For many small-cap stocks, raising extra capital from sophisticated investors can often be critical to the expansion of their business.
But it can also be a challenge; such companies usually offer high potential rewards, along with higher risks.
Historically, the task has fallen mainly to the company’s broker, who tap their network of investors — institutional, sophisticated high net-worth individuals, or retail — to drum up interest and support.
But Fresh Equities founder Ben Williamson reckons companies using traditional channels miss out on exposure to a larger pool of investors.
Founded in October last year, the fintech provides an online marketplace for sophisticated investors to peruse potential deals.
Private placements
Listed companies in need of extra cash have the option of raising capital on public markets from their entire investor base. However, the process also comes with a number of regulatory hurdles.
In that sense, private placements offer a simpler way to raise funds, but the potential pool of buyers is smaller — limited to sophisticated investors only.
Sophisticated investors are those with net assets of $2.5 million or annual income of at least $250,000.
With a smaller number of investors and less liquidity, Williamson says traditional broker channels don’t always match the right investor with the right deal.
In that sense, there’s a niche in the market that Fresh Equities wants to fill — although the aim isn’t so much to disrupt the broking industry.
“Brokers love it. In effect, it’s a distribution service for them,” Williamson told Stockhead.
“And we don’t compete with brokers for clients, but rather it gives them a complementary service and a way to link their clients with more potential investors.”
Democratising placements
Lincoln Liu, associate director at corporate advisory firm Rawson Lewis, says Fresh Equities offers a useful service for clients that are looking to get their deal in front of the right eyeballs.
“They’re really democratising placements for sophisticated investors, so just because you don’t have an account with that broker you haven’t been left out,” Liu told Stockhead.
Over the first two months of this year, Fresh Equities processed more than $1.5 million of investor capital on private placements.
“They’re very quick at getting onto deals. For example, as soon as a company goes in a trading halt they’ll call up the company and get the relevant details,” Liu said.
For now, the company’s strategy has helped drive increased volume for smaller deals — companies that haven’t had their offer immediately snapped up by the incumbent broker networks.
But Williamson hopes that over time, the simple-to-use and risk-free nature of the platform will attract in-demand companies that are raising large amounts of capital.
“They send an email out, and if you’re not a sophisticated investor you can’t see the details, but you can see the name of the company. So you might say ‘oh I know them, that looks interesting'” Liu says.
“You complete the relevant signup process and then you can bid, and that just wouldn’t happen at a normal desk.”
More information on the Fresh Equities platform is available at the website www.freshequities.com.