Helping start-ups start up
I’ve been fortunate to meet Adir Shiffman, Chairman of Catapult Sports that has had terrific growth and a well designed and managed entry into the US and other markets. Adir has taken several start-ups to market, describes himself as a serial entrepreneur and investor – and is always willing to give of his experience and help other new businesses.
He wrote recently in the Financial Review (4 November 2014) on why he believes equity crowdfunding is the wrong model for Australia. On the face of it, he writes, equity crowdfunding allows retail investors to place small bets on startup businesses, so solving two problems while offering solid protections. Mum and dad investors gain access to a new potentially lucrative asset class; and tech start-ups can access a new source of much needed, early-stage capital. However, the available data portrays early-stage investing, especially in pre-revenue companies, with a risk-return profile more akin to roulette. Adir notes a recent study by the University of Washington which revealed that the likelihood of a positive return on any early-stage “angel investment” was significantly less than 50%. I can add that further into the process, most venture capital companies reckon on gaining success from just one or two of every 20 investee businesses. Adir comments on some excellent investor successes, but usually they are experienced, diversified portfolio investors.
There are proposals here to create a $10,000 per capita per annum upper investment limit – but such a cap would not enable potential investors to be sufficiently diversified or probably have adequate expertise. The risks are substantial. There is no mechanism to ensure investors are able to follow later with further funding injections. Moreover, for the new company, the challenge of managing large numbers of shareholders is onerous and surely a distraction.
Adir then focuses on the potential to create investment platforms that employ funds available through superannuation. The fund itself would be the investor, providing professional management. He believes this would deliver investors some diversification and a reduced risk profile. By taking advantage of our existing frameworks, that this could set the model in Australia that does not follow the flawed US model.