Government moves on new equity crowdfunding regime: Five things startups need to know
Friday, September 15, 2017/
Australian startups and small businesses will soon be able to raise money through equity crowdfunding, with the introduction of new legislation into Federal Parliament on Thursday.
The opportunities for both startups and SMEs to tap into their networks and customers is unprecedented and will allow everyday investors the ability to support things they are passionate about.
This long-awaited announcement comes on the back of three years of collaborative discussions with the federal government, with the first phase allowing crowdfunding for public companies coming into effect later this month.
The new regime relates to equity crowdfunding for proprietary companies. If it goes ahead, there are important things startups should think about to make the most of the new policy settings.
1. How can I access this funding?
A business will need to wait for the proprietary legislation to pass to be able to access the new regime, while other companies wishing to use the current public company legislation will need to apply to a licensed intermediary to be able to make an offer of securities to retail investors.
Once they have been accepted they will then need to prepare their companies’ legal and governance structures to convert to a new type of public company, which they can do by filling out ASIC Form 206. They will then need to put together an offer and go out to the public.
The intermediary will need to hold a new class of Australian Financial Services Licence (AFSL), much like other providers of similar services in Australia.
Basically, this means that intermediaries (platforms) will need to prove they can provide the necessary technology, infrastructure and expertise to run a service offering securities to retail investors.
2. How much capital can you raise?
Unlisted public companies with less than $25 million in assets and annual turnover will be eligible to apply for the scheme to raise funds.
Under the new regime for proprietary companies, startups can raise up to $5 million and if they raise more than $3 million they will need to become audited. Platforms are likely to set a minimum that companies will be able to raise and this will vary.
3. What do I need to have in my business to be ready to raise capital?
Startups need to make sure they have the right governance and legal structures in place to meet their regulatory obligations when taking part in equity crowdfunding. Currently proprietary companies are unable to have more than 50 shareholders, so extending the current regime to apply to proprietary companies will enable easier access for small and innovative business types to get the capital they need to succeed.
You must have:
• a minimum of two directors;
• financial reporting in accordance with accounting standards; and
• audited financial statements once your company raises more than $3 million from crowdfunding offers.
4. When can I access crowdfunding for my business?
Retail investors will be able to invest in public companies from September 29. For private companies the timing will depend on the passage of the government’s legislation through parliament.
One of the key things you should think about is what the transition period is going to be like and when would be the best time for your business to make the most of it. For many businesses, some of which we are currently working with, their existing size, structure or plans will mean that they will make use of the current legislation.
5. Why would I use crowdfunding for my business?
The latest legislation is a landmark development for both SMEs and startups in Australia, with plenty of advantages for those looking to take part. The sweet spot will be for established brands with strong followers, which will soon be able to reach out and tap into those who support their business, buy their products and believe in the future. It gives startups an incredibly effective way of creating an even more loyal and ardent group of brand advocates who will help companies market their brand.
It is also an effective way to tap into and formalise the traditional “friends and family” round that may be augmented with other investment from high net worth individuals or traditional angel investors who may take part and invest alongside the crowd.
Overall, it is great to see the government get on board with this commitment and we will be doing our best to get the greatest utility for companies and investors.
We will continue to work with all stakeholders to improve the process and help put in place a regulatory setting that helps facilitate investment and support of an amazing new avenue for companies to raise capital.