Beer, cannabis, hydrogen: Plenty of cash to splash on crowdfunding campaigns
By Jessica Yun
After five years hosting equity crowdfunding campaigns, Birchal chief Matt Vitale has figured out that Tuesday is the best day to launch a campaign, and Thursday is the best day to close one.
There doesn’t seem to be any discernible reason why. As the Australian economy slows and rate rises put pressure on household budgets, people will still have money to pour into these fund raisings, meaning Vitale’s week could get more busy, not less.
“What we’ve seen is that confidence and activity has continued to build throughout 2023. So, heading into [financial year] 2024, we expect that to continue,” he said.
Birchal CEO Matt Vitale says recessionary environments are exactly what gives rise to equity crowdfunding campaigns.Credit: Tash Sorensen
Vitale points out that crowdfunding tends to flourish in a recessionary environment. In the aftermath of the global financial crisis, which diminished small business activity, the US government under then-president Barack Obama implemented the world’s first legislation around raising funding in this way.
“These are exactly the times that this regime was put in for,” said Vitale.
“It’s more a matter of what those deals look like in this environment, but it improves the flow of capital to start-ups. If people are going to start things, they need capital. That capital needs to come from somewhere.”
It doesn’t mean Vitale isn’t carefully watching for signs of slowed activity. On the whole, Australians are becoming more comfortable pouring increasing amounts of our own money – more than $248 million – into start-ups. In the 2023 financial year, however, crowdsourced funding dropped 26 per cent to $64 million. Cost of living pressures have put hospitality and retail sectors under pressure, yet Australians still spent nearly $30 million on food, beverage and retail-related crowdfunding raises.
“They’re businesses people can understand,” said Vitale.
“Veganism is another trend that people are wanting to support, and the ‘premiumisation’ of products, and people being more mindful how products are made and what brands stand for.
“What we’ve observed is companies that go through this process and execute well [are] building communities. In the states (US), platforms are starting to call these community rounds, which I think is probably a far more useful term than equity crowdfunding because that’s exactly what it is.”
What’s hot and what’s not
In the next months and years ahead, Vitale sees plant-based products – ranging from burgers to medicine – and sustainability and the transition to renewables as two key trends that will become more prominent in crowdsourced funding efforts.
‘What we do is help companies bring opportunities to market that often enable investors to be a part of the change that they want to see in the world.’
Birchal CEO Matt Vitale
One of Birchal’s biggest raises of 2023 was medicinal cannabis company Cannaponics. Driven by a growing global focus on mental health and wellness, emergent players that help treat depression and chronic mental illnesses will be popular. “Investors will really respond to these opportunities because they’ve captured people’s hearts and minds.”
Vitale also highlighted the success of green hydrogen producer Line Hydrogen, which raised $1.4 million last year and is set to list on the London Stock Exchange in September, and soft plastics recycling solution RecycleSmart, which investors rallied behind after RedCycle’s collapse.
“What we do is help companies bring opportunities to market that often enable investors to be a part of the change that they want to see in the world,” Vitale said.
But not every business is suited to a crowdfunding campaign; in fact, most aren’t. Birchal receives about two dozen inquiries a week from parties hoping to launch their own crowdfunding campaign. A fraction of those hopefuls actually make it: last financial year, Australia had 87 successful campaigns, 57 of which were hosted on Birchal.
Birchal CEO Matt Vitale with chief legal officer Kellie Morton and chair Adam Vise.Credit: Nine
“A business may be eligible, but they might not be suitable,” said Vitale. “To be successful, you need to be interesting, to have a story to tell, and to be able to engage a wide audience of people to back you.”
Birchal’s business model works by charging fees on its campaigns and a 6 per cent flat fee on approved investments. In the 2022 financial year, ASIC documents reveal Birchal made a profit of $112,938, less than half of $352,554 the year prior.
Retail investors will also do well to remember that Birchal is just a platform that facilitates investment. Like any other investment, some early-stage ventures don’t pan out as expected.
For instance, plant-based burger chain Flave, founded by former Zambrero chief executive Stuart Cook who raised $891,000 through Birchal late last year with aspirations of opening 1000 stores worldwide by 2033. Six months later, Flave “temporarily” shut their two Bondi stores in what they told investors was “a strategic hibernation period”.
“Some companies succeed and others don’t,” Vitale said, adding that consumer protections – such as a limit of $10,000 per company per year – are built in to protect Australians from throwing in their life savings. “There are failures.”
Vitale sees Birchal playing a key role in the Australian financial services landscape and enthuses about comments from Treasurer Jim Chalmers who this year penned a 6000-word essay in The Monthly on values-based capitalism that outlines a more inclusive, resilient economy with greater collaboration between the public and private sector.
“We feel that we’re at the forefront of this,” he said. “We’re in the middle, if you like, but it’s the public that are responding.
“If you were to ask me whether we saw ourselves as a purposeful, impactful platform when we launched, I couldn’t say we did. I think that’s what we’ve become.”
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