Business

Birchal cuts jobs, and costs by 30%, as crowdfunding flatlines

- July 23, 2024 3 MIN READ
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Crowdfunding market leader Birchal has cut its costs base by 30%, along with several roles, after the first half of 2024 “significantly underperformed” the platform’s expectations.

News of the job losses were first revealed by SmartCompany just 24 hours after Birchal set out to paint a positive picture for the sector in its annual review of crowd-sourced funding (CSF) in Australia.

Birchal to shareholders in its recent monthly update that the first six months of 2024 “have significantly underperformed our expectations and budget for funding volume for H2FY24”.

“We experienced a slower than usual start to the year after the Christmas break. Unfortunately average funding volume has not recovered and like wider parts of the financial system we have not been completely exempt from tough macro-economic conditions,” Birchal said in a statement to Startup Daily

“Given the material softening of funding volume, and in an effort to return to breakeven and reduce our reliance on external capital injections, we recently took the difficult but necessary decision to reduce our expenses by approximately 30%.

“Reductions have been made predominantly to Birchal’s marketing and product teams, the removal of contractors, and reductions to executive salaries.”

Like venture capital for startups, the investment appetite for companies sitting more in the retail/small business space seeking cash via CSF has also weakened, with distilling and medicinal cannabis attracting the most interest from retail investors.

The level of CSF funding in Australia rose marginally in FY24, up $500,000 to $64.5 million on the previous 12 months.

Birchal takes around 6% of the funds raised in a campaign as commission.

At the same time, the number of companies successfully chasing cash increased by 16% to 99, up from 82 in FY23. The number of investments was static at 35,000, meaning that overall, the average size of investment fell.

It also follows on from a 26% drop in funding volumes in FY22.

Birchal has the lion’s share of the CSF market, responsible for two-thirds of the successful campaigns.

Food and beverage continues to be favourite category for investors for the third year in a row, scooping up 30% ($19.7m) of the total investment funding, with “healthcare” ($14.2m, 22%), predominantly cannabis, taking the silver medal, then sustainability ($8.1m, 12%), the bronze.

The top 3 raises of FY23 were Tasmanian whisky distiller Hellyers Road, which banked $4.4 million via OnMarket; Victorian medical cannabis biotech Medigrowth, pocketing $3.45 million from more than 2000 investors. via Birchal, who also helped Naked Life Spirits bank $3m.

Birchal also played a part, raising $2.39 million on its own platform from more than 1,100 investors in late 2023.

Matt Vitale

Birchal CEO Matt Vitale

Releasing the data, Birchal cofounder and CEO Matt Vitale said equity crowdfunding levels “demonstrated remarkable resilience” in the last financial year.

“Despite the challenging funding environment, a 16% increase in the number of companies using CSF compared to FY23 highlights the growing recognition of CSF as an efficient way to raise capital,” he said.

Nonetheless, there have been concerns around CSF investment in 2024, with the corporate regulator the Australian Securities and Investment Commission (ASIC) intervening last month to issue its first interim stop order over a crowd-sourced funding (CSF) campaign.

ASIC stepped in over Hirehood, a marketplace for hiring holiday items such as surfboards, bikes and baby equipment, raising funds on VentureCrowd. The regulator’s concern was over the structure of shares issued to potential CSF investors.

Five weeks later, the raise remains in abeyance.

 

The value and fine print on shares in CSF offers came under increased scrutiny recently following the acquisition of Sydney bike helmet tech company Forcite, which was acquired by Nasdaq-listed camera business GoPro in January this year.CSF investors who backed Forcite took a nearly 90% haircut on the deal, while other investors booked a gain.

Forcite raised $1.3 million at 23 cents a share on Equitise in 2022 at a $24 million valuation. But when the sale to GoPro went through, reportedly at more than $20 million, the CSF investors were offered just 2.9 cents per share, a loss of around 87% on their investment.