Opinion

How equity crowdfunding could open new opportunities for traditional media

Equity crowdfunding campaigns could revolutionise Australia's traditional media landscape, but up until now it's been nothing but a waiting game, as Community Newspaper Group's Guy Turner explains.

Over the past three years I have been closely following the progression of the equity crowdfunding (CSF) discussion in Australia.

It took until May 2014 for CAMAC (now dissolved) to release its first report, incidentally a month after New Zealand implemented regulations to allow CSF in its market.

The 2015 Federal budget set aside money for ASIC to administer the rollout, which was then scheduled for late 2015. Roll around to March 2017 and the Corporations Amendment (crowd-sourced funding) Bill 2016 was finally passed, with the legislation expected to enable transactions from 28 September 2017.

Globally, equity (and debt) crowdfunding options are a way for businesses to raise funds for growth from a combination of ‘sophisticated’ and ‘unsophisticated’ investors.

Legislation is usually enacted to enable a new funding stream to entrepreneurs, but with a focus on protection of investors through limiting exposure amongst other things. It is estimated that the global market for CSF activities in 2015 raised in excess of $40 billion.

Obama signed a similar act for the US back in 2012

Last month, Pozible co-founder Alan Crabbe and former Ashurst lawyer Matt Vitale launched Birchal, joining other platforms such as Equitise (who are already transacting for ‘wholesale or sophisticated’ investors) poised to take advantage of the new legislation.

So what does this mean for traditional media?

Investment into peer-to-peer lending service SocietyOne by Seven West Media and News Corp Australia show some appetite for fintech amongst major media operators. Likewise, the 2016 launch of News Corp’s Scaleup mediafund demonstrates an interest in applying an ‘advertising for equity’ model to support rapid growth businesses with a B2C focus.

The coming availability of CSF to retail (read ‘unsophisticated’ or otherwise) investors offers multiple opportunities to traditional media:

“Media owners partnering with CSF platforms (intermediaries)”

There’s a whole new class of platforms requiring both retail investors, now open to pretty much all Australian adults, and businesses listing for funding (much more restricted). Traditional media excels in reaching both, making this ideally suited for the ‘advertising for equity’ model.

CSR companies are restricted to a single listing on a single intermediary at any given point in time – meaning backing an early mover with a quality, compliant platform is key. There is likely little appetite to invest mid-stream on a challenger intermediary after the experiences with classified platforms, daily deals and streaming services.

Advertising

On first read, the bill appeared to exclude CSF companies advertising on media platforms, however read more closely:

“An advertisement or publication that refers to a CSF offer or an intended CSF offer does not contravene subsection (1) if the advertisement or publication states that a person should, in deciding whether to make an application pursuant to the offer, consider the CSF offer document for the offer and the general CSF risk warning.”

This appears to apply a similar standard to other financial services advertising and therefore opens the way for traditional media to offer CSF companies the gamete of advertising services. Indeed, should the media outlet be accepting of risk, some or all payment could be deferred on success of the CSR round.

Full service

Global experience has shown that there is quite a science to all forms of crowdfunding: pre-seeding, advocacy from existing investors to their networks, use of video, campaign website creation, navigating the crowd-funding ‘valley of death’ and exceeding target on deadline, amongst many more.

Using a media outlet who has marshalled a virtual team including legal compliance, paid, earned and owned media production plus distribution and business advisory services can assist in not only the CSF campaign, but also in capitalising on the revenue raised to position for future growth. The involvement and support of a trusted and recognised media provider may well improve the standing and perception of the CSF company to potential investors.

In conclusion, I’ll also point out the ongoing benefits of attracting CSF investors.

Investors acquired through CSF campaigns offer an entirely new level of advocacy and engagement to businesses. As well as the small cash ‘skin in the game’, they have the emotional connection and desire to see their investment, ergo the business, succeed.

They represent the highest level advocates that a growing business can have; they can be asked for advice without the business being bound to it; they can be asked to use influence, increase their investment (up to a $10k ceiling p/a) or reinvest above that at a future CSF round in a subsequent year.

It will be interesting to see whether there’s a jostling for position, or a cautious wait for proof of concept in this market from the media outlets… either way, the very long wait for CSF is almost over.

Guy Turner is insights and strategy director at Community Newspaper Group.

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