Equity crowdfunding: One for the books
Equity crowdfunding in Australia is hitting the big time with Booktopia, a $110+ million business, who announced plans to raise $10 million via investment platform Equitise.
No matter how you look at it, Booktopia has experienced astounding growth. A decade ago, in 2009, revenue was $9.4 million. Today it’s over $113 million. That’s a compound annual growth rate of 31.9%.
With over 200 staff, 13,000 square metres of headquarters and distribution centre space in Sydney, and 148,000 titles in stock managed by an automated system that cost $10 million to develop, Booktopia is a whole lot bigger than your average book business.
In 2015 Booktopia purchased Angus & Robertson, bringing Australia’s two largest online book businesses under the same roof. The following year Booktopia, advised by Investec and with investment banks Ord Minnett and Morgans, began working towards a float for the second half of 2016. Then along came Amazon’s announcement of an entry into the Australian market.
When we kicked off our IPO project we were doing $50 million in revenue... by the end of the process we had reached $99 million.
“All the fund managers said, ‘Well, we’re not going to get involved because Amazon’s going to take you out’,” said Tony Nash, founder and CEO of Booktopia.
“Of course, that didn’t happen. In fact, we continued to experience high, double-digit growth and great profitability. In fact, when we kicked off our IPO project we were doing $50 million in revenue. Midway through the process we were doing $80 million and by the end of the process we had reached $99 million.”
The abandoned IPO process was extremely expensive, costing the business over $3 million. It was also disappointing in that Tony and his colleagues had hoped an IPO would mean the reading public - the business’ customers - would be able to own a part of Booktopia.
Instead the advisors and investment bankers said they’d go to fund managers and sophisticated investors. The link with the readers, the people who had supported the company from its birth in 2004 when it had an operating budget of $10 per day, would be left out of the process.
Crowdfunding comes of age
As Booktopia struggled with the challenge of the IPO, new technology and regulatory changes were allowing the equity crowdfunding industry to begin experimenting with smaller businesses – wine retailers and beer brewers, sock subscription sellers and beauty appointment booking services, etc.
By 2018, when Booktopia was ready to dive back into the fundraising pond, crowdfunding services such as Equitise had come of age.
Rather than the $3 million cost of dealing with investment banks and specialist lawyers and advisers, to do a $30 million capital raise in an IPO, an Equity Crowdfunding campaign with Equitise to raise $10 million would cost just $290,000 (lawyers alone would cost $15,000 as opposed to $800,000 – the legal bill for the IPO).
These guys really know us and believe in us. They allow us to bypass the process to get access to capital.
Best of all, it would open up ownership of Booktopia to the millions of readers who have purchased from the business.
The IPO experience was not a complete waste. Tony says it helped them to put a great deal of documents and procedures in place that would make any form of fundraising far simpler in the future.
“When we went through the IPO process and started asking for funds, it really felt like we were out there with cap in hand, asking for investors to choose us versus someone else,” he said.
“They don’t really understand your business and they’re not passionate about it. But we’ve got over five million people that have bought from us, of which 1.8 million are repeat customers. These guys really know us and believe in us. They allow us to bypass the process to get access to capital.”
What’s the money for?
When Booktopia has been experiencing growth of more than 30%, year on year, why bother raising equity at all? Why not continue to plough profits back into the business and grow organically, as has been the model for the past 15 years?
“We could do that,” he said. “But we’ve got things to do. We’re still growing and investing in more automation. We can already see down the line the amount of orders that our customers are going to be demanding from us.
We need to invest in automation to ensure we’re not just throwing more people at it.
“Leading up to Christmas, 30,000 individual books per day were being packed and shipped from our facility. A year ago, that was more like a 24,000 units per day. We expect that will continue to grow each year.
“We need to invest in automation to ensure we’re not just throwing more people at it. We also want to hold more stock. Customers appreciate that they can get books from us quickly.
“Finally, it’s about operational liquidity. We want to have more cash in the bank, more often. To bring on shareholders to be part of that journey is something we’re extremely excited by.”
About the author
Chris Sheedy is one of Australia’s busiest and most successful freelance writers. He has been published regularly in the Sydney Morning Herald, Virgin Australia Voyeur, The Australian Magazine, GQ, In The Black, Cadillac, Management Today, Men’s Fitness and countless other big-brand publications. He is frequently commissioned to carry out copywriting and corporate writing projects for organisations, including banks, universities, television networks, restaurant chains and major charities, through his business The Hard Word.