One cool development in the investment landscape recently has been the rise of crowdfunding equity.
I first came across this concept maybe five years ago, and since then it has become a reasonably common way to raise capital.
Think of equity crowdfunding as a Kickstarter or Indiegogo, but instead of donating and receiving gifts or rewards, you’re investing in stock.
Previously investing in ground-level startups was a privilege reserved for the ultra-rich or connected, but now any Mum and Dad investor (and even teenager or student!) can get in at the ground level.
Below I’m going to introduce you to a few cool websites based in New Zealand and Australia, so you can begin your startup investing career in just a few clicks.
While these sites are going to look pretty snazzy and cool, remember that this is still real money. Startup investing is not a meaningless game of basketball where you can get an ass whooping and then wake up tomorrow and everything is okay again. It’s more like a fight to the death – once your money goes, it’s really gone forever.
I would actually recommend most people stay away from this type of investing until you’re financially comfortable and have substantial experience in investing.
Do you know how to read a financial forecast? What about a balance sheet and a P&L? Cash flow statement?
These are basic skills you need before you start throwing hard-earned cash at someone else’s business idea. If you can’t read basic financial statements, I’d highly recommend sticking to window shopping on these sites. Money is made and lost very quickly here (I’ll share some stories below).
Pledgeme is a very fun, trendy website that manages not just equity crowdfunding projects but also loans and donations. It’s an interesting site to browse to see what kind of things people are getting up to in New Zealand. Everything from albums to movies to non-profit projects all way up to multi-million dollar business funding is found on the platform.
The site is the brainchild of Anna Guenther, who started the project as part of her postgraduate thesis. Since 2012, they’ve helped Kiwis raise of $68 million. Pretty impressive!
If you do plan on investing in any projects, I highly recommend using their Q&A feature. Sometimes the information that projects provide is lacking, so it’s always good to ask as many questions as possible so you have all the information you need. In my experience, project leaders are usually very good at responding to investor queries on the site.
Equitise is an Australian website which also allows for Kiwi projects to be listed.
The site was started in 2014 by a bunch of guys well-connected in the venture capital scene. I’ve actually heard from some old colleagues who have met much of the Equitise team and say it’s a really tightly run ship with lots of good brains around the table. Always good to know!
This actually comes through in the way Equitise do things – the site is much more corporate flavoured and so are many of the projects that tend to come through there. It’s interesting to see how this works – startups are often so connected to their images and values and therefore tend to gravitate toward the crowdfunding platform that suits their image best.
One thing I’m not a huge fan of with Equitise is their different investing classes. Crowdfunding is about democratising the investing process, yet Equitise does put restrictions on certain investors, or requires you to have a certain net worth or accreditation for some investments. I understand there are legal reasons, but it still takes away from the concept at large.
Also many of their investments are restricted to Australian based investors.
Snowball Effect is another NZ equity crowdfunding site, which has raised an impressive $150m in capital for startups to date.
From what I’ve seen, the site tends to gravitate more towards private offers with minimum investments, usually in the range of $10,000+, but also has open offers available to everyone as well.
I do check in here every few weeks to see what’s going on, but out of the three sites listed here, this is the one I’ve been least active on.
Still, it’s worth keeping on your radar.
Why Invest In Startups?
The idea of investing in a startup is to get equity in a company in the early stages.
This is usually when their value is the lowest, so if you can pick a “winning” idea early on, there is a good chance you will experience significant gains.
Many multi-million (billion) dollar fortunes were made by people investing in startups like Spotify, Facebook, Uber and Instagram when they were just tiny companies looking for capital.
The way you can realistically get a return on your money through a startup investment is:
- If the company gets acquired by a bigger company for a higher valuation than what you paid (this is what most commonly happens)
- If the company lists on the stock market and its price appreciates.
- If the company becomes profitable and starts paying dividends.
- If you sell your shares on the secondary market to another investor at a profit.
My Experience In Startup Investing
I have dabbled on all three sites above but haven’t seen anything I liked enough to make a high conviction bet. My success has been mixed – I’ve already had two investments go belly up, and I’ve had one of my investments acquired by a large US corporation and got a reasonable payday from it. Overall I’ve had a positive return, but it’s honestly been due to luck more than anything.
I won’t share dollar amounts, but some of the offers I’ve participated in are:
Of these, Xinja and Riot Foods both went into bankruptcy within a couple of years. Riot Foods was a big debacle which I won’t go into, but it really highlighted how easily things can go wrong with these smaller companies. It was a shame because I really enjoyed their products.
Little Bird and Chief are two companies I think are ticking along great, I don’t expect to get rich from them but pretty much all my snack foods are bought from them! I love the products so it’s great to be able to support companies that I also own.
Car Next Door has been my big winner from the list, which was acquired by Uber for an undisclosed price in 2022. Obviously I know what the price was (because they had to pay me for my shares) but we’ve been told not to talk publicly about it. All I can say is I did end up with a five-figure gain from it, which luckily offset my Riot and Xinja losses with some to spare. I ended up rolling those funds into Chief and Hero, so we’ll see how they go!
Want To Start Investing In NZ/AU Startups?
Try to understand that this kind of investing is fraught with risk and to be honest, I don’t even consider it investing as much as it is guessing. So many things can go wrong in early-stage companies and you literally have zero say in how the companies are being run.
This is not the same as big VC firms pumping in millions of capital into startups and then giving them access to all their lawyers and bankers and consultants.
If you’re going to invest, definitely don’t bet the house and only invest what you can afford to lose.
I do admit it’s exciting reading about new companies and all their ideas and putting a bit of money in so you can be a part of it, but the likelihood of you getting a return is not that high.
Have fun, but be smart too!