After a very long wait … on 22 March 2017, the Crowd-Sourced Funding Bill 2016 was finally passed by the Australian Parliament!
The Bill allows eligible unlisted public companies to raise up to $5 million from investors each year through the use of Crowd-Sourced Equity Funding (CSEF).
In order to qualify as an eligible CSEF company, a company must meet various criteria including having its principal place of business in Australia and consolidated gross assets and consolidated annual revenue of less than $25 million.
The offer must be for a prescribed class of securities and must not result in more than $5 million being raised in any 12-month period.
In its current form proprietary companies, which make up the significant majority of small businesses in Australia, are unable to participate. It has been estimated that over 95% of companies will not be able to raise capital through CSEF.
Whilst it is understood that the Government is looking at how future amendments can broaden the scope of the legislation, companies can still use reward based crowdfunding on platforms like ReadyFundGo to help them achieve their goals.
Not only can reward based crowdfunding help an organisation obtain funds but it can have the added benefit of enabling an organisation to build its customer base, gain customer feedback, build future advocates for the business and do so without diluting existing shareholders.
For businesses that will subsequently looking for funding from angel investors or as part of a CSEF campaign, having successfully completed a reward based crowdfunding campaign can be regarded as a significant milestone on that journey.
The CSEF framework is due to take effect on a date to be fixed by proclamation following the Bill obtaining the Royal Assent from the Governor General.
For those who are looking at new investment opportunities the Bill does include a number of investor protections – for example, there is a $10,000 cap on the amount an investor can invest in any eligible company and there is a mandatory 5-day cooling-off period.
Stay tuned for more!