New funding for business

Two recent initiatives have created new funding options for startups and proprietary companies in WA.

Margaret River-based distillery The West Winds Gin has become the first Western Australian business to complete an equity capital raising via crowd-sourced funding, an option that will soon be open to many other businesses.

The West Winds Gin raised $933,500 from 288 investors, well below its goal of raising up to $3.5 million but nonetheless a significant funding boost.

HLB Mann Judd partner Kirstin Stewart said the distillery was one of eight businesses nationally to complete a crowd-sourced funding deal this year, collectively raising $7.2 million.

This followed legislative reforms to allow crowd-sourced funding, which provides an option for smaller businesses that are not ready for a stock market listing.

While the practice has initially been restricted to unlisted public companies, further legislative changes approved this month will open the market to proprietary companies.

“Expanding the scope to include private companies will invigorate small to medium businesses and has the potential to drive innovation across all sectors of industry, particularly technology,” Ms Stewart said.

She said proprietary companies would still need to make changes if they wish to pursue crowd-sourced funding.

This would include appointing directors and establishing mechanisms to be accountable to shareholders.

“It’s good to know there are more funding options,” Ms Stewart said.

Online crowd-sourced funding platform Equitise, which managed the West Winds Gin raising, believes the latest change will provide a major boost.

Since January, 570 companies have applied on its platform but less than 5 per cent completed the process.

“While some of these companies we not suitable for equity crowd funding, a large proportion thought the time, cost and compliance for converting and managing a public company to be too onerous at a point where they needed to focus their energies on growing their business,” Equitise chief executive Jonny Wilkinson said.

While the recent legislative changes are most relevant for established businesses, another recent initiative is targeted at early-stage startups.

The Royal Automobile Club of WA has launched the $3 million BetterLabs Venture Fund, which will be run by Perth entrepreneur Derek Gerrard.

The new fund will initially build a portfolio of about 10 companies and is likely to invest between $100,000 and $500,000 in each business.

Mr Gerrard said BetterLabs would be a genuine seed fund, which meant it was prepared to invest in very early-stage businesses seeking to validate their product and business model.

“We obviously need visibility of a pathway to revenue but they don’t necessarily need revenue when they apply for funding,” he said, adding that businesses needed to demonstrate some level of traction.

“There needs to be proof that their idea and their business has been validated with customers.”

RAC chief executive Terry Agnew told the BetterLabs launch that the fund’s first investment would be a minority shareholding in blockchain business Power Ledger, which it acquired in 2016.

Power Ledger co-founder and managing director David Martin told Business News that RAC was the first investor in the business after the five founders, who also include chair Jemma Green.

Mr Martin said it was a substantial investment that allowed Power Ledger to properly prepare for its subsequent initiatives, which have included raising $34 million in Australia’s first ever ‘initial coin offering’ (ICO).

Power Ledger has since expanded its peer-to-peer power trading business internationally, including to Silicon Valley, and has more than 30 staff.

Its ICO was one of the most significant capital raisings by a WA startup or ‘young’ tech company last financial year, according to Perth-based Techboard.

Techboard said WA startups and young tech companies raised $295 million last year.

Nationally, there were 736 funding events by Australian startups and young tech companies totalling just over $3.5 billion.

Techboard’s first annual funding report found the main source of money, both nationally and in WA, was public funding via the stock market.

However, public markets were much more significant in WA, where they accounted for 65 per cent of total fundraising.

Very low levels of private investment were reported in WA, with a total of $46.9 million coming from venture capital, angel investors and accelerators.

Most of the venture capital funding in WA came from corporates, corporate advisory firms and unidentified individuals rather than actual VC funds.