Change is coming to Australia. And Xinja is going to be part of it. Not only are we aiming to be this country’s first neobank, but we’re also hoping to run Australia’s first equity crowdfunding. We are not a bank yet, but working with regulators to become one.
You may have heard us talking about ‘owning a piece of Xinja’ or maybe you’ve seen our ads asking you to ‘get in on the bank job’.
But what is equity crowdfunding? How is it different to regular crowdfunding? How come it hasn’t happened in Australia before? And are there risks that you should consider before you invest?
Equity crowdfunding is where the crowd (you / your mum and dad) invests in an early-stage business and in return they get shares in that company.
What is equity crowdfunding?
Equity crowdfunding or crowd-sourced funding (CSF) is where the crowd (you / your mum and dad / regular people) invests in an early-stage business and in return they get shares in that company. As the investment is in a start-up, it’s really important to understand the risks involved. If the business is a success, it could potentially deliver a good return, however start-ups can and do fail.
There are many benefits to equity crowdfunding. Here are just a few:
Access to capital: In the past it has been difficult for early-stage businesses to secure funding. This can impact industry development as many innovative ideas come from start-ups.
Contribution to the economy: Early-stage businesses need to hire staff and buy goods to get off the ground. These small businesses also have the potential to turn into big businesses.
Confirms credibility for the business with proof of concept.
Customer involvement: Customers who participate in the crowdfund become a dedicated group who are invested in the business’ success.
Accessible Investments: It’s affordable and easy for anyone to invest. For more sophisticated investors, it offers another way to diversify their portfolios.
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“Xinja can now access the funds needed to help build our product offerings and give the entrenched banks something to think about” – Eric Wilson, Xinja CEO
How is it different to regular crowdfunding?
Crowdfunding platforms like Kickstarter and IndieGoGo have been raising funds for various ventures for close to 10 years now; helping gadgets get built, films get produced, games get developed and even helping potato salad and giant Lionel Richie heads get made! In return for the funds up-front, once the product is developed the businesses generally give something back to the investors depending upon the level of investment; which could be early access to the product or added value through additional goods.
Equity crowdfunding is similar in that it democratises the investment process, but differs in that the crowd are buying a stake in the business rather than early or discounted access to a product or service.
Also compared to regular crowdfunding there is greater risk and with this risk comes more stringent regulation. Whilst start-ups overseas have been raising funds this way for a few years now, the legislation has only just passed here in Australia. The Crowd-sourced Funding Act 2017 came into effect on 29th September 2017. Under the legislation, public businesses will be able to raise up to $5m and there is a maximum investment limit of $10,000 per person.
Xinja CEO Eric Wilson is excited by the opportunity the changes in legislation present to start-ups like Xinja; “It is fantastic that these regulatory barriers have been removed and Xinja can now access the funds needed to help build our product offerings and give the entrenched banks something to think about.”
Like any investment, CSF (crowd-sourced funding) is risky
Are there risks that you should consider before you invest?
So let’s talk about risk. If you’re keen to invest, it’s super important to go into it with your eyes open. Like any investment, CSF is risky. You might lose your money and the business you’re investing in may not achieve its objectives. Before investing, review any documentation that is available (with Xinja, make sure you look at our CSF offer document and the general risk warning).
Those risks include:
Loss of capital: start-ups do fail and you may lose your money
Illiquidity: even for a successful business, you’re unlikely to be able to sell your shares for a while
(Lack of) dividends: you are entitled to them, but the start-up is under no obligation to (and probably won’t) pay them
Dilution: As the business seeks further investment, your % stake in the business may reduce as further shares are issued.
It’s really important to understand these risks and we’d recommend getting advice before investing.
UK neobank Monzo pulled in £3.5m over two seperate raises in 2016 and 2017
What’s happened in other countries?
Whilst CSF is new here, businesses in other parts of the world have been raising money this way for some time. In 2015, the total equity crowdfunding volume worldwide was over $2.5bn! Success stories include:
Monzo – UK neobank (and friend of Xinja) Monzo pulled in £3.5m over two seperate raises in 2016 and 2017. Their first raise was the fastest ever – achieving their goal of £1m in 96 seconds! (One of Monzo’s co-founders Jason Bates is on our board)
Brew Dog – a major CSF success story, the Scottish brewer of craft beer has raised tens of millions in several equity crowdfunding rounds since 2010 and created a legion of investors and brand ambassadors called equity punks. When they sold a significant portion of their business to a US private equity company earlier this year their punks saw a healthy return.
“Australian brands [can] use crowdfunding to really connect with their customer base” – Chris Gilbert, Equitise co-founder
Investing in Xinja
So let’s talk about Xinja quickly. We’ve partnered with leading equity crowdfunding platform Equitise. They’ve run multiple successful crowdfunds in New Zealand and their first here in Australia will be us!
Their co-founder Chris Gilbert says “We see a huge opportunity and demand from Australian brands to use crowdfunding to really connect with their customer base.”
Xinja’s ‘deal room’ on their site is likely to open next week and investments start at $250 and up to a maximum of $10,000. Shares are $1.25 and we’re hoping to raise between $500,000 and $3,000,000. Register your interest in the deal on equitise.com. Before investing it’s really important you read our offer document, along with the risk information contained in the deal room.
Please note: As mentioned above and like any investment, Crowd-Sourced Funding (CSF) is risky. Investors may lose their money and the business may not achieve its objectives. You should consider the CSF offer document and the general CSF risk warning contained in the offer document in deciding whether to apply under the offer