Attracting investors is set to get to easier for SMEs, following changes to the rules governing who can use crowdfunding platforms and how much you can raise.
The Federal Government is acting to open up new sources of capital funding for Australian SMEs and start-ups, introducing legislation late last month to facilitate crowd-sourced equity funding in Australia.
The Corporations Amendment (Crowd-sourced Funding) Bill 2016 enables unlisted public companies with less than $25 million in assets and annual turnover to use crowdfunding platforms to raise up to $5 million in any 12-month period.
Small companies that become public companies to use crowdfunding will be given a transition period of up to five years during which they will be eligible for exemptions from certain corporate governance and reporting requirements.
Setting the ground rules
The move comes after consultation with stakeholders on how to best balance the fundraising needs of businesses with investor protection. Companies will need to meet minimum disclosure requirements and retail investors will have an investment cap of $10,000 per company per 12-month period. There will also be a cooling off period built into the process. Licenced crowdfunding platforms will play a gatekeeping role by conducting checks on the companies they list on their platforms.
The Bill also increases flexibility to support development of new and specialised financial markets, including crowd-sourced equity funding platforms.
“These reforms, along with the Turnbull Government’s plan to give small- and medium-size businesses a tax cut, will play an important role in the transition underway in Australia’s economy,” said Treasurer Scott Morrison in a statement.
A viable alternative to traditional funding
“The failure of many SMEs can be attributed to a limited access to capital in the early stages,” says Steven Vigolo, Director, Business Advisory from chartered accountancy firm Nexia Australia. “Providing SMEs and start-ups with another viable option to raise funds can only increase their prospects of being successful in Australia.”
Being able to raise funds in this way may well be a mixed blessing however, he cautions.
“Given the ability for SMEs to raise a maximum of $5 million with a $10,000 cap per retail investor, an SME could potentially have hundreds of small shareholders in the company,” he says. “Managing these relationships will be a challenging task for SMEs that are not equipped with the resources or systems to do so.”