The need for equity crowdfunding has become more and more apparent for retail investors following a series of confidence shakers on the ASX.
The Case of Dick Smith Electronics
One such case is the ASX debacle of well-known retailer, Dick Smith Electronics. For nearly 30 years, Woolworths owned the company until a strategic review in 2012 saw them announce mass store closures and the sale of the business to Anchorage Capital Partners.
Anchorage Capital Partners, an investment firm, set up a holding company called “Dick Smith Sub-holdings” to acquire Dick Smith from Woolworths. It was initially reported that they paid approximately $100 million for the business. However, 2014 financial documents later indicated that as little as $10 million may have actually been paid.
Just 15 months after the acquisition, Anchorage had, by some means, turned the business value around from essentially $10 million to $520 million – the price it was floated at on the ASX.
In 2016, the retailer collapsed entirely leaving a $260 million shortfall to creditors. Claims have since been lodged in the Federal Court suggesting that people who invested in the prospectus lost over $200 million collectively.
Some believe that if Dick Smith had been sold in a private transaction, the buyer and their accounting teams would have known what red flags to look out for. Mum and dad investors, on the other hand, do not have the experience to identify gaps in balance sheets or look for attempts where the vendor has recklessly structured documents in a way that makes it a more appealing investment opportunity.
So, when an iconic Australian company with long-term operating history lists on the ASX and burns retail investors, it’s not hard to see how confidence in traditional investment methods starts to waiver. This has resulted in the rise of non-traditional investment channels, such as equity crowdfunding platforms where Australian companies (restrictions apply) can raise up to $5 million each year in capital to advance their business goals.Crowdfunding.com.au is an example of one of these equity crowdfunding platforms and the founders behind the site were one of the first in Australia to receive their license to operate in the space. Only 7 licenses exist in Australia so there is some comfort in knowing that the space isn’t open to just any financial professional to start their own platform and accept investment money on behalf of enterprises. Since legislation eased towards the end of September 2017, interest in equity crowdfunding has skyrocketed and online platforms such as Crowdfunding.com.au have received mass attention. The opportunity to receive funding to accelerate growth in exchange for shares, has been hugely welcomed by the Australian business community. The space is still heavily regulated by the Australian Securities and Investments Commission which provides comfort for investor security.