By David Rose & Steven Roberts
At long last Crowd-Sourced Funding Capital Raising is able to operate in Australia with the Australian Securities & Investments Commission announcing that the first group of intermediaries has been appointed.
Crowd-Sourced Funding is targeted at:
- small/medium enterprises
Companies can raise up to $5 million every 12 months from Crowd-Sourced Funding Equity Raising.
The commencement of crowd-sourced funding activities will give many 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 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:
Will normally be a proprietary limited company that has been converted to an unlisted public company. Under the legislation at this stage, only unlisted public companies can participate in crowd-sourced funding.
The government has introduced legislation to Federal Parliament to enable private companies to utilise crowd-sourced funding – but the legislation has not yet been passed by Parliament.
At this stage, even if these amendments are passed, the legislation enabling private companies to utilise the Crowd-Sourced Funding Legislation would probably not commence until October 2018.
At present to raise capital using crowd-sourced funding, a private company is required to convert to an “unlisted public company”. We can assist you in this process.
Companies have been given a special exemption for up to 5 years to avoid some of the “more onerous requirements of the corporations act relating to public companies”.
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.
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
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, officers and 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.
ASIC announced the appointment of the initial group of seven intermediaries on 11th January 2018.
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).
The legislation imposes a maximum investment from a retail investor of up to $10,000 per company each 12 months.
The legislation requires the company and the CSF intermediary to ensure that retail investors are aware of the risks associated with investments to 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.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.