How to raise equity capital in Australia
It is very common for businesses to raise additional capital to grow and scale their operations. The main forms of capital are debt or equity. In this article we give a general overview of how to raise equity capital in Australia.
ASIC states that companies can raise capital from the general public via a disclosure document to offer securities for sale.
A disclosure document is defined by ASIC as a regulated fundraising document to raise capital; a prospectus, an offer information statement, a profile statement and a two-part simple corporate bonds prospectus. In our experience, this kind of raise is not cost effective for small or medium businesses because of the high costs to create the disclosure document, pay advisors and to arrange the raising structure that ASIC requires.
An alternative to raising capital under a disclosure document is for private companies to raise under “non-disclosure”. Under non-disclosure, private companies can raise equity capital from existing shareholders, employees, known stakeholders and the general public. This type of raise includes among others:
A Personal Offer: “Offers or invitations have been made to fewer than 20 persons in the previous 12 months, and the new offer will not result in more than $2 million being raised in that 12 months”. This offer can only be made directly by the company to the potential investor. It cannot be advertised to the public.
Accordingly, with a personal offer, the number of potential investors the company can talk to is very limited. Therefore, exposure to financial and intellectual capital is also limited.
An Offer to Exempt Investors: The offer is made to people who are presumed not to need disclosure because of their financial capacity, experience, association with the issuer or wholesale status (including sophisticated and professional investors).
This type of offer is common for private companies and we consider it one of the only ways to raise a significant amount of capital without disclosure. However, companies need to have a network of exempt investors. In addition, it is common for this kind of capital raise to take some time as exempt investors tend to undertake a detailed approach to due diligence.
Crowd-Sourced Funding: An alternative to the above methods of raising capital is Crowd-Sourced Funding (CSF). “Unlisted public companies with less than $25 million in assets and annual turnover 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”.
Raising capital with crowd sourced funding has the limitations of “an investor cap of $10,000 per annum per company for retail investors”, a 5-day cooling off period for investors and offers can only “be open for a maximum of three months”.
Ideally, a company should commence raising capital early - well before the funds are needed, as it takes time to get a company investor ready and to source the required funds. If you are considering raising capital, please get in touch with us. Our team is always happy to take you through the various funding options that could be a fit for you and your business!
About Funding Strategies
Funding Strategies is an Australian based capital markets firm providing venture equity capital and finance services to small business and companies seeking capital for growth and expansion in the unlisted and pre-IPO capital markets. We work with predominately private and public companies, and sophisticated investors. If you would like more information, please email email@example.com or phone +61 7 3160 2840.