There are great potential rewards for SMSF trustees from investing in high-growth Australian start-ups, with ventures such as Atlassian and Canva scoring huge company valuations.
SMSF trustees looking to diversify their investment portfolio are now taking advantage of early-stage investments in the tech start-up boom through equity crowdfunding.
Start-ups can be exciting alternative assets for SMSFs that are looking for exposure to higher growth beyond the typical asset classes such as direct shares, term deposits, managed funds and property.
While SMSFs have been quick to take advantage of the global surge in popularity of equity crowdfunding, Australian regulators are just catching up with the recent passing of the equity crowdfunding bill in the Senate on 20 March enabling mum-and-dad investors to also take advantage of this space.
The passing of this bill is a fantastic development for Australia’s start-up industry because it will drive more competition among investors and those raising capital in a rapidly growing space.
Australian fintech investment, for example, remains strong, with $656 million in total investment across 25 deals in 2016 – a major increase on the $185 million across 23 deals in 2015, according to KPMG International’s “The Pulse of Fintech” report.
In addition, the Australian Securities Exchange (ASX) listed more companies in 2016 compared to its global peers and the bulk of them were technology listings. But domestic unlisted companies raising funds through equity crowdfunding have become one of the ASX’s strongest competitors.
Through equity crowdfunding investment platforms such as Equitise, SMSFs are set to play a crucial role in the venture capital industry, with SMSFs managing $6.5 billion in assets in the country, according to the Australian Prudential Regulation Authority and Australian Taxation Office.
In its first year, Equitise raised almost $3.5 million for start-ups, with about 40 per cent of that money coming from Australian SMSFs and sophisticated high net worth investors.
While SMSFs can tap into investment opportunities from seed-stage investments to established mature companies through equity crowdfunding, they should approach this opportunity by carefully considering the risks associated with this type of investment. Investing in start-ups can be very risky, highly speculative and should not be attempted by anyone who cannot afford to risk their entire investment. It is important to be realistic; not all start-ups can or will reach the heights of an Atlassian.
A loss in capital is a potential outcome, returns may take several years to materialise and the liquidity risk is high as it may be difficult to sell your securities. So, SMSFs should not invest any funds if they require a stable return, timely return and ability to cash out or liquidate funds within a certain time frame.
On the flip side, if you were an early investor in Australia’s star start-up success story, Atlassian, which is now worth more than $8 billion, you would have reaped huge returns.
Equitise has developed a platform that allows SMSFs to take calculated risks by investing small amounts of money, with minimum contributions as low as $1000, and the opportunity to invest off the back of leading venture capitalists and angel investors via their ‘syndicate lead’ platform.
Syndicate investment gives SMSF trustees the opportunity to invest in promising start-ups that already have the backing of professional and sophisticated investors such as Westpac’s Reinventure.
This platform also provides groups of like-minded investors, including SMSFs, with opportunities to create their own investor club for new investments and make investments online through an easy and transparent process.
One example of a vetted company SMSFs can jump on at an early stage is smart action camera start-up Revl Arc. The company is currently backed by high-profile investors such as prominent Silicon Valley accelerator Y Combinator, Comcast Ventures, early Snapchat investor Bill Tai and Google Maps founder Lars Rasmussen.
It’s said to be the world’s smartest action camera, offering 4K quality and in-built image stabilisation, making it a serious rival to GoPro, Sony and other action camera products.
Developed by former National Aeronautics and Space Administration, Sikorsky and HP engineers, Revl has raised $2 million in seed funding, and is just one of the diverse and upcoming start-ups that has the potential to reap high returns for investors.
There’s more than $2 billion in venture capital funding now available for Australian start-ups. With AirTree Ventures recently closing the country’s largest-ever venture capital fund at $250 million and Square Peg Capital expected to close at $300 million, there’s more to come.
Equity crowdfunding platforms such as Equitise give everyday Australians the opportunity to support this boom in innovation and the potential to get an early-stage stake in up-and-coming companies alongside some of the world’s savviest investors.