Crowd-sourced funding steady at $71m in 2023

Despite a 58 per cent decline in venture capital funding in Australia last year, a new industry report shows resilience for the crowd-sourced funding (CSF) sector which remained steady at $71 million as investors poured into food & beverage startups, cannabis and more female-founded businesses.

The latest CSF Yearbook 2023 prepared by Birchal shows that while the number of CSF raises declined by 11 per cent at 82, the total funding raised was down by just 2 per cent with a similar volume of participants compared to 2022.

This result was aided by Birchal's 'busiest quarter ever' at the end of 2023, including its own $2.4 million raise.

Since the Australian CSF industry commenced in 2018, Birchal estimates a total of $289 million has been raised across 380 successful CSF offers with an average deal size of $761,000.

"CSF activity has remained stable, which is no small feat given the current funding environment and unrest in the wider financial system. It has been another solid performance for Australia’s equity crowdfunding industry," says Birchal co-founder and CEO Matt Vitale.

"Whilst the 2023 result for the industry as a whole has reported similar volumes to 2022, and system growth was flat, being able to maintain this level of funding reveals the substantial contribution of CSF to the ecosystem and is further evidence that despite persistently challenging funding conditions, equity CSF remains a lifeline and reliable source of capital for Australian startups."

Almost a third of all investments related to food & beverage companies, which unlike in previous years was not dominated by beer companies.

Vitale says there were 24 successful campaigns in the sector raising $21.6 million, representing 31 per cent of the CSF industry.

He notes non-beer businesses surged to contribute $19 million - the highest ever and up 38 per cent from $13.7 million in 2022. Examples include non-alc and low-sugar beverage company Naked Life, distiller Old Young's, and tea and powder startup Roogenic.

Health care was the second-largest category for CSF in 2023 with $13.3 million raised, with the lion's share coming from cannabis companies.

"Cannabis ventures gained significant traction in 2023, with cannabis-related campaigns raising $10.9 million out of a total of $13.3 million for the healthcare category," says Vitale.

"Leading this wave was Cannaponics with their $5 million raise in May, only the second company to achieve this.

"This renewed interest in plant-based medicine and the budding psychedelics industry, following regulatory changes, point to an expanding focus area for CSF. Birchal anticipates this trend to gain momentum into 2024 and beyond."

Sustainability came in third by industry with $7.6 million raised across 12 offers, with leading raises including climate-tech Seabin, cleaning product B-Corp company Pleasant State which was founded by Australian Young Entrepreneur Awards finalists Sian Murray and Ami Bateman, and Recycle Smart which is behind the Power Pickup initiative.

Vitale also highlights the success of cannabis digital appointments and delivery company Montu, which raised $5 million via CSF across two Birchal offers in 2020 and 2021.

With $21 million in revenue in FY22 while growing at a clip of 20x, and achieving top spot in Deloitte’s Technology Fast 50 awards for two consecutive years, he says Montu has potentially achieved the greatest success of any company founded on the Birchal platform.

"Montu recently reported to shareholders preliminary revenues of $98 million (with profit margin of 7 per cent before tax) in FY23, from approximately $100,000 in FY20, reported at the time of their first CSF offer," he says.

In addition to highlighting Biome Australia (ASX: BIO) becoming the first CSF-funded company to list on the ASX in 2021, the Birchal co-founder points to plans from Alta, formerly known as Wimp 2 Warrior, to list on a US exchange, following a series of acquisitions including fitness app Steppen and MMA community The Underground in 2023.

He also points to Our Cow, founded by Australian Young Entrepreneur Awards finalists David McGiveron and Bianca Tarrant, as a prime example of strategic growth through CSF.

"Raising a hefty $2.1 million from over 1100 investors on Birchal in March, they expanded their business by acquiring the assets of VC-backed Voly and have continued to scale their offering to other cities," he says.

Birchal reports there have been 61 follow-on CSF offers with an average valuation uplift of 103 per cent.

However, as evidenced by the recent case with helmet technology company Forcite, a successful CSF raise does not always translate to a successful investment for all participants. The company recently reached a deal to be sold to US camera giant GoPro (NASDAQ: GPRO) in which larger VC backers with preferential holdings are understood to have obtained a modest profit while CSF participants were effectively pushed into an 87 per cent loss by the fine print and their minority shareholder status.

Business News Australia has requested Birchal to provide an estimate of the number of CSF raises that have led to either the startups going bust or exiting at a loss for the CSF participants.

The report authors point to signs of growing maturity in the CSF industry with 41 per cent of all successful CSF offers made by companies that had annual revenue of more than $1 million reported at the time of their offers, compared to just 16 per cent in 2020. In FY23, 26 per cent of all successful CSF offers were generating positive earnings at the time of their offer, compared to just 12.5 per cent in 2020.

What is also noteworthy is a sharp uptick in the number of all-female identifying founding teams that successfully raised on CSF platforms.

"In 2023, approximately $22 million was invested (or 31 per cent of the total invested) into businesses with at least one female-identifying member of the founding team (or board)," the report authors state.

"$6.1 million was invested into nine businesses with all female-identifying founding teams, compared to $1.4 million invested into three businesses in 2022 (an increase of 335 per cent and 200 per cent respectively)."

The biggest CSF result for a female-founded company was X-Hemp, a Tasmania-based manufacturer of hemp building products which raised $1.5 million in October 2023 with Birchal.

"As a female-founded-and-operated business in the rapidly emerging cannabis sector, accessing capital via traditional channels was an uphill slog for my company," says X-Hemp founder and CEO Andi Lucas.

"The decision to partner with Birchal has been an absolute game changer for both X-Hemp and the hemp building products industry in Australia, as we were able to draw in capital from a diverse group of people eager to back a business that dares to be different."