Start-ups advised to invest in peer-to-peer relationships

Start-ups should consider peer-to-peer capital-raising platforms as a way of funding business growth, according to the Australian Small Scale Offerings Board.

As interest rates continue to soar and the banks crack down on lending criteria, many small businesses are looking at other methods to raise capital.

ASSOB claims that peer-to-peer investing, where start-ups are linked directly to investors, could provide the solution.

Rather than rely on a bank for finance, the friends, family and fans of the business – in addition to investors – invest directly into the business via the Australian Small Scale Board.

ASSOB chief executive officer Paul Niederer says the board is being inundated by quality businesses seeking to raise equity capital.

Many of these businesses have already exhausted avenues for bank funding and loans or investment from other finance sources.

Figures for the first half of November show small businesses listed on the ASSOB capital-raising platform have already received investment funds of more than $1.5 million.

Niederer says the November figures indicate a high level of confidence in the platform’s ability to deliver.

“It is clear that ASSOB provides a credible and effective process for small businesses looking to raise vital capital often in the early stages of the company’s critical development,” Niederer says.

“2011 could be shaping up to be our best capital-raising year to date, with a wealth of small businesses waiting in the wings to commence the capital raising process as well as some nationally recognised names seeking to use the platform.”

Niederer says peer-to-peer investing is a viable option for start-ups, particularly as more businesses start to utilise it as a capital-raising platform.

“As long as there’s credibility and legitimacy there, then people are okay with investing through peer-to-peer relationships,” he says.

“Of course, it’s not going to take over the whole market but the trend is with the internet and how you can record whether or not people are good at looking after people’s money or are good investors.”

“They get rated in a different way – they get rated on people’s experience so I think that in itself will be the factor that grows the peer-to-peer aspect of it.”