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How does equity crowdfunding work with listed companies?

Pundits commonly associate equity crowdfunding more immediately with startups or emerging companies than with listed companies. While the nascent industry removes traditional barriers to investment to welcome an array of broad investor types, less is advertised regarding its efficiency as a vehicle for listed and startup companies alike. While alternative finance continues to evolve and expand as an industry, it’s important that listed companies understand the potential of equity crowdfunding in a vibrant and crowded marketplace.

Pundits commonly associate equity crowdfunding more immediately with startups or emerging companies than with listed companies. While the nascent industry removes traditional barriers to investment to welcome an array of broad investor types, less is advertised regarding its efficiency as a vehicle for listed and startup companies alike. While alternative finance continues to evolve and expand as an industry, it’s important that listed companies understand the potential of equity crowdfunding in a vibrant and crowded marketplace.

 

Listed Examples

As it competes with VC and angel investment as the go-to investment source for startup companies, public companies have recently employed equity crowdfunding as a primary means of capital-raising. In 2014, the English winemaker Chapel Down used Seedrs to raise £4 million, eschewing traditional financial institutions. This marked the first time a company with publicly traded shares had opted for crowdfunding, and, as the country’s biggest wine producer, it marked the biggest campaign of its kind – 1400 people participated.

Since then, a handful of public and listing companies have utilized crowdfunding platforms across Europe. For instance in April 2016, the Finnish IT house Siili Solutions upgraded its listing from the Nasdaq First North Helsinki (Nasdaq's Finnish growth market) to the Nasdaq Helsinki main market using Invesdor as the retail subscription platform – the first time in Europe that a crowdfunding platform was used in a main market listing. In November 2016, Heeros became the first European crowdfunded company to go public, raising €3.4 million in the process.

 

The Up Sides of Crowdfunded Equities

While a primary advantage of these campaigns is exposing a new category of investors to deals that were hitherto unavailable, other companies with publicly traded shares are realising an array of advantages.   Chief among these is the time-consuming nature of traditional investment channels, which demand the draining process of meetings, networking and channelling funds. Equity crowdfunding occurs online and often through mobile platforms, canvassing investors with ease, instantly exposing the deal to a new network, and allowing a newfound kind of shareholder diversity. 

As a minimum number of stockholders is a requirement for certain stock markets, crowdfunded companies are able to fulfil this criterion with ease.  Likewise, having a diversified range of investors provides instant marketing potential as a sample of different demographics can easily attest to the appeal of investors, rather than only relying on testimonies of a small pool of investors. Similarly, for follow-on offerings, which are commonplace in equity crowdfunding, there is already a broad base from which to draw – it avoids the recapitulation that a VC or angel process would need to start from the beginning.  This democratic appeal is at the core of equity crowdfunding, and the brand awareness it inculcates is a key distinguishing characteristic from traditional modes of investment.

 

Going Forward

As countless startups have used equity crowdfunding to staggering success, valued at over £3 billion in the UK alone, and seeing its first successful exits, it’s no wonder listed companies are embracing the burgeoning industry. Funding gaps are a sore point for every kind of company, and the presence of alternative and innovative modes of investment is clearly welcome. Invesdor’s offers both past and present is testament to the diversity of companies looking for alternative finance, and all have innovation at their core, as does the industry as a whole.

 

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Guest writer
Richard Andrée Wiltens is a commentator within the fintech sector, who has written for an array of international investment platforms. His career has spanned from investment banking to financial technology firms, backed by an education in economics and finance.

Tagged: heeros, ipo, listed companies, siili, Tips & Tricks

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