Crowd-sourced funding allows start-ups and small businesses to raise small amounts of capital from many investors with less cost, hassle and red tape. As such Crowdfunding can provide a solution to how to raise capital when everyone else says no!
If you’d like more information on how Accountants Direct can help you secure funding through crowdsourcing please click here for a free chat.
Or check out our Crowdfunding Accountants webpage here.
Full story below….
Australian companies have embraced the opportunities to raise capital direct from the public following changes made to the Corporations Act in October 2018.
Crowd Sourced Funding is targeted at:
- small/medium enterprises
- inventors (who do not meet the entry requirements to raise capital as an Early Stage Innovation Company)
- entrepreneurs
Companies can raise up to $5 million every twelve months from Crowd Sourced Funding Equity Raising – but they will need a compelling story.
Crowd Sourced Funding activities for small proprietary companies has given companies the opportunity to raise capital from the “crowd” without having to continue to borrow personally to fund company activities.
The commencement of Crowd Sourced Funding for small proprietary companies also enables small scale investors to invest in fast growing companies all round Australia.
We have geared up training and research into this new legislation to be able to offer a Crowd Sourced Funding Equity Raising Consultancy Service for our current clients and new clients.
Under the Crowd Sourced Funding Legislation the key players are:
- the company
- a proprietary limited company that complies with the eligibility requirements
- Intermediary
- Investors
The first version of Crowd Sourced Funding Equity Raising stipulated that a small proprietary company had to convert to an unlisted public company to be able to utilise Crowd Sourced Funding Equity Raising. From 19 October 2018 the requirements to convert to an unlisted public company was phased out on that day.
To be eligible companies will be required to have an annual group turnover of less than $25 million and have group assets with a gross value of less than $25 million and not be listed on a stock exchange anywhere in the world and not be included in an official list of a financial market operated outside of Australia.
Which type of companies might be interested in raising Crowd Sourced Funding Capital? Potential participants in raising Crowd Sourced Funding Capital could include:
- Early Stage High Growth and Disruptive Companies (ESHGD)
- Companies wishing to expand
- Companies wishing to acquire other businesses
- Companies which have a founder who wishes to retire but has insufficient superannuation or other assets to fund retirement – basically all of the founders money is tied up in the business – Crowd Sourced Funding could be utilised to raise capital for the business to enable the founder to be paid out whilst children or grandchildren took over the operations of the company with assistance from a group of external investors.
- Companies with large borrowings especially loans from family members or friends – capital could be raised from external investors to pay out the loans and to save the company interest.
- The company may have invented a new product, process or service and requires capital to be able to fund the “commercialisation phase” (which invariably costs more than what the directors think it will cost). If the company has been operating for more than three years or has expenditure over $1 million in the last twelve months or income over $200,000 in the last twelve months the company will not be eligible as an Early Stage Innovation Company and could be interested in attempting to raise capital as a Crowd Sourced Funding Company.
For companies to avail themselves of this exciting capital raising opportunity a significant amount of work will be required to prepare the documentation that is going to form part of the Crowd Sourced Funding Offer Document. This work will include the preparation of the documentation summarised later in this overview.
Crowd Sourced Funding Intermediaries
- Gatekeepers
The Intermediary is also referred to as the “Gatekeeper” and has a very important role to play in reviewing all of the documents together with the history of the company directors, and senior managers and when the Intermediary is satisfied that all of the requirements of the legislation have been complied with, a company can then finalise negotiations with the Intermediary for the placement of the company’s Offer Document including the other supplementary documentation onto the Intermediary’s platform (website) so that potential investors are able to visit that platform and make a decision as to whether to invest in a particular company.
Australian Security Investment Commission (ASIC) has appointed fourteen Intermediaries.
- Promotors
Intermediaries have another role and that is to advise people who have applied to be listed on an Investors Data Base with details of a company which has been listed on the Crowd Sourced Funding Platform on the Intermediary’s website.
It appears that many of the Intermediaries have 20,000 to 50,000 people who have registered on the Intermediary’s website for the purpose of receiving information relating to companies’ Crowd Sourced Funding Offer Documents which have been uploaded too the Intermediary’s Platform on their website.
One Intermediary’s website indicates that the Intermediary has 624,000 people registered on its website (apparently a large number of these registrations relate to “Crowd Funding” activities that have been conducted by an associated entity for the last ten years).
The Intermediary will advise the company’s directors on matters relating to:
- Promotion of the company’s offer;
- Preparation of videos;
- Preparation of webinars;
- Printing of the Crowd Sourced Funding Offer Document.
Investors
There are two types of investors:
- retail investors; and
- wholesale/sophisticated investors.
An investor is a “retail investor” if they are not a wholesale/sophisticated investor (someone with net assets of $2.5M or has earned gross income in excess of $250,000 for each of the last two years).
The legislation imposes a maximum investment from a retail investor of up to $10,000 per company each twelve months.
The legislation requires the company and the CSF Intermediary to ensure that retail investors are aware of the risks associated with investments in fast-growing companies. Retail investors also have a five business day cooling off period after an investment is made.
Are you interested in having a discussion with us relative to your company or business utilising this legislation to raise capital to assist your business expansion? We would be quite happy to have a discussion with you and we would like to explore with you some of the other documentation which will have to be utilised to develop a Crowd Sourced Funding Offer Document for your company. This documentation includes:
- market research on your business opportunities;
- marketing plan for your business looking at your activities for the next three years;
- intellectual property summary for your business covering matters such as research and development activities, patents, or patents in the process of being registered, trademarks, copyright, domain names;
- corporate chart incorporating commentary on directors, management, team members, advisers etc;
- business plan outlining the vision for your company for the next three years;
- budgets and cashflow forecasts identifying the financial results of your business activities forecast for the next three years; and
- how much capital do you think you would need to raise? As part of this assignment we would be required to prepare a business valuation so that the price per share for the offer statement can be prepared.
All of this information then gets incorporated within the documentation for the Crowd Sourced Funding Offer Document which has to be carefully reviewed by the CSF Intermediary.
If you are interested in raising capital in this manner to assist the future operations of your business, now is the time to be making preparations.
We would be very happy to have discussions with you in relation to this exciting project. Please click here for a no obligation discussion during which we can give you an outline of the services that we are able to provide to you to assist you on this very important journey.
Stephen is the CEO of Accountants Direct and is a Professional Director, ASIC Agent, Startup Advisor & Investor & Capital Raising Specialist.
Contact Stephen or his team if you have any questions about this post or any business matter in general.
