Crowd-Sourced Funding in Australia – can you access it?
This article was originally published by Hire and Rental News, Aug 2018, Vol 20. Page 14.
What is Crowd-Sourced Funding?
Crowd-Sourced Funding (CSF) is the funding of a venture by a large number of people. It is a tool for raising capital online, and offers companies the ability to cast a wider net to reach both sophisticated and non-sophisticated investors.
There have been a number of successful CSF campaigns in the hire and rental industry overseas, including:
-
E-Car Club – a UK-based pay-as-you-go electric car hire business which raised GBP100,000 in 2013 (and was later acquired by Europcar in 2015);
-
Whitecar – a UK-based Tesla rental company which raised over GBP800,000 in 2017 to fund its expansion into Europe; and
-
ATzuche – a Chinese peer-to-peer car rental service which raised over RMB95.5 million in 2016.
The new CSF regime took off this year after CSF intermediaries were formally licensed, but the regime is still in its infancy in Australia. This article explores the Australian CSF regime and looks at under what conditions your business could access CSF.
How does the CSF regime work?
Who can raise funds?
In order for a company to be eligible to raise funds under the CSF regime, it must:
-
be an unlisted public company limited by shares;
-
have its principal place of business in Australia;
-
have a majority of its directors ordinarily living in Australia; and
-
along with its related entities, have:
(a) consolidated gross assets of less than AU$25 million; and
(b) consolidated gross turnover of less than AU$25 million in the previous 12-month period before making its CSF offer.
What can a company do under the CSF regime?
Under the regime, an eligible company can make a CSF Offer, which must:
-
be for ordinary shares in the company; and
-
comply with the issuer cap, being a maximum of AU$5 million raised without full disclosure in any 12-month period.
Retail investors (or people who are not described as sophisticated investors) themselves may each only invest up to $10,000 in a company in any 12 month period – a restriction imposed to protect the public at large from forking out too much of their cash without having the requisite level of experience in the investment game to mitigate risk.
The CSF regime also creates temporary concessions from certain public company corporate governance and reporting requirements.
How are CSF Offers made?
A company can only have one CSF Offer on issue at a time and must make an offer through a CSF intermediary.
CSF Intermediaries are the link between companies looking to raise funds under the CSF regime and the general market.
There are currently seven CSF Intermediaries in Australia, each playing the role of ‘gatekeeper’ in deciding whether or not to allow an offer to be published on their platform.
A typical CSF Offer follows this process:
Comparison with CSF overseas
A criticism of the Australian CSF regime is that it is only available to public companies. In New Zealand, all companies can access CSF, whereas in the US, UK and Canada, only a small proportion of companies are excluded.
A Bill to enable proprietary companies to access CSF without needing to transition to a public company is now being debated in the Senate. It aims to make it easier to access crowd sourced equity funding to proprietary companies while protecting consumers and investors.
Implications?
CSF is proving to be an important potential source of funding for a wide range of industries, including equipment hire companies. It is a low cost and (relatively) low compliance way to raise funds.
One question for eligible businesses looking to CSF is whether to take the leap now and commit the time and resources to access the current CSF regime, or wait for further iterations of the CSF regime which might be a better fit depending on the current stage of development of the business and the development of the CSF regime which is still in in its infancy here and evolving.
For more information or advice about CSF and what you can do, feel free to contact our team.