Cheat sheet: Equity crowdfunding in Australia, explained
Equity crowdfunding offers an alternative finance pathway to banks and venture capital, if you’re prepared to share ownership.
Equity crowdfunding allows startups and growing companies to access capital online from a large number of small investors.
Unlike rewards crowdfunding — which exchanges donations for gifts — equity crowdfunding campaigns involve receiving money in exchange for ownership in the business itself.
Equity crowdfunding falls under the authority of the Australian Securities and Investment Commission and is supported by securities law.
In Australia, the first equity crowdfunding legislation was passed in May 2017, for unlisted public companies. By September 2018, the Australian government extended it to include private businesses, which allowed a far wider pool of businesses to raise capital using equity crowdfunding.
Under current legislation, both unlisted public companies and proprietary companies with less than $25 million in consolidated assets and annual revenue can use equity crowdfunding. However, Australia must be the principal place of business and the location of a majority of the companies’ directors.
How much money can you raise?
Australian crowdsourced funding (CSF) legislation sets out the framework and conditions under which CSF can be carried out. As a general guide it means:
- Eligible companies can undertake a crowdsourced equity funding up to a cap of $5 million a year;
- The company must prepare a crowdsourced equity funding offer document with set minimum information; and
- An equity crowdfunding campaign can only be undertaken via an authorised intermediary or online platform, such as Birchal.
The intermediary is then legally responsible for ensuring the company and investors are suitable to engage in the capital raise, for the transfer of funds between the investors and the company, and for communications between the parties.
Retail investors can buy up to $10,000 of shares in a company over a 12-month period.
Advantages of equity crowdfunding:
- Raises more money than rewards crowdfunding
- Alternative to traditional institutional finance providers
- Suitable for a wide range of businesses
- Allows businesses to receive in-depth feedback throughout the campaign process
- Gives businesses the chance to prove their valuation
- Provides exposure to a broad network
Here are nine equity crowdfunding platforms you should consider in Australia
The cost of creating a campaign varies across these platforms, but generally includes an administration fee of about $2,000 and an additional fee if your campaign is successful of between 5% to 7.5%.
On top of those costs are the expenses involved in getting your campaign live, which depend largely on what you are or are not able to do.
Costs can include legal services to review official documents, business advice, obtaining a sound valuation of your company, producing a video that sells your story and other campaign promotion.
It is also worth noting that each campaign sets a target investment amount and a maximum investment amount.
These limits mean that if the company fails to meet its target it does not get any money, and once it reaches its maximum it is no longer able to continue receiving investment.
Successful equity crowdfunding campaigns
There are now over 55,000 investors in Australia who have participated in equity crowdfunding offers. So, which companies have they bought into?
Last year, the top performing crowd-sourced funding campaign was undertaken by emerging medicinal cannabis company Cannatrek, which raised $2.5 million from 788 investors on the platform OnMarket.
Next came the hot sauce brand Bunsters and medical cannabis-related portal Montu, which each successfully raised $2 million through the intermediary Birchal from 1572 investors and 1118 investors respectively.
The fourth best-performing equity crowdfunding campaign last year was Seabin Project, a solutions-based company aiming to reduce plastic in oceans, which raised $1.8 million from 1781 investors also on Birchal.
These examples show that equity crowdfunding is a means for both young startups and local businesses with a loyal following to access capital and grow faster.
