Look past ‘Initial Coin Offerings’ to invest in tangible equity, says expert
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Initial Coin Offerings (ICOs) may be the flavour of the month, but investors are missing out on equity, says OnMarket’s Nick Motteram.
Cryptocurrency experts such as DigitalX are managing a number of Initial Coin Offerings at the moment. (ICOs are like IPOs — but instead of offering shares they issue tradeable digital tokens). Are ICOs a good opportunity for investors?
There is so much buzz around cryptocurrencies and ICOs, and I do believe that they will evolve into a core part of financial markets. But right now I see them as much more of a gamble.
My main concern with ICOs is that investors do not get equity in a business, instead they receive a token giving them access to a product or a service that does not yet exist and that that might not even be built.
There is also the regulation side of things. Right now, ICOs are largely unregulated, meaning that unscrupulous operators can thrive. There are some great businesses being built on the back of it, but also a lot of shams, so it is very much a case of “buyer beware”.
As a result, global regulators, including ASIC here in Australia, are looking very closely at ICOs and at some point there will need to be some regulation that governs them.
At OnMarket we have had a growing number of groups approach us to participate in their ICOs, but until there is more guidance and oversight around them we will sit on the sidelines and watch with interest.
How does equity crowdfunding differ from ICOs?
In equity crowdfunding, investors receive equity in the business that is raising the capital. They are also investing in a business that has some regulatory oversight in what they are doing, providing some protection for investors. As mentioned earlier, this is not the necessarily the case in ICOs.
We see equity crowdfunding as an opportunity for early stage companies with real potential to fund their growth, those that are better suited to staying private for longer
Is there a big demand for alternative funding for Australian companies?
The entrepreneurial spirit is alive and well in Australia.
There are a lot of amazing entrepreneurs with awesome businesses but many find it is very difficult to get the capital they need to take them to the next level of commercialisation.
Although the market for venture capital funding in Australia is growing, it is still shallow. A venture capital firm might see anywhere between 100-150 pitches in a year, but only invest in 4. That leaves a some very viable businesses that have been unable to get a piece of the pie.
The push for this kind of equity crowdfunding came from these companies looking for funding. We have seen the success of rewards based crowdfunding like IndieGoGo and Kickstarter who entice investment for rewards, but there’s a big gap between that and listing on the ASX or becoming self-funding.
In the past two years of operation OnMarket has offered its members access to over 80 IPOs on the ASX and that number will only increase with the introduction of equity crowdfunding.
Do you think Australians will be willing to take a punt on these early stage companies?
We have already seen success in equity crowdfunding in the UK, US and New Zealand markets. With the equity crowdfunding regime now live in Australia, and the first licences to come through soon, we expect the Australian market to evolve just as fast, if not faster.
Generally speaking, Australian investors are less risk averse – there has always been the underlying appetite for early stage mining and tech stocks and these companies that will come to the equity crowdfunding market are early stage companies that the average investor on the street hasn’t previously had exposure to.
Nick is Managing Director, OnMarket and guides IPO and crowdfunding companies through the capital raising process.
Nick was formerly the Head of Power & Utilities for UBS Investment Bank in Asia. During his 5 years in the region, Nick lead some of Asia’s largest ECM transactions in including the Hong Kong IPO of China Longyuan Power, China’s largest renewable energy company; and the IPO of Reliance Power, the largest IPO ever conducted in India.
Prior to Hong Kong, Nick worked with UBS Investment Bank in Sydney, and was a member of UBS’s market leading Utility & Infrastructure team, working with some of the leading utility and infrastructure players in Australia.
Nick spent his university years between the bar at St. Andrew’s College, a rowing boat, and lectures for his Chemical Engineering and Commerce double degree. Nowadays, Nick spends his spare time trying to keep up with his energetic young family.