Crowdsourced funding trends: Birchal co-founder Matt Vitale on what to expect in 2023
Well established businesses are increasingly turning to crowdsourced funding, and more companies are returning for follow-on raises.
If the past few years have taught us anything, predictions are tricky. Unforeseen global events have led to what most would agree has been another challenging year in 2022. But equity crowdfunding has been resilient, and several positive trends suggest 2023 could bring renewed opportunities for Australian businesses and investors.
Global crowdsourced funding revolution
At Birchal, we remain optimistic on the outlook for next year having begun our annual market review and discovered some encouraging trends, which we are hopeful will continue into next year.
Australia’s crowdsourced funding (CSF) industry, still relatively nascent, is part of a broader global revolution in capital raising that started in the wake of the global financial crisis in the UK, and has since expanded to most developed economies around the world.
Initially created to plug a critical funding gap for early-stage businesses, perspectives on equity crowdfunding are changing. An increasing number of founders are now seeing the benefit of building a community of engaged supporters as the key motivation for running an equity crowdfunding campaign.
With Australia’s crowdsourced funding legislation now enabling a direct-to-investor model for raising capital, we see it becoming as important as the direct-to-consumer trend in recent years.
The results of high-performing businesses funded by Birchal has been another proof point for equity crowdfunding in Australia. Thriday’s recent $6 million follow-on round (led by NAB Ventures) and Montu’s stunning financial year 2022 performance landing it on Deloitte and AFR fast lists (first and fifth respectively) are great validators of the CSF regime in Australia.
Established businesses crowdfunding
In 2022, these factors translated to a leap in the number of established businesses (with more than $500,000 in reported revenue) looking to raise through equity crowdfunding platforms.
From a total of 64 deals on Birchal in 2022, established businesses made up 59% of Birchal’s funded campaigns, compared to 34% in 2021 and 18% in 2020.
Business quality also lifted, with 47% of established businesses achieving positive earnings at time of their CSF offers in 2022, compared to about a third in the previous three years.
We predict this will remain true in 2023 as the maturity of Australia’s crowd investment sector continues and founders increasingly recognise the benefits of crowd investment, and how to incorporate CSF as a key part of their funding strategy.
Companies returning for follow-on raises
Another encouraging trend we expect to continue is a healthy proportion of companies returning for follow-on raises. Approximately 20% of all offers hosted by Birchal are follow-ons for returning businesses (22% in 2022), with an average of 1.5 years between raises, 136% increase in valuation and 245% increase in revenue growth (if post-revenue on the prior CSF offer).
The health of the portfolio tells us we’ll continue to see those performing businesses coming back as they achieve milestone growth – providing some exciting opportunities for investors that missed out the first time.
Moderation of valuations
But perhaps the most encouraging trend has been the moderation of valuations on Birchal as conditions have changed throughout the year. For comparison, during 2022 pre-money valuations as a multiple of revenue fell for established businesses (ie > $500,000 revenue) to 8.7x revenue on average, compared to 2021 where it rose to 16.5x revenue.
These trends combined suggest a positive outlook for 2023, where crowd investors will enjoy more opportunities from high quality, well-valued companies. Businesses will be able to make the most of the consistently growing numbers of investors (up 57.7% in 2022) by inviting their most passionate supporters to share in a future with them.
Birchal will release its full market analysis in January, which we call the Yearbook, to reveal the trends across individual sectors for those looking for further insights into what might lay ahead in 2023.
Matt Vitale is co-founder of Birchal, one of Australia’s leading equity crowdfunding platforms
