Crowd-sourced funding: what’s involved and why it’s taking off

HelpPay, a William Buck client, is about to embark on a crowd-sourced fund raise. We’re taking the opportunity to outline what’s involved – and why the fintech is well-positioned to raise capital this way – so that you can assess whether crowd-sourced funding is a viable option for your business.

HelpPay is a social impact fintech that allows anyone to turn a bill into an instantly shareable payment page to which others can contribute funds, all with a guarantee that money will only go to the provider and never an individual person or bank account. It’s free to use, with the cost supported by retailers/service providers. Users that are struggling to make ends meet can share their bill with friends, family and sometimes even the public, essentially crowd-sourcing the funds securely. HelpPay’s position as a social fintech that crowdsources help through its users social networks, aligns with the potential shareholder base that’s engaged through crowd-source funding.

Regulated by ASIC, crowd-sourced funding typically provided startups and other scaling businesses with an opportunity to raise funds, generally from a large number of investors that each invest small amounts of money. However now it’s also used by later-stage companies.

Types of crowd-sourced funding

There are three main types of crowd-sourced funding, all of which have their own pros and cons. We’ll start with the type that HelpPay is using; Equity-based crowdsourced funding.

1. Equity-based
   This is where a company issues shares to a crowd of investors through an accredited online platform to raise money. In return these investors gain part-ownership of the business. Importantly, it enables private companies to have more than 50 shareholders despite the Corporations Act stating proprietary companies may only have a maximum of 50.
2. Donation-based
   This involves asking a crowd to donate to a project or a business without receiving anything in return. Often this is used to finance one off projects as opposed to scaling businesses.
3. Reward-based crowdfunding
   This type of crowd-sourced funding is largely unregulated and involves a contributor receiving a reward, such as the good or service in return for their contribution.

Steps involved in equity-based crowdfunding

The process of executing an equity-based crowd-sourced fund raise is relatively simple and part of the reason this alternative form of financing is fast becoming mainstream. It basically involves:

1. Defining your goals: This will provide you a clear understanding of the amount you are seeking, which may not be monetary. For example, you could be embarking on a crowdfunding raise to grow your customer base or increase brand awareness. The clearer you are about your goals, the better positioned you’ll be to reach them and attract investors who align with and understand them.
2. Choosing a crowdfunding platform: There are several AFSL-registered platforms operating in Australia, including Birchal – HelpPay’s platform of choice – Equitise, OnMarket and VentureCrowd. When choosing which to engage, consider your unique goals, the structure of the platform, fees charged, its payment methods and any restrictions.
3. Running an Expression of Interest campaign: An EOI campaign is useful to achieve an understanding of the interest level of investors in the company or project for which you’re raising funds. This helps you engage with the crowd and ascertain whether they might be willing to invest before proceeding with an Equity Crowdfunding Offer.
4. Developing an offer: You’ll be required to develop an Offer Document that complies will regulations and explains exactly what you’re offering and what you expect in return. This should include information about the company, a risk warning, information about the offer, and investor rights.
5. Receiving your funds: Investors will be given payment details once verified. The crowdfunding platform will issue a listing of all shareholders to the Issuer and once ASIC has been updated, all funds will be transferred to the company.

Promoting your campaign is another major step that should occur throughout the entire process.

Benefits of equity-based crowdsourced funding

In addition to it aligning with HelpPay’s business model, HelpPay co-founder, Andrew Ellett, and the company’s Social Impact Advisory Board led by Chair John Bertrand AO, felt that crowdfunding would attract and engage investors with a strong belief in HelpPay’s purpose. Crowdfunding enables investors to follow their passions and contribute to a business that aligns with their values, increasing the potential for investment among socially conscious investors.

As Andrew explains, “We believe we have a great business model, a product people love and a plan in place to grow from our initial groundwork and market share. We want to invite our fans and customers to be part of our success”.

While Tony Hood, Director Corporate Finance at William Buck, who is assisting with the raise said: “A clear benefit for investors is its propensity to be used as a medium to long-term investment. Shares raised through platforms like Birchal can’t be as easily sold as they are not traded through public exchange. This means they’re generally considered illiquid. Despite this, exit strategies for all parties do exist, and these include exiting through a trade sale or an IPO. Companies might also organise a buyback of the shares”.

Potential risks

Like all types of capital raise, there are risks involved with crowdfunding. These include:

• A large amount of time and effort is required to not only campaign and present your product to potential backers, but also to interact and update them on the development of your business or project.
• Competition with similar businesses using crowdfunding.
• The requirement to produce a product or service that is what you promised investors – with little to no deviation.

For Andrew, many of these risks were alleviated in that he believes strongly in HelpPay’s product which has already achieved success prior to launching the raise.

For other less established businesses, the risk may be greater, which is why it’s critical to weigh up the risks and potential benefits prior to embarking on a crowdsourced funding raise. It’s also imperative you seek advice form a Corporate Finance advisor prior to embarking on the journey. You can contact our William Buck Corporate Finance team here.

For more information on HelpPay’s crowdfunding raise, and / or to participate, visit https://www.birchal.com/company/helppay.