Crowdfunding for Private Companies

Recent changes to Australian crowdfunding legislation now enable private companies to raise funds from thousands of investors in return for equity in the business.

On 21st September 2018 the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2018 received Royal Assent heralding the commencement of a new era of capital raising for Australian private companies.

Crowd Sourced Funding (“CSF”) is better known as equity crowdfunding which is the online offer of securities for investment by the public. As equity crowdfunding involves investment into the equity securities of a commercial enterprise, it is subject to Australian financial regulation.

The very recent amendments to Act now mean that much of the historical red tape, compliance costs and disclosure requirements associated with retail sourced capital raising has effectively been overcome.

Recent changes to CSF legislation include

  • Proprietary companies are now able to use the CSF regime

  • CSF shareholders will not count towards the 50 non-employee shareholder cap for proprietary companies

  • Proprietary companies with CSF shareholders must have a minimum of two directors

  • Companies will need to maintain information about CSF shareholders on their registers

  • Proprietary companies using CSF will have additional financial reporting obligations

  • No audit requirement for small proprietary companies using CSF until more than $3 million is raised through CSF.

  • Proprietary companies using CSF will be subject to restrictions on related party transactions

  • Proprietary companies that have CSF shareholders will be exempt from takeovers rules

  • Remove the corporate governance concessions for public companies using the CSF regime

  • Proprietary companies with CSF shareholders cannot be listed on overseas exchanges

What it all means

Following introduction of the new CSF legislation, private companies are now able to attract millions of dollars of seed and growth capital from thousands of retail and professional investors simply by promoting their unique business opportunity on one of the ASIC licenced equity Crowdfunding Platforms.

The CSF legislation allows small companies to raise up to $5,000,000 per annum from investors, including retail investors but on the basis that (for safety) each retail investor will be limited to a maximum of $10,000 for each company in which they invest in any 12 month period (although they may invest in more than one such company).

The Australian CSF market is still in its infancy however several early players have already established compliant platforms and online tools designed to streamline the equity crowdfunding process. (eg Equitise, Billfolda)

Most of the licenced platforms provide a suite of services to facilitate efficient investment directly into innovative companies and in doing so provide a vital link to growth capital for private companies.

Getting Started

In order to raise funds via CSF the business must firstly meet the eligibility criteria as prescribed by legislation. The next hurdle is acceptance of your offer by one of the ASIC licenced equity crowdfunding platforms.

CSF platforms charge varying fees for the promotion of the offer with most charging a cash fee of between 5% - 10% of the value of equity raised whilst other CSF platforms charge their fees in equity.

As most CSF platforms invest alongside of other investors (or are remunerated through equity) they are typically highly critical of the businesses that they choose to promote. Clear preferences are given to those businesses who can demonstrate the following:

  • Significant scale up potential

  • Proven market with some traction

  • Experienced presentable founders supported by team

  • Other investors already on board.

  • A well-developed business plan.

  • Clear offer document.

If you are interested in raising funds for your business via CSF or more traditional Venture Capital pathways, please get in touch or 07 5536 7618

#capitalraising #crowdfunding

Featured Posts
Recent Posts
Search By Tags
No tags yet.
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square