Investors of crowdfunded neobank Xinja, set to lose 100%
Websites like Kickstarter, Indiegogo and Gofundme have popularised the crowdfunding revolution in recent years. Although with some startups now looking to raise millions of dollars in equity funding, there are questions as to whether current regulations and oversight are adequate to protect retail investors.
While sites like Kickstarter and Gofundme are reasonably transparent with the "perks" or "rewards" a backer may receive, and in most cases, the contributions to a project are relatively minor. Kickstarter's the average individual "donation" is only $25. The platforms also do not shy away from the narrative of community support and philanthropic intentions.
"Kickstarter campaigns make ideas into reality. It’s where creators share new visions for creative work with the communities that will come together to fund them."
However, in 2017, challenger bank Xinja was the first startup to make use of Australia’s new equity crowdfunding laws, raising $2.4 million. In 2019, it raised another $2.6 million. And a year later, a further attempt saw the challenger bank looking for another $50 million from investors in a Series D raise. An attempt that was promoted by news of a non-existent $433 million investment by a suspect, Dubai-based, World Investments.
In Dec 2020, Xinja said it would hand back its banking licence to the Australian Prudential Regulation Authority and return most of the money to deposit holders before the year's end. The bank had enticed a large number of millennial depositors with the prospect high-interest returns, yet failed to develop a lending business to fund the model.
Hopes for investors were left tenuously clinging to its intentions to offer a Robinhood-style, zero-commission US share-trading product. However, on New Year's Eve, shareholders in the bank were sent a memo sent warning their shares could be worthless.
"At this stage, we do not know what the exact remaining capital at hand will be once the banking licence handback is completed. This will depend on many factors outside of our control."
The failure is a setback for an industry the government has tried to establish to introduce competition into financial services.