CrowdSource Funding is now helping hundreds of Australian start-ups fund their businesses like never before and providing an opportunity for all people to participate in companies they understand or connect with.
To help founders and entrepreneurs to understand this new method of raising capital we thought we would try and answer some initial questions.
So What is CrowdSource Funding?
It is a comparatively new funding option now available for start-ups or smaller private companies. It allows investment offers to be made to retail investors via an accredited CSF platform such as Birchal.
Not without its risks, of course. However, ever since the Legislation was enacted in Australia in early 2017 (later amended in late 2018), which contains the rules governing who can access CSF, the amount raised has been growing strongly.
OK. But how does it work?
The CSF Legislation outlines a structure under which a start-up or small private company may source funds from the 'Crowd', with a cap of $5M per year.
The company produces an information memorandum called a CSF Offer Document with prescribed minimum information with easy to follow templates provided by ASIC and must be published and facilitated by an authorised CSF intermediary.
As an extra measure, this intermediary must check the eligibility Company, Directors and the Offer Document and potential investors.
What are the Benefits of Crowdfunding?
CSF affords companies wishing to raise capital with access to a broad fresh market of investors due to the ability to promote widely and much lower investment minimums reducing risks for investors whilst allowing more people to participate.
The CSF platforms have also made the process much more straightforward and efficient whilst ensuring that companies and their directors comply.
Can I raise funds using CSF?
Depends. ASIC specifies that CSF entities can include "unlisted public companies and proprietary limited companies (excluding investment companies or vehicles) with less than $25 million in consolidated assets and annual revenue that have their primary place of business and a majority of directors residing in Australia."
Is there a limit to how much I can raise?
Yes. Eligible companies can raise up to $5 million in any 12 months, which is known as an "Issuer Cap".
Is there a limit to how much I can invest?
Depends. If you are a 'Retail Investor', you can buy up to $10,000 of shares in a single company over 12 months.
If I am raising funds, what are my obligations?
There a several key responsibilities a company and directors must be aware of when raising funds via a CSF platform. The Offer Document has various requirements outlined by ASIC for disclosure such as, but not limited to:
Company Structure;
Risks;
Financial Information;
Details of the Offer; and
Rights of Invests.
Companies and Directors also must comply with reporting and disclosure obligations after completion of the offer and are different between public not listed and private companies.
How do I know if my company is ready?
The CSF intermediary is obligated to check a CSF Offer document; these checks are essentially compliance checks.
You need to consider whether you think your business would be attractive to investors and ensure that you truly understand your industry and the competitive landscape. You will need to disclose your trading history, your growth plans, sure up your board or advisory board, and determine a fair valuation and more. However, there is help and talking to experts and CSF platforms; you will soon understand your specific gaps.
Does it cost me anything to raise capital via a CSF Platform?
Yes. Generally, there are fees to establish your profile on a CSF platform and usually additional services such as document creation and video production.
If a successful raise is completed, a Success Fee is charged, ranging from 5% - 7.5% of the total amount raised.
Of course, there will be other fees companies need to consider in any capital raise, such as legal advice, preparation of offering materials, business and strategy advice.
Is there a strategy to raise capital from a CSF Platform?
Yes. Raising capital via a CSF platform is delicate. You still need to navigate regulatory issues and ensure that the right messaging is delivered to the right audience, supported by a clear follow-up plan.
A clear targeted marketing campaign across various lists of customers, family and friends, partners, suppliers and a defined demographic is just the start. Quality materials must support the marketing campaign, ensuring that your website and all social media platforms support branding and messaging, including blogs and tweets.
Usually, a soft launch of an Expression of Interest leads to the campaign proper to get a feel of investment appetite amongst your network. Early support, augmented by progress reports, can gain momentum during a successful campaign.
Are there any recent examples?
Yes. Shazamme is an Australian start up founded by Rick Marè and Nicole Clarke, which has now over 105 paying customers since launching a few months back. It has recently embarked on an expression of interest on the Birchal CSF platform.
Check out the Birchal platform, register your details, go through the EOI process, and see what Shazamme and others are doing and how they are going about it. There is no obligation to invest.
CSF Warning: Always consider the general CSF risk warning and offer document before investing.
Check out their profile and social media sites, news articles/updates and keep an eye out for the social media advertising as they progress through their EOI to a full-blown campaign.
Further Information
Guidance can be sought from the ASIC
RG 261 Crowd-sourced funding: Guide for companies
About the Author
Adam Ryan is a Professor of Practice (Adjunct Professor) at Monash University and is a principal at Watkins Bay. He has over twenty years of start-up experience in Australia and the USA. An expert in company structuring for innovation and capital for early to growth stage businesses.
Contact Details
Australia +61 (0) 418 325 387
USA + 1 (858) 252-0954
Email adam@watkinsbay.com
Reach out via Linked In
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