Why crowdfunding is an important part of Australia’s capital mix

It’s often those most entrenched in existing systems (and have benefitted from them) that disparage and deny the usefulness of novel forms of doing, well, anything.

While business financing isn’t the only area where this happens, it might be the sector in which this attitude is most harmful, in terms of holding back innovation in Australia.

At an event in Sydney last month, a self-styled “contrarian” decried crowdfunding as the “source of last resort” for companies seeking financing.

Well, I’m calling bullshit.

I’m going to say this directly: this view is profoundly ignorant.

First, for many businesses, crowdfunding is the option of first resort.

For those that reject (or aren’t suited for) prevailing models of financing, including traditional business loans and VC funding, crowdfunding can be the best option to found or grow their business. And we can’t ignore that crowdfunding is often profoundly misunderstood as “too complicated”, when founders have even heard of it at all. 

If we want Australia to be economically competitive on the world stage, we need to invest in matching our businesses with the financing models that best suit them, not rejecting models that don’t fit into the dominant bro-juice-fueled definitions of “success”. 

An information problem

Have you ever heard of The Sports Bra? It’s a sports bar that only shows women’ s sports in the US that’s just started franchising. It’s growing at an astronomical rate, and most of the men who control financing would have told you it was a terrible idea. 

For decades, the prevailing wisdom was that “no one watches women’s sports”. And it turns out, it was a self-fulfilling prophecy based on a lie built upon a distribution problem. (Mostly) men in charge of broadcasting believed this “truth” so thoroughly that they refused to pay serious money to women’ s sports leagues for broadcast rights.

Recent years have shown that millions of people would have turned into the games, if they would have been able to. The data doesn’t lie: women’s elite sports have generated more than $1 billion in just 2024. And hey, are there even boy Matildas?

Profoundly incompetent executives literally created what they already believed was true: if no one could tune into a game, of course no one watched it!

It was a manufactured information problem, and one that crowdfunding is currently suffering from. The gatekeepers believe that because it’s not the way they do things, it can’t possibly be excellent, and definitely shouldn’t be widely available.

That means that there are likely thousands of businesses out there that don’t even know crowdfunding is an option–let alone the best option–for them.

My question is: are the gatekeepers just afraid of a bit of competition?

Not everyone can get a loan (or has rich friends and family)

And even before we get to the high-prestige world of venture capital, we should note that not every excellent founder with a great idea can get a business loan.

For most Australians, their largest asset is their home – something that most banks won’t use to collateralise a loan.

And with a cost-of-living crisis making saving even a nominal amount of money harder than ever, it’s becoming more out of reach for entrepreneurs to fund their own businesses. And the most entrepreneurial group in the country–migrants–often don’t have the credit history to be considered by major banks.

All of these challenges are exacerbated in sectors that require physical capital or research and development which generally need more startup capital. 

If we want an innovative and diversified economic sector, we need to provide more options to fund great ideas.

VC doesn’t work for everyone

I’m betting that the speaker would tell you venture capital was the solution.

Now, I’m not one to tell you it doesn’t work (I’ve spent most of my career at VC-backed businesses). But VC funding just doesn’t work for every business.

The basic logic of VC is that investors are looking for outsized returns. And there are specific business models–like software–that are better suited to scale at the pace that meets these investors’ needs.

And it shouldn’t need to be said, but it does: there are an incredible number of excellent business models that simply can’t meet the demands of the VC investment approach. That doesn’t make those business models bad. 

And that doesn’t even get into the fundamental access problems with VC. As you might have read, less than 2% of VC funding went to all-female teams in Australia last year, despite reams of research showing that female founders actually have, on average, far better return on investment compared to men.

Put another way, VC is a fundamentally irrational investment option for the majority of founders who don’t look like the homogenous community of VC partners who aren’t selling…most things.

There are a ton of reasons that crowdfunding is not only a good–but sometimes the best–option for businesses. It can democratise ownership, provide capital without requiring unrealistic growth targets, and is more available to non-traditional founders.

In short, it’s an excellent vehicle to bring more businesses online, which can only be seen as a good thing.

Let’s talk about investors

So far, we’ve only talked about the founder side of the equation. Crowdfunding–whether through equity, reward, donation, or debt–opens up the ability to invest in excellent businesses to a significantly broader set of investors.

To access investment opportunities like VC, you have to be a “sophisticated” investor: you either need to be worth $2.5 million or have made at least $250,000 for the last two years.

Depending on how you count, this applies to no more than 3% of Australians. But crowd-sourced funding is open to retail investors (that’s everyday folks). 

Not only is crowdfunding more accessible to the average person, it can be more appropriate depending on their investing risk tolerance.

Crowd-funded businesses often are seeking more modest growth ambitions than their VC-backed counterparts, meaning they’re less likely to be overleveraged (and thus lower risk). And the (usually) lower minimum investment means that more people can participate without overleveraging themselves–or allowing diversification across a portfolio of companies. 

All of these upsides don’t mean that crowdfunding is the best source of funding–it’s simply one of a set of funding sources we should be championing if we want to see diversified economic growth in Australia.

We are doing ourselves a profound disservice by not investing in the growth of this sector – and in platforming the loudest voices who can’t see past their own experience to prioritize the good of the entire business community.

• Aubrey Blanche-Sarellano is a startup investor and advisor and The Mathpath (Math Nerd + Empath), specialising in developing and scaling teams and processes to achieve responsible business growth objectives.