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It’s a well-trodden path for many founders in Australia: come up with a viable business idea, jump through the various hoops of keeping your startup afloat, and then turn your core concept into an established brand. Playing an integral role at every stage of this process is funding — so entrepreneurs need to know how to successfully raise capital in order to take their business from strength to strength.
The good news is that technology is levelling the playing field for founders, with alternative solutions like equity crowdfunding helping to democratise the capital-raising process. Here, we explain the basics of capital raising and investigate three trends that are affecting Australian business owners.
What is capital raising?
Simply put, capital raising is the process of accumulating funds for a startup or established organisation, typically through the sale of equity or debt securities. Capital raising in Australia can be done through various methods, such as angel investors and venture capital firms (VCs), initial public offerings (IPOs), private placements and equity crowdfunding, and it’s often done to finance the business’s expansion or fund acquisitions.
“Every business goes through various stages of growth,” says Steve Maarbani, CEO and founder of VentureCrowd. “They always start as an idea, which then moves into proof-of-concept, then potentially prototyping. After you’ve nailed the product or service, you go to market and try to find customers. Based on your level of success there, you may make some adjustments to your business model before eventually being in a position where you can focus on expansion and growth. At each of those stages, a founder will typically need to raise capital.”
The changing face of venture capital
Maarbani believes there are seismic shifts occurring in the capital-raising space, with three key trends driving this transformation.
“The first is the changing nature of the venture capital investor,” he says. “Once upon a time if you had asked somebody, ‘What does an angel investor look like?’ they would have painted a very specific picture. Today, there are more angel and venture-capital investors in the world than at any other point in history.”
Importantly, Maarbani adds, this group is younger, they are digital natives, and they are in the process of inheriting the largest-ever intergenerational transfer of wealth.
“Those factors are quickly making these people the most important consumer and investor group in the world. The places that founders can now go in order to raise capital has changed and will continue to change.”
Transforming priorities
Another key trend is that angel investors and the younger partners of VC firms have different priorities to their more traditional counterparts, and that is influencing their funding decisions.
“This group is much more purpose-driven than we’ve seen in the past,” Maarbani says. “They’re tending to prioritise their investment decisions around things like sustainability, egalitarianism and social-cohesion concepts alongside financial returns in a way that previous generations haven’t. This was the exception rather than the rule for a long time in the private capital markets.”
On this point, Maarbani advises that if a founder’s business plans don’t cater to these elements, they may find it more difficult to raise capital.
Digitalisation of capital raising
Perhaps the biggest trend of all is the influence of technology in capital raising.
“The digitalisation of venture capital now means this new breed of investor can invest directly into the companies they love by clicking a few buttons on their smartphone,” Maarbani says. “The private capital markets are broadening and deepening, and they’re becoming more diverse than ever before. That means many more people are participating in the decision-making process about which ideas should be funded, and which should not.
“This is a really exciting time for founders because it means those who may have been overlooked in the past can now find a community of investors that understands what they’re doing and can participate in their growth.”
Choosing the right capital-raising strategy for your specific needs
Maarbani is quick to point out that no one solution for raising capital is correct for all founders.
While equity crowdfunding may be ideal for one startup, particularly in the early stages, accepting traditional venture capital at a later stage may be exactly what a different founder needs to thrive.
“It’s really important that the capital-raising ecosystem develops collaboratively,” he says. “The reality is that there is simply not enough traditional venture capital funding available to fund all the great ideas that deserve funding in this country. It’s just not going to happen.
“So as finance digitises — in much the same way that the entertainment, travel and media sectors have — equity crowdfunding is increasing the options for founders, and that’s a very good thing.”
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VentureCrowd is a leading wealthtech platform democratising access to alternative assets. With over 70,000 registered members, VentureCrowd is Australia’s only multi-asset class platform enabling retail, wholesale and institutional investors to co-invest in the same property, venture capital, fixed income and managed fund opportunities on the same economic terms.
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