Private companies seek the ease of access to capital that a public market provides but are often deterred by the costs and regulatory requirements that will result from a public offering. At the same time, individual investors seek access to these fast-growing private companies to unlock growth value and enhance returns, but this arena is traditionally dominated by large institutional funds and HNW family offices.
Crowdfunding: What it is, and the challenges that come along with it
One of the options that exist to connect these private companies and investors is crowdfunding, where companies raise relatively small amounts of money from many investors. Crowdfunding is typically “company-led”, where companies provide information and set the valuation and terms of the deal, while investors conduct their own due diligence, analyse the information provided and decide whether to invest.
As a result, risks are relatively higher as companies attempt to present themselves in a positive light to raise capital, while many investors do not have the sufficient due diligence capabilities to determine the legitimacy of investment opportunities.
Based on analysis of campaigns from five of the largest US, UK and Canada-based crowdfunding platforms in 2015, a report from market research firm The Crowdfunding Centre showed that between 69% to 89% of projects failed to reach fundraising targets, depending on the platform.
Source: The Crowdfunding Centre
Furthermore, platforms like Kickstarter have an all-or-nothing rule which states that if the crowdfunding goal is not met, the campaign fails, and all money is returned to backers while the fundraiser receives nothing. Other platforms have a flexible-funding system that allows the campaign owner to receive the funds raised regardless of the percentage of the fundraising goal achieved. The result is that most campaigns failed to reach their fundraising goals through crowdfunding.
In contrast, CapBridge provides a unique “investor-led” syndicate investing solution for investors to gain easy access to quality opportunities, where an independent, professional investor deploys institutionalised due diligence and investment monitoring processes to negotiate the best possible deal for themselves and other co-investors.
This process is designed to maximise profitable exit outcomes due to the professional lead investor’s experience in managing portfolios for optimised exits. Lead investors often manage funds with finite fund lives of up to 10 years with timely exits to establish their track record.
The liquidity risk that is typical of private market investing is hence mitigated and investors can enjoy superior risk-adjusted returns without having to offload their investments at significant discounts.
Our clear exit focus is the reason we birthed 1exchange (“1X”), a global private securities exchange designed to help private companies raise capital and facilitate secondary trading (see below for more information).
CapBridge has a 100% positive fundraising and exit rate even in this volatile market, evidenced by our 3 success stories with Liquidia, Nautilus Data Technologies and Clearbridge Biomedics.
Through our CapBridge platform, Liquidia Technologies successfully raised $22 million in its pre-IPO round in 2017, with an esteemed list of lead and co-investors including VC firms, sophisticated family offices and corporate investment vehicles. Liquidia is a biopharmaceutical firm with a broad and multi-year collaboration agreement with pharmaceutical giant GlaxoSmithKline.
A year later, Liquidia filed for an IPO on NASDAQ Capital Market, seeking to raise approximately US$57.5 million. Investors who participated in the pre-IPO campaign on our platform will enjoy the boost in liquidity.
Clearbridge Biomedics, a precision healthcare company with a partnership with Leica Biosystems to support tumour cell research, successfully raised $4 million in a secondary offering. In December 2018, the company was renamed as Biolidics Limited and listed on the SGX Catalist market, seeking to expand clinical services applications and scale up manufacturing of biochips.
Nautilus Data Technologies, a California-based company that created the world’s first successful water-borne data centre, raised $25 million from established investors globally in a Series C preferred stock funding exercise. Investors include Singapore’s Keppel Telecommunications & Transportation Limited, which invested $10 million. The company is currently on the horizon for a potential listing on the SGX.
CapBridge provides a unique exit-focused private investment solution that mitigates the risks typical of traditional crowdfunding without the higher fees charged by PE firms, supporting the democratisation of professional investor-led private market opportunities to enhance portfolio returns.
More info on 1exchange:
1X is an investee of SGX and is among the world’s first regulated private exchange, providing an easier way to unlock shareholder value and recycle capital for private companies. These companies may be operational companies seeking working capital, late-stage venture-backed companies with shareholders seeking to monetise their holdings or family-owned business seeking to diversify their shareholder base.
The platform allows for professional investors and business owners to trade in and out of their positions, while companies remain private and enjoy greater control and flexibility at lower costs compared to a public listing.
(1X has a Recognised Market Operator License and is regulated by the Monetary Authority of Singapore. SGX is a strategic partner and shareholder)