Crowdfunding: a brave new world of investing

Buying into start-ups has long been the holy grail of forward-thinking investors. Equity crowdfunding opportunities are finally opening the doors.

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In July 2004, Peter Thiel, founder of Clarium Capital Management, a global macro hedge fund, invested $500,000 of start-up capital in Facebook, buying 10 per cent of the shares in the fledgling social media platform. He was the first outside investor in Facebook – but by no means the last.

By the time the company went public in 2012, Thiel sold off 16.8 million of his 44 million shares, netting $640 million.

It’s the kind of win we all dream about – and we all believe could happen if only we had access to the right opportunities at the right time.

Where’s the value?

So much of the large surge in valuation of successful start-ups occurs in the angel or start-up phase – well prior to initial public offering stage. But typically angel capital, or start-up investment, has been the domain of venture capital firms, Silicon Valley stalwarts or ultra high net worth individuals.

Years ago investors would make the most money by participating in initial public offerings (IPOs). But the wealth is created in the private equity stake – the IPO simply unlocks it. So the key issue is, how do you get into that private equity build?”

Increasing demand

More and more investors outside this traditional arena are looking for opportunities to invest early in innovation: to reap the benefits of being a first mover; an early adopter; a true believer.

And we’re finally seeing the market respond to the demand for access through truly innovative investment partnerships that lower the barriers to entry and open up a whole new world of access to exciting opportunities.

Equity crowdfunding is one of the fastest growing partnership frameworks that’s changing the game for investors. Drawing on crowdfunding technology and strategy, typically used to finance projects or causes, equity crowdfunding offers an opportunity to invest alongside other investors in the early stages of a company’s development in return for equity in the business.

Spotlight on OurCrowd

One of the most interesting of these platforms is OurCrowd. This Israeli-based company offers a digital investment platform with nine key start-up portfolios: webtech, medtech, consumer, internet of things, greentech, fintech, enterprise solutions, transportation tech and cyber security.

Each year the company conducts an extensive global search for start-ups that need funding, vetting over 3000 per year and selecting one to two per cent to work on. The platform then offers the opportunity to invest to their members at a minimum of $10,000 – far lower than traditional private equity stakes.

This is the true democratisation of access. It opens the doors to investing in innovation to so many more individuals.

Members need to be accredited as high net investors – the criterion varies from country to country. In the US, for example, the government requires that investors have an annual income of $200,000 ($300,000 if filing joint) for the last two years or a net worth, not including primary residence, of $1 million in order to invest in early stage companies.

An innovative partnership

NAB was so excited by the potential of the platform that in June 2017 we created an Australian partnership to provide direct access for NAB clients to the OurCrowd platform. It was a decision driven by what we were hearing from clients: they wanted opportunities to add value by mentoring and supporting a company and to create exceptional wealth through investing early in a start-up that may succeed.

The company’s Israeli roots are key to its success.

Israel is a true island. It’s second only to Silicon Valley as an innovation hub because it has had to think globally and act collaboratively.

And the parallels with Australia are clear. We’re an island with a small population but a habit of thinking locally. We need to think globally and collaborate – and OurCrowd is a powerful way of doing that.

Always evolving

One of the most exciting things about an equity crowdfunding platform is the way it continues to evolve. OurCrowd, for example, now also encompasses OurCrowd First, which offers an earlier-stage investment opportunity in the risk-balanced, sector-diversified structure of a traditional venture fund, investing in primarily Israeli-related seed and pre-A stage ventures.

Portfolio Reserve, similar to a self-directed mutual fund of start-ups, allows investors to pre-fund an escrow account, choose a default allocation amount for new deals and maintain full discretion over their investments.

Portfolio Reservists receive VIP treatment and are never put on a waiting list for oversubscribed investments. The minimum to open a Portfolio Reserve is $100,000 with allocations starting at $5000 per company.

The platform also offers access to Qure, Israel’s first exclusively focused digital health fund. The fund focuses predominantly on start-ups located in Israel, home to the world’s leading tech and digital health ecosystem.

The future is collaboration

OurCrowd is only the beginning of a brave new world of investing.

The future is partnerships. It’s about collaborative arrangements where we bring world’s best practise and opportunities to investors.

The collaborative aspect is not just about direct investment opportunities. Equity crowdfunding platforms like OurCrowd offer a unique opportunity to connect to other innovative investors, to brilliant thinkers and entrepreneurs that are sometimes literally changing the world.

Sometimes who you meet in this kind of network is just as important as the investment opportunity that’s right in front of you. It’s an exciting time.

 

This article was first published in Business View magazine (Issue 24).