Jill Storey (CEO, ReadyFundGo) writes in the Australian Institute of Company Director’s Magazine and sets out how in this current climate of restricted lending to SMEs from traditional finance sources, crowdfunding and the new equity rules have the potential to be a game changer for Australian proprietary companies.
If you’re a director of a company with a turnover and gross assets of under $25m, the new equity crowd-sourced funding regime may be a useful fund-raising addition to current opportunities —reward-based and debt-based crowdfunding.
The Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Act 2018 (Cth) came into force in October 2018. Proprietary companies can now raise up to $5m in a 12-month period from retail investors — who can invest up to $10,000 per company over a 12-month period via a licensed crowdfunding intermediary.
This long-awaited legislative change has occurred at just the right time with the tightening of small business lending. Equity crowd-sourced funding allows a large number of individuals to make small financial contributions towards a company in exchange for an equity stake.
Top Australian Equity Crowdfund Raises
In December 2014, the Financial Services Inquiry, chaired by David Murray AO, included the introduction of equity crowdfunding as a recommendation. It took until January 2018, when ASIC granted the first crowd-sourced funding licences, for Australia to join other jurisdictions including the UK, US, New Zealand and Canada.
However, the legislation could only be utilised by unlisted public companies. Given more than 97 per cent of the 2.6 million companies registered in Australia are proprietary companies and the objective of the legislation was to improve access to finance for early-stage growth companies, the potential impact was limited.
Although restricted in its application, the first year of crowd-sourced equity finance in Australia delivered some successful raises for public unlisted companies.
One of the first campaigns was Xinja, Australia’s first neobank, which successfully raised $2.4m through crowdfunding platform Equitise.
In April 2018, solar power retailer DC Power Co raised $2.2m via the OnMarket crowdfunding platform. The campaign attracted more than 15,000 investors, making it the world’s largest equity crowdfunding offer by number of investors, according to Business Insider.
This March saw the 2018 record equity crowdfunding raise broken by women-only ride sharing start-up Shebah, raising $3m via Birchal.
Under the new regime, from October 2018, proprietary companies no longer need to convert to public unlisted companies to raise funds under the crowd-sourced funding legislation.
