Private Companies Needing Cash – Meet Your Shiny New (Lower Cost) Capital Raising Option
It’s easy to see why crowdfunding and startups are a fitting pair. What could be more ‘startup’ than skilfully marketing your business over the internet to attract new customers (or in this case investors)?
The same activity makes your startup’s greatest fans its owners. These people (who already love your idea) become financially motivated to spruik your business to their own networks and help you grow your brand. All in all, a well-executed crowdfund can bring with it a sharp rise in brand awareness, a community of brand ambassadors and the funding you need. Win, win, win.
How to Crowdsource Fund Your Next Big Idea
Until recently, the opportunity to raise cash directly from the public via crowd-sourced funding (CSF) was reserved for unlisted public companies. While private companies could convert to an unlisted public company to access CSF, the transition was burdensome, costly and ultimately proved to be a significant barrier to entry.
Key Legislation for Proprietary Companies
Fast forward to late October 2018 and Australian private companies (with an annual turnover or gross assets of up to $25m) are able to advertise through licensed portals and raise up to $5m a year. But how? The key legislative change is the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Act 2018. The new rule unlocks CSF by excluding these investors from the traditional 50 shareholder cap applying to private companies.
Crowdsource Funding Benefits for Investors
For investors, these changes allow you to actively ‘back’ your favourite up-and-coming companies and share in the spoils of their growth. Investors can also take some comfort in the thought that the new regime attempts to protect their interests by imposing various public safeguards and governance standards on PTY LTD companies offering CSF (which apply in addition to the regular rules). Amongst other things, these include requirements to have two or more directors, to prepare annual financial and directors’ reports, to have financial reports audited, to comply with the same related party transaction rules applicable to public companies and to include CSF shareholders on their registers.
With CSF now more accessible to startups and small businesses, there’s never been a better time to play to the crowd.
In the short time unlisted public companies have been able to access CSF, BlueRock has gained market-leading experience advising on almost every aspect of CSF offerings (from accounting to law to digital marketing) and just like you, we're excited about the latest legislative changes which bring CSF one step closer for our clients.
If you would like to chat about how we can help your business navigate its capital raising options, please get in touch. We’d love to help.
