By Farah Khalique
French wine company, Domaine Chanzy, is using online equity crowdfunding platform Seedrs to raise £1.9 million and list on London's AIM, the exchange for smaller, growing companies.
Domaine Chanzy has raised over a third of its target - more than £675,000. How does this differ from a traditional IPO, and what can other new and growing companies (NGCs) glean from this offering?
A traditional IPO means hiring a corporate broker to sit between your company and stock market, and usually embarking on a roadshow to drum up investor interest and investment. Investors need to have a brokerage account, so brokers will typically target high net worth individuals and large, institutional investors. The man on the street doesn't get a look in.
A crowdfunding IPO means that anyone can become a shareholder in a company at the click of a button. In the case of Domaine Chanzy, Seedrs is taking on the role of broker and promoting the campaign through its website and press coverage.
Companies that go down this route can target a much wider audience and avoid the bureaucracy of a traditional IPO.
They can't eliminate fees, however. Seedrs charges a one-off 7.5 per cent fee of the total funds raised, but any company that raises over £500,000 can negotiate a smaller fee, says chief investment officer Thomas Davies.
A crowdfunding IPO is ideal for companies that have an element of passion and an emotional connection with customers, such as a wine company or a luxury chocolate manufacturer. They can target their own customers to become shareholders and spread the word.
"It probably wouldn't work for a copper mining company, [because it's] difficult to have an emotional connection with it. Those companies are better off going round individual investors and getting cheques that way,” says Davies.
Farah Khalique is a freelance business and financial journalist, with a keen interest in writing about non-bank financing solutions that can help SMEs grow their business. She has written extensively about banking scandals and has made TV appearances on Sky News and The Wall Street Journal Live to comment on topical issues including money laundering and bankers’ bonuses. Follow her on Twitter.