Crowdfunding campaigns or an ASX IPO: Factors scaling companies should consider

Matt Vitale of Birchal. Source: Supplied

Something remarkable happened last week. For the first time, successful CSF offers (crowdsourced funding offers, I’ll explain later) exceeded ASX IPOs in a fiscal year.

Comparing a CSF and an ASX IPO process from an early-stage growth company’s perspective, one could see how this might become a trend, and not be a one-off. Side by side, I’ve observed that CSF offers are drastically faster, cheaper, and simpler to bring to market than an ASX IPO. 

Also, CSF offers are open to everyone, not just insiders. And because CSF securities cannot be traded easily, successful CSF companies often end up with a community of supporters that are comfortable to buy and hold, rather than a community of traders with purely mercenary interests.

In the 12 months to 30 June 2023, a total of 85 successful CSF offers were completed, compared to just 57 ASX IPOs in the same period, as Birchal reported in its annual Funded! Report last week. 

If you haven’t heard of CSF before, now might be the time to start paying attention. The CSF regime commenced in 2018. Essentially, it enables eligible (typically early-stage) companies to raise up to $5 million per year directly from wholesale and retail investors, all online, typically without the involvement of brokers. 

A CSF offer is made through a prospectus-like CSF offer document (a regulated disclosure document under the Corporations Act) and must be hosted on a licensed CSF intermediary’s platform.

It functions much like an IPO, except the securities aren’t listed. So the inability to trade shares easily is a material difference that investors in CSF offers need to consider. But from an early-stage company’s perspective, it may just be the source of capital par excellence, particularly in the current environment.

Over $250 million has been raised across over 327 successful CSF offers from over 143 thousand investments since 2018. Twenty eight CSF offers have raised more than $2 million, and two CSF offers have reached the maximum allowed of $5 million, most recently, WA-based Cannaponics Limited, in May this year.

Although clearly not in the realm of mega-IPOs like the recent Redox $1.3 billion float, the deal sizes the CSF regime is achieving consistently now should make micro-cap ASX-aspirants pause to consider whether a $2 million to $5 million ASX IPO really makes sense anymore.

Comparing a recent CSF offer against a comparable company currently running an ASX IPO process, we estimate the costs incurred by a company to bring a CSF offer to market are approximately 9% on a $5 million raise (which includes Birchal’s 6% success fee), compared to 17% on a $5 million raise for the comparable IPO prospectus we reviewed. 

And whereas the vast majority of ASX IPO costs are consumed by fees to advisers and professionals, CSF offers are heavy on marketing and PR costs, which is great for companies that can benefit from the mass exposure a successful CSF offer requires.

The trail is being blazed by companies that have already incorporated a CSF process into their path to a listing.

In November 2021, Biome Australia Limited (ASX: BIO) became the first CSF-funded company to list on the ASX. Recently, two further CSF-funded companies have announced their plans to list on exchanges: Line Hydrogen plans to list on the LSE in September 2023, and ALTA is working towards listing on a US exchange later this year.

It is anyone’s guess when the IPO window will reopen. The lacklustre post-launch performance of IPOs this year, added to the cost and complexity of an IPO process severely diminish its appeal as a funding source, particularly for micro caps. 

All this without considering the costly ongoing requirements of continuous disclosure, that ASX-listed companies are subject to, which CSF companies are not.

It will be interesting to see whether more companies choose the CSF route as an alternative.

Matt Vitale is the co-founder and CEO of Birchal, one of Australia’s leading equity crowdfunding platforms.

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