting to raise capital via an equity crowdfunding campaign, it can be difficult for investors to choose what companies best aligns with their interests and values. Fear not, OnMarket has you covered!
We’ve put together a checklist for you to complete prior to participating in a raise. The below checklist will assist you in thoroughly comprehending the market offer and investment opportunity at hand.
Point of difference, or unique selling point, is crucial to understand as it sets apart the company raising capital to its competitors (if any). You must wholistically understand the company’s unique value proposition to then understand the magnitude of the market opportunity. To aid your research on the point of difference, ask yourself the below questions:
The market opportunity refers to the industry the company is looking to enter, and how their unique point of difference fills a gap in the market. Through understanding the point of difference you’ll be more equipped to analyse the existing market and the extent of the market opportunity, including the growth potential and scalability. Here are a few prompting questions to assist you in in deepening your market knowledge:
Traction refers to the company’s current position, including revenue, users, partnerships, etc. Many companies use equity crowdfunding for growth capital, so it not uncommon for a company raising funds to have minimal traction. However, it is always beneficial to review their traction to gauge the business’ potential in terms of existing engagement, and potential engagement growth. Here’s what you should find out before investing:
When you invest in an Australian start-up, you’re not only investing in the business model -you’re also investing in the founders, CEO, and advisory board. There’s no I in team, right?! For this reason, it’s crucial to complete your homework to better acknowledge the managerial experience and leadership skills of team behind the great idea. Also, don’t forget to look at their connections and the wider network they can tap into! Use the below questions as a guideline to complete your homework:
Investing in an ECF raise is considered a long-term investment, however, it’s still important to review management’s exit strategy. Although the exit plan is not cement, it provides insight into the company’s thinking and investment horizon. Here’s what you need to look for in the offer document or landing page to piece together their exit plan:
In summary, there is always an element of risk when investing in an equity crowdfunding raise, that’s just the status quo when investing in the start-up space! Although there is no cement promise, the potential capital gains of an ECF raise can heavily outweigh those of investing in typical stock markets – which is why so many retail and sophisticated investors are joining the ECF community!
Using the above guiding questions and key elements, you’ll be able to better piece together the business opportunity and analyse the market offer. Check out some of the latest investment opportunities at OnMarket to put your checklist in action!