First thing’s first – what is an IPO and what part does it play in capital raising?
An IPO is an Initial Public Offering and it’s where a company chooses to offer its stock for the first time to the public. Don’t be put off by Jordan Belfort’s manic scene explaining how it works in “The Wolf of Wall Street” – that was the early 90s in a less-regulated America and Belfort when to jail for his illegal activities. In Australia, getting to an IPO stage for a company is a tough and strict process.
IPOs in Australia occur after a company engages an investment bank or broker-dealer to secure investment for them and the stock is usually only offered to institutional investors such as insurance funds and hedge funds. Once all the shares are sold to these large investors, the company starts trading on the Australian stock market where individuals (retail investors) are then resold those shares (at usually higher prices).
While IPOs are harder for the average person to get access to, equity crowdfunding let’s anyone over the age of 18 in Australia invest in exciting early-stage businesses. It’s a chance to step into investing in what could be the next big thing. Recent legislation has opened the door to equity crowdfunding which has allowed people to start or grow their investment portfolios without forking over thousands of dollars.
Little historical data
For the investor, both IPOs and equity crowdfunding involve a greater element of risk as there is no existing figures to look at to see how the stock has previously performed. In saying that, the case of Dick Smith’s IPO journey saw a reputable and long-standing company collapse and leave many investors dry. Having long-term financial records doesn’t always guarantee success.
Typically, it is young and fast-growing companies that choose these capital raising routes.
Getting involved in equity crowdfunding costs as little as $100. The IPO investment amount is usually a minimum of $2,000. This can add more risk for the investor as you could potentially be putting your eggs in one basket, rather than investing in several companies at the same price on a crowdfunding site.
Lower shareholder engagement
Naturally, a shareholder that puts in a couple of hundred dollars on a crowdfunding platform will expect less contact (if not zero contact all together) than a shareholder who invests a few thousand through an IPO.
Face-to-face selling isn’t required
The IPO process involves building relationships and getting out on the road to meet with potential investors. Crowdfunding.com.au does the relationship building for you as it lists your story and vision so there’s no intimidating boardroom meetings required.
Costs involved in the listing process include legal, brokerage, accounting and other professional fees. The fees for listing on the ASX alone, starts from $73,500 once-off plus $25,732 annually (as of 1 January 2018).
Crowdfunding.com.au will soon be one of the first in Australia to offer the largest equity crowdfunding platform. Get exposed to a Facebook audience of over 800,000 and raise capital in a way that differs from outdated channels.