Early fans rarely get the chance to cash in when a tech company becomes successful. What if there was an easy way to share rewards beyond professional investors?
That’s part of the vision behind Companisto, one of a handful of rapidly-growing crowd investing platforms in Germany. It works in a similar way to non-equity crowdfunding platforms Kickstarter and Indiegogo except, instead of pre-orders and limited-edition swag, backers are rewarded by a share of a project’s future profits.
Over in the US, the Jumpstart Our Business Startups Act is only now lifting a ban on this kind of equity crowdfunding by non-accredited investors – with rules still to be negotiated.
In Europe, the model is more established. In the UK, about 80 companies have found funding with Crowdcube since February 2011, with rival Seedrs opening for business in 2012. In Germany, Seedmatch, one of Companisto’s peers, celebrated its second birthday in August 2013 and announced €7.5m raised across 45 funding rounds. Other local platforms include Innovestment and Bergfürst, which just helped online home goods shop Urbanara raise €3m from about 1000 private investors.
Since June 2012, Companisto, for its part, has helped 23 projects raise €3.2m with about €1.2m of that in Q2 2013. It offers a particularly low minimum investment limit – just €5.
That’s deliberate, co-founders David Rhotert and Tamo Zwinge explained. “We wanted to give broader access to normal people to invest in startup companies – people like students whose primary focus is not investments…”
Just look at Facebook, Zwinge, pictured above left, added. It rose from university dorm rooms yet the average student couldn’t become a shareholder until it went public eight years after starting up – and by then it was the company’s professional investors who “made the big bucks”.
For the companies involved, it’s not just about the money. It’s about marketing potential. Who better to spread the word about a company than thousands or tens of thousands of passionate investors?
Companisto doesn’t actually offer shares in companies. It offers shares in what they bring in as well as any proceeds from an exit, in the form of a profit-participating loan. Frozen yoghurt empire Wonderpots, for example, sold 100,000 shares at €5 each at a post-money valuation of €4.5m (based on turnover of €1m per year). The company will now need to pay about nine per cent of what it earns back out to “companisten”.
This system avoids a messy shareholders’ list and helps ensure companies stay attractive to conventional investors. “It’s just another arm of venture capital,” Zwinge argued. “The way we do it – you can do both.”
Of course, risk doesn’t always bring reward – and some “normal people” may end up with no return from their investment. But at least they now have the option to get involved.