Equity crowdfunding plugs the bank gap for Revvies Energy Strips

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This was published 6 years ago

Equity crowdfunding plugs the bank gap for Revvies Energy Strips

By Alexandra Cain

Revvies Energy Strips is one of the first cabs off the rank to try the new equity crowdfunding rules.

The rules allow public companies – which are not necessarily listed companies, although they can be – to raise money.

John Nolan-Neylan is the founder of Revvies.

John Nolan-Neylan is the founder of Revvies.

Equity crowdfunding also allows many small investors to take an interest in an early stage investment.

John Nolan-Neylan is the co-founder and managing director of Revvies Energy Strips.

Prime Minister Malcolm Turnbull with chief executive of OnMarket Ben Bucknell.

Prime Minister Malcolm Turnbull with chief executive of OnMarket Ben Bucknell.Credit: Dallas Kilponen

He decided to raise funds for his business, which has developed caffeine strips athletes use to enhance their performance, to cement relationships with customers.

"It's a way to get them involved in the brand and they get a piece of the pie and, hopefully, financial rewards for building our success. We end up with brand ambassadors that have a real stake in the success of the business," Nolan-Neylan says.

"Consumers are so cynical about traditional advertising and word of mouth is really powerful. Having people that love the product and have a stake in the business and who are really motivated to get out there and talk about our product and brand is a powerful marketing tool. It's also a great way to raise funds to expand our business."

The next step

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Revvies wants to raise $250,000 for marketing, R&D and product refinement purposes. Nolan-Neylan says the company is about 12 months away from making a profit.

Ben Bucknell says businesses with an innovative idea might consider crowdfunding.

Ben Bucknell says businesses with an innovative idea might consider crowdfunding. Credit: Dallas Kilponen

"We wouldn't expect to be profitable now, but the funds we're seeking should take us to that point," he said.

Sales of Revvies has tipped 100,000 packs so far, generating $200,000 in revenue.

Mr Nolan-Neylan says he expects the equity crowdfunding deal will cost between 7 per cent and 10 per cent of the amount being raised, or $25,000, and the deal was for up to 12.5 per cent of the equity of the company.

He says it makes sense to use equity crowdfunding as, being pre-revenue, it was unlikely most banks would extend finance. The raising was also too small to interest venture capitalists.

"Equity crowdfunding is democratising investing," he says. "It means businesses like ours can raise funds and, at the same time, allows people with $1000 or even $100 dollars who would never have been able to access early stage businesses to have those opportunities."

Alternative to traditional financing

For small business owners, equity crowdfunding offers an interesting alternative to traditional banks and the growing number of non-bank financing options available. It also means business owners don't need to mortgage the house.

OnMarket is the platform through which Revvies is raising finance. Founder and chief executive Ben Bucknell says businesses with an innovative idea or approach to a problem, and a solution to address it, might consider crowdfunding. They also need to have significant growth opportunities and be appropriately priced.

Bucknell has an interesting view on the risks for retail investors taking in positions in equity crowdfunding deals. There have been concerns mums and dads don't know how to assess these opportunities and could allocate too much of their wealth to high-risk investments.

"Everyone should bear in mind these investments are all high risk. The whole purpose of this legislation is to enable high-growth, high-potential companies to raise equity capital. That means they're not in the cash cow phase of a company's life. With that potential comes risk," he says.

Also bear in mind there is no secondary market, so these are long-term investments. But on the flip side, investors can tip in much smaller amounts than they can in listed securities.

Some of these businesses will do well and some won't – that's the nature of early stage ventures. So one way to manage risk is to take a portfolio approach and invest in a number of different ventures, taking the view the successes and losses should at least balance each other out, or even better, that the wins will outweigh the losses.

Risk to every investment

I asked Bucknell about the return investors should expect compared to, in my words, "a vanilla investment like BHP Billiton".

He argues these days even blue-chip stocks like the giant miners can't be considered as safe as they once were. Ten years ago, "the Big Australian" traded at about $41, now it trades at $30, although there has been a share split in the meantime. "People need to be careful about equating size with lack of risk," he says.

Equity crowdfunding is likely to become just one tool in the armoury available to small businesses to finance their growth. While it's important to balance the cost of funds with the amount raised, it's certainly an option for high-growth companies with good stories to tell.

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