Equity Crowd Funding - Invention Pathways

Equity Crowd Sourced Funding (CSF) – What is it and What you need to know?

What is Equity Crowd funding in Australia?

Introduced by the Australian Government on 29 September 2017, Equity crowd-sourced funding (CSF) is a new way for start-ups and small and medium sized companies to raise money from the public to finance their business.

How is it different to what was in place before the change in late September 2017?

CSF legislation

The Corporations Amendment (Crowd-sourced Funding) Act 2017 amends the Corporations Act 2001 (Corporations Act), and makes minor amendments to the Australian Securities and Investments Commission Act 2001, to provide a legislative framework for crowd-sourced funding. Generally, the CSF regime reduces the regulatory requirements for public fundraising while maintaining appropriate investor protection measures. A provider of CSF services must hold an Australian financial services (AFS) licence.

The Corporations Amendment (Crowd-sourced Funding) Act 2017 received Royal Assent on 28 March 2017 and took effect from 29 September 2017.

Am I eligible to use CSF to help commericalise my idea?

Under the CSF regime, eligible public companies and proprietary companies will be able to make offers of their shares, via an intermediary CSF service, using an offer document.

Unlisted public companies with less than $25 million in assets and annual turnover of less than $25 million will be eligible to raise funds under the CSF regime. Eligible companies will be able to make offers of ordinary shares to raise up to $5 million in any 12-month period.

Furthermore:

Proprietary companies wishing to use the CSF regime will be required under the law to:

maintain a minimum of two directors
prepare annual financial and directors’ reports in accordance with accounting standards
have their financial reports audited once they raise $3 million or more from CSF offers
comply with the existing related party transaction rules that apply to public companies.

There are obligations and investor protections that apply to CSF offers, including:

an investor cap of $10,000 per annum per company for retail investors
the provision of a CSF offer document containing minimum information and a prescribed risk warning
a five-day cooling-off period.

Has anyone had success using CSF? ( News from 2018 year)

DC Power Co became the world’s first crowdfunded energy retailer. Founded by a social entrepreneur, an investment banker, an engineer, and a solar expert, the company opened pre-registration for interested investors in March 2018 to raise approximately $4.75 million. It received an overwhelming response on the first day that the CSF offer opened to the investors.
The Sporting Globe Plenty Valley became Australia’s first crowdfunded pub. It closed expressions of interest in February 2018 and was set to raise approximately $1.2 million through CSF on the CSF intermediary platform. In addition to their shares, investors will be entitled to become part of a members-only club that offers exclusive discounts and specials.
The neobank Xinja raised approximately $2.4 million through CSF. It raised $500,000 in less than a day in January 2018 and closed the fundraising round on 31 March 2018 with 1,222 investors through its CSF intermediary platform..

Some more recent new

ASIC releases new crowd-sourced funding report

9 April 2020

ASIC has released Report 657 Survey of crowd-sourced funding intermediaries: 2018-19 (REP 657). The report outlines findings from ASIC’s second industry survey, which tracks the growth and development of crowd-sourced funding (CSF) in Australia.

The survey covers the first full financial year (1 July 2018 to 30 June 2019) since the CSF framework was introduced in Australia. It is also the first survey period in which proprietary companies have been allowed to make CSF offers.

Australia’s CSF industry is still in its early stages, but it is growing as a source of capital raising. Some notable findings from our survey are:

There were 56 CSF offers – a four-fold increase compared with the previous survey period, which covered CSF offers from January to June 2018. Nearly 70% of these offers were complete and raised a net total of approximately $26.33 million.
Proprietary companies raised approximately $14.04 million in the survey period. This amount is 53% of the total raised by complete offers.
‘Subscribe now pay later’ arrangements played a significant role in the capital raising process, accounting for $18.80 million in funds raised. This is more than 71% of the net total raised for complete offers.

Full report here : https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-657-survey-of-crowd-sourced-funding-intermediaries-2018-19/

So how does CSF work? Here is a simplified outline.

Set up or convert to an unlisted public company (limited by shares)

At the moment, only unlisted public companies can conduct CSF (although, as noted above, this may be about to change). At the time of a CSF offer, the value of the fundraising company’s or group’s (consolidated) gross assets and (consolidated) annual revenue must each be less than $25 million.

Offer ordinary shares

The company can only offer to issue (new) fully paid ordinary shares through CSF. In the future, the law may permit different types of securities to be offered.

Find a licensed intermediary

A CSF offer may only be made through a dedicated CSF intermediary that is a licensed operator of a CSF platform. Make sure the intermediary holds an Australian Financial Services License expressly authorising it to provide CSF services.

Prepare offer disclosure

The company will need to publish a specific CSF offer document on a single intermediary’s platform containing information prescribed by the regulations. ASIC has provided a CSF offer document template in ASIC Regulatory Guide 261.

Watch out for the retail investment cap and cooling-off period

NB: A fundraising company can only raise up to $5 million in any 12-month period via a particular CSF platform from retail investors. Retail investors can also withdraw their acceptances under the CSF offers within a five business day cooling-off period.

Invention Pathways can assist you to engage with this exciting and evolving fund raising opportunity . We can also be called on to offer alternative types of crowdfunding platforms to give you, the Inventor, every option to see your Idea/Invention have every chance to be a success.

Please Click Here to Access a handy information sheet that introduces Names of the 13 licensed Intermediary players.

It is good to note that many of the names listed can and do specialise in a particular industry sectors , for example Energy or Agriculture . It may prove very beneficial to target the right CSF intermediary platform.