How Changes to the New Equity Crowdfunding
Laws Affect Your Startup
Last month (September 2018), new legislation was introduced in Australia to provide a framework for equity crowdfunding for private companies. Previous legislation passed in 2017 only allowed unlisted public companies to raise capital via equity crowdfunding, which deterred many businesses from considering this option.
Although Australia has been relatively late to catch onto this international phenomenon of equity crowdfunding for private companies, the change has been better late than never for startups looking for alternative investment options to fund their business growth.
Equity crowdfunding (called crowd-sourced funding or CSF in the legislation), can be an ideal investment method for startups that wish to gain some capital and business momentum. It takes away the pressure of finding and persuading angel investors or venture capitalists to invest. Rather, this method gives startups the opportunity to raise a substantial amount of capital through reaching out to large ‘crowds’ of retail investors. In exchange for their financial contribution, the investors gain equity in the company and become shareholders.
The CSF regime limits the regulatory requirements for startups and companies that want to raise capital through public fundraising. When this legislative framework was first introduced, private companies that wished to raise equity via the CSF regime were required to convert to a unlisted public company before proceeding. With the new amendments, which are expected to take effect mid-October, this is no longer the case. The CSF regime will extend to eligible private companies that wish to access equity crowdfunding methods for their business. This means your startup may no longer be burdened with the cost and compliance of converting to an unlisted public company. You can just get on your way to crowdfund your business!
To be eligible for CSF for your private company, you need to make sure your:
*Note that these requirements and some other reporting provisions are distinct to the normal rules governing private companies.
In Australia, crowdfunding occurs on online platforms that act as intermediaries to assist in your interaction with potential investors. You may have heard of some ASIC-licensed crowdfunding portals such as Birchal, Equitise, Big Start and OnMarket.
To utilise these online platforms with compliance, the CSF regime requires your private company to put out an offer document to potential investors/shareholders that explains:
These requirements are often a lot less burdensome than the disclosure requirements for public capital raising. If you would like to read the guide for public companies to crowdfund, or need a template of an offer document, see here.
Some benefits of these amendments for private companies include:
Some things to be aware of include:
CSF is an excellent alternative method of raising capital for your startup in Australia, particularly if you don’t have access to the traditional methods. Recent amendments to the legislative framework of the CSF regime has made it easier to access tools to help you get on the way to crowdfunding your private company’s capital. It is important to make sure you meet the key requirements of a private company if you are thinking about utilising the CSF regime, and comply with the regulations while taking advantage of any ASIC-licensed crowdfunding portals.
There is a lot to take in before embarking on a equity crowdfunding journey, and that’s why we’re here to help! If you want to talk about any of the steps associated with your CSF campaign or complying with a CSF platform, don’t hesitate to contact us here.