In the dynamic world of entrepreneurship, access to capital remains the lifeblood that fuels the growth and innovation of start-ups, scale-ups, and SMEs. So, it is exciting when an innovation that can improve the flow of capital to innovative businesses begins to emerge. For example: the ‘community round’, which is an investment round that is open to a company’s most passionate customers and fans, in addition to professional investors.
Until recently, the investment universe for small private companies has been limited to close family and friends, or professional investors. However, Australia’s nascent but growing crowd-sourced funding (CSF) industry now makes it possible for early-stage companies, including companies at even the earliest stage, to make a public offer of securities and raise investment from a potentially unlimited number of investors, and advertise these offers broadly online.
Australia’s CSF industry is becoming an increasingly popular and effective way for businesses to raise capital, particularly during the recent challenging economic climate. The Australian CSF industry has achieved a stable funding volume of approximately $70m over the last three years, when other parts of the financial system have sustained material declines in funding. More and more, companies are using the CSF regime to raise capital and build communities of supporters simultaneously.
The myths surrounding Australia’s CSF regime
Despite its potential, Australia’s CSF regime is shrouded in myths that hinder its wider acceptance. Concerns about ending up with a “messy” cap table are misplaced. Preparing for a CSF offer often requires companies to refine their governance structures, resulting in a streamlined and efficient arrangement that benefits the company in the long run. Moreover, the notion that CSF signals a failure to attract other forms of investment is rapidly becoming outdated. Internationally, the shift towards calling these initiatives “community rounds” reflects their role in building a committed community of supporters, rather than merely serving as a last resort for funding.
Contrary to popular belief, CSF is not confined to “business-to-consumer” (B2C) companies. Birchal’s experience has shown that businesses across various sectors can leverage CSF to connect with individuals who believe in their vision, regardless of whether they directly serve end consumers.
The benefits of community rounds
Community rounds represent a significant opportunity for Australian businesses to align their growth with their customers’ and supporters’ enthusiasm. By inviting their community to invest, companies not only raise capital but also deepen their relationships with their customers, turning them into invested partners who share in the business’s successes and challenges. This approach fosters a powerful sense of ownership and loyalty, transforming customers into active brand ambassadors.
High-profile Australian examples, such as ZeroCo and Thriday, illustrate the potential of community rounds to support businesses in achieving significant milestones, including product development and market entry. These success stories demonstrate that community rounds are not merely about raising funds; they are about rallying a community around a shared vision, creating a solid foundation for sustainable growth.
Conclusion
As the Australian entrepreneurial ecosystem continues to evolve, the democratisation of access to capital through community rounds presents a compelling opportunity for start-ups, scale-ups, and SMEs. By embracing this approach, businesses can unlock a new level of engagement and support from their communities, paving the way for innovative growth and success. Every offer should have a crowd-sourced funding element. For those at the forefront of this movement, the future is not just about funding; it’s about building a community of passionate supporters on board for the journey.
