Cannabis is equity crowdfunding’s new best bud in $71 million Birchal report

According to Birchal’s CSF Yearbook 2023, crowdsourced funding in Australia held steady in 2023, with the food and beverage industry once again taking the top spot for investment. However, where beer reigned supreme in 2022, it took a noticeable dip over the past 12 months. Meanwhile, funding for medicinal cannabis startups is on the rise.

Crowdsourced funding managed to remain steady in 2023

Despite general financial turmoil in 2023, CSF remained resilient over the past year. Birchal’s report reveals that $71 million was raised across 82 offers in 2023. This is only $1 million shy of the 2022 results, which saw $72 million raised across 91 campaigns.

In a year marked by a drop in VC funding and a downturn in ASX IPOs, the CSF industry’s stable performance stands out.

Since the inception of the CSF regime in 2018, the industry has channeled $289 million into the ecosystem through 380 successful offers. Birchal alone has contributed over $196 million from 249 successful offers, involving more than 115,000 investments.

“The last three years have seen steady funding volumes, with an increase in the average raise size in 2023,” Matt Vitale, co-founder of Birchal, said on a call with SmartCompany.

“There were softer funding conditions for the first half of the year and in the half of 2022 as well. But around the middle of the year things started to improve and gather more momentum.”

Birchal finished 2023 with its busiest quarter to date, seeing 27 completed campaigns. This included Birchal’s own $2.4 million raise in December, marking the second time the company has utilised its platform for fundraising.

“More and more companies are becoming aware of raising capital in this way. [They’re] building communities through crowdsource funding, establishing a deep connection with their investors, telling stories.,” Vitale said.

“That’s great tailwinds for us — the increasing awareness of what we do and that companies can find success with crowdsourced funding. And we expect that to continue and accelerate as conditions improve.”

Another sign of the industry’s maturing landscape is the increasing proportion of CSF offers made by companies with over $1 million in reported revenue, growing from 16% in 2020 to 41% in 2023.

Additionally, the percentage of offers from companies generating positive earnings at the time of their offer has more than doubled since 2020, reaching 26% in 2023.

Vitale expects to see more mature businesses look towards CSF in 2024, rather than opting for an IPO in less than desirable market conditions.

“We have several businesses that raised with us last year that would have otherwise considered an IPO process. But they’re having success with crowdsource funding and being pleasantly surprised that you can invest in brand building and that it is a lot cheaper,” Vitale said.

“And the regulatory obligations — although fit for purpose for retail investors — are not as severe as the institutional grade compliance that the ASX requires.”

Pouring one out for breweries as food and beverage sector shifts

Expanding on the overall success of CSF in 2023, an interesting subplot within the broader narrative has emerged.

Food and beverage led CSF funding pack for the third year running, raising $21.6 million across 24 successful campaigns. This was down from 2022 where $28 million was raised across 33 campaigns — an expected outcome considering the ongoing cost of living in 2023. But there was another significant change nestled amongst the stats.

Historically the food and beverage CSF sector has been dominated by beer-related ventures, however, 2023 saw a pivot towards non-beer businesses.

Beer-related ventures represented more than half of the food and beverage category in 2022, with $14.3 million out of the total $28 million. In 2023, it raised just $2.7 million across only two successful offers.

“It’s been a really challenging time for the brewing industry, particularly over the last 12 to 18 months — industry excise is a huge issue. And we’re hearing a lot of these things from brewers that are in our network,” Vitale said.

We’ve also been seeing this in the space, with independent craft brewers shuttering in droves in 2023, including Ballistic Beer Co and Bad Shepherd Brewing Co.

“The data and the activity for beer businesses and crowdsource funding on our platform has been the lowest ever as a proportion,” Vitale said.

This shift marks a contrast to 2022, where breweries led the CSF food and beverage sector, raising over $28 million. In fact, all three of the top CSF campaigns in Australia that year were from breweries that raised over $2 million each.

The change reflects broader consumer trends, with a growing emphasis on diversity in products and innovative approaches to food and beverage offerings. Perhaps the most significant here has been the rise of low and no-alcohol beverage options in the market. We’ve certainly seen that trend in VC land over the last few years, with the likes of Heaps Normal attracting attention and dollars.

Emerging focus on medicinal cannabis and psychedelics

While beer might be on the way out, it’s quite the opposite story when it comes to medicinal cannabis, with the sector growing in popularity across CSF in 2023.

“Our healthcare category was predominantly medicinal cannabis [businesses]. Over $10 million was raised across four offers,” Vitale said.  The largest pot went to Cannaponics, which raised $5 million in a single campaign.

And it seems this trend seems likely to filter into psychedelics startups in 2024.

“Particularly with the recent down scheduling of psilocybin and MDMA for treatment-resistant depression and PTSD, we expect that there are going to be a range of businesses that are in the psychedelic space that will start using crowdsource funding,” Vitale said

“We hope that they’ll have similar success that medicinal cannabis businesses have had because there’s lots of people that are interested and want to see these industries flourish.”