Equity crowdfunding helping small businesses

  • 11/08/2014

There is a new way for small companies to raise money from investors. It's called equity crowdfunding and allows businesses to raise up to $2 million a year from the public.

But the risks are higher than more traditional investments like the share market.

There was applause, and relief as well, for the Vista Group as it joined the share market. Some recent listings have gone down in price, but shares in the cinema software operator went up.

"We were hoping for a small uptick and that is what we got," says Vista Group chief executive Murray Goldberg. "We are very pleased with that, yeah."

Share market listings like Vista raise tens of millions of dollars – something that's out of reach for many smaller and newer companies. But now they can try to raise money through what is known as equity crowdfunding.

"This fundraising gives companies at that size, that end of the market, a chance to raise money to grow, to invest in their business, to employ more staff," says Rob Everett of the Financial Markets Authority.

In exchange, for as little as $500 people can own a small part of the business.

"You are getting to share in the ups and downs of that business," says Snowball Effect founder Simeon Burnett.

Snowball Effect and PledgeMe have both been given licenses to raise funds from investors for local companies. Today Snowball Effect began raising money for Craft Brewer Renaissance.

"The exposure is great for them just in terms of building their brand, and the capital as they look to take the business offshore," says says Mr Burnett.

But there are risks. Businesses that raise money this way will not have to provide the same amount of financial information as the companies that are listed on the share market.

"People really need to do their research and they need to be aware of the fact that as start-up companies a lot of them fail," says Mr Everett. "So whatever money people put in they need to work out how much they can afford to lose."

There won't be a daily market to trade the shares either, making it harder to sell the shares if you want to quit your investment.

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source: newshub archive