Making it easier to access to crowd-sourced equity funding
The government is making changes to make it easier and less expensive for small businesses, including start-ups, to raise equity from the general public, while ensuring adequate investor protection.
Australia’s current regulatory requirements create a barrier to widespread use of Crowd-sourced Equity Funding (CSEF). This means small innovative companies are missing out on funding that could help them develop their ideas.
Introducing laws to provide access to CSEF in Australia will provide a diverse range of funding options for businesses and will remove the competitive disadvantage compared to their international counterparts.
Crowd-sourced equity funding (CSEF) schemes exist in various countries, including in the UK and New Zealand. In the first 12 months following its launch, the New Zealand CSEF scheme enabled more than 20 innovative companies to raise over $12 million in combined funds.
What is it?
CSEF is a new fundraising approach that:
- Allows entrepreneurs to raise funds—up to $5 million per year—from a large number of individuals in return for equity in their company
- Gives companies, that become a public company to access CSEF, a five year exemption from the normal reporting and disclosure requirements that apply to public companies.
Who is eligible?
- CSEF will be available to Australian public companies with a turnover and gross assets of less than $5 million.
- Individuals seeking to invest using the CSEF platform can contribute up to $10,000 per company, per year.
When is it happening?
- Legislation to implement CSEF was introduced into Parliament on 3 December 2015.
- The CSEF scheme will commence within six months of the legislation receiving Royal Assent.
- Draft regulations setting out the details of the scheme will be released soon.
What to do
How will this work in practice?
Dylan has come up with a new idea for a pet tracking device, which will enable pet-owners to track their lost companion using their mobile phone.
Dylan’s simple collar-tracking device works really well in the field but needs significant refinement to improve its saleability. He estimates that this will cost $400,000.
Dylan initially seeks funding from family and friends. He manages to secure $50,000, but is forced to look to traditional lenders for the remaining $350,000. But given his limited track record and inability to meet high interest loan repayments, lenders consider Dylan’s business proposition too risky to invest in. Dylan is forced to put his plans on hold.
With the introduction of new CSEF laws, Dylan decides to raise the money he needs using CSEF. He converts his proprietary company (PetFinder Pty Ltd) into a public one —knowing that he can take advantage of the five year exemptions on holding Annual General Meetings, and producing audited financial statements.
Dylan is able to secure the additional $350,000 he needs to develop a fully refined prototype.
Information courtesy http://www.innovation.gov.au/