Start-ups feel the love

Early-stage ventures with a project to take to the world are turning to loyal supporters to raise the necessary funds

- ELIOT HASTIE

Investing in companies you know is one of the guiding principles of billionaire and investing legend Warren Buffet.

Buffet famously says “never invest in a business you cannot understand” and you should stick to companies you’re familiar with because “risk comes from not knowing what you are doing”.

It’s the reason why hundreds of investors buy into popular brands such as Apple, Amazon and Australia’s major banks. But in many cases, investors are just a number to a corporation already well on its business track.

But not every company takes the stock market route; more and more of them are turning to their loyal fans and community to power their growth. That is what equity crowdfunding is, and it’s fast becoming one of the top ways for early-stage ventures to grow capital.

How does it work?

Equity crowdfunding is a type of investment strategy using securities, where a founder will issue the public shares in their company in exchange for an investment. Supporters believe it is democratising traditional investing by making investing in start-ups and early-stage businesses accessible to everyone.

It differs from other forms of crowdfunding: US-based Kickstarter, for example, is a crowdfunding platform enabling users to invest in a start-up in exchange for that start-up’s product on first release. Donation platform GoFundMe asks investors to donate funds, usually for a cause, with no expectation of a return.

With equity crowdfunding, start-ups and small to medium enterprises have an opportunity to raise capital while the public gets to invest in something they are passionate about.

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