Crowd-sourced funding (CSF) is a relatively new form of fundraising in Australia that allows startups and small businesses to raise capital from a large number of retail & wholesale investors through an online platform. Instead of seeking funding from traditional sources such as banks or venture capitalists, companies can turn to the general public to raise money through the sale of shares or equity in their business.
CSF was first introduced in Australia in 2017 through amendments to the Corporations Act 2001 (Cth). Under the CSF regime, eligible unlisted public companies and proprietary companies can raise up to $5 million per year through a CSF intermediary (like Birchal).
The goal of CSF is to provide an alternative funding source for small businesses and startups, which often struggle to access traditional forms of financing.
One of the key benefits of CSF is that it allows companies to tap into a wider pool of potential investors. Additionally, CSF can help companies raise awareness and build a community of supporters and investors.
CSF is not without risks for investors. Startups and small businesses are high-risk investments, and there is no guarantee of a return on investment.
The CSF regime is subject to regulations and compliance requirements in Australia that are designed to protect investors and ensure that companies provide accurate and complete information about their business.
There’s a few terms for CSF: equity crowdfunding, ECF, investment crowdfunding, crowd rounds, community rounds or crowdfunding. In Australia, the official term is crowd-sourced funding or CSF.
Or the short version
CSF is a form of investment where people invest money in exchange for shares in a company. Buying shares (aka stocks, securities or equities) makes you a shareholder or part-owner of the company.
Shareholders often expect a return on their investment in the form of dividends or capital appreciation when the company is sold or goes public. However, your investment may increase or decrease in value depending on the performance of the company.
CSF is typically used by startups and small-medium companies to raise capital to grow and scale their business.
What companies are eligible to use the CSF regime?
The eligibility requirements to make a CSF offer are:
Proprietary company (i.e. Pty Ltd) or unlisted public company
Consolidated gross assets less than $25 million
Consolidated annual revenue in the 12 months prior to making the CSF offer less than $25 million
Principal place of business in Australia
Majority of directors residing in Australia
If a proprietary company, must have at least 2 directors
If an unlisted public company, must have at least 3 directors
Must not be listed on a financial market in Australia or overseas
Must not have a substantial purpose of investing in other companies, entities or schemes
Key features of the CSF regime
Investors will hold shares directly in the company
All shares issued are new fully-paid ordinary shares, with voting rights
CSF shareholders will not count towards the 50 non-employee shareholder cap for proprietary companies (i.e. company can potentially have an unlimited number of shareholders)
Companies will be required to provide shareholders with an annual financial report & directors report
No audit requirement for small proprietary companies using CSF until more than $3 million is raised through CSF
Proprietary companies using CSF will be subject to the rules on related party transactions
Proprietary companies that have CSF shareholders will be exempt from takeovers rules
Companies will need to maintain information about CSF shareholders on its share register
CSF offer can be advertised (in accordance with the regulations)
Companies prepare and publish a regulated disclosure document, the CSF offer document, with information about the business, financial statements and terms of the offer
Who can invest?
Anyone. CSF democratises fundraising in Australia. Companies on Birchal have had investment from venture capital firms, family offices, angel syndicates, high net worth individuals, as well as you and me.
How does a CSF offer work?
On Birchal, a company’s campaign will have two phases:
Express of interest (EOI) campaign
CSF offer campaign
To make a CSF offer, companies must prepare and publish a CSF offer document. This is a regulated disclosure document and includes key information about the company, its business, capital structure, financial statements, risks. It also includes the terms of the offer, such as the amount of capital being raised and the price of the shares being offered.
What are the benefits of CSF?
Alternative funding source. CSF is an alternative funding source for startups and SMEs that may have difficulty accessing traditional forms of financing, such as bank loans or venture capital.
Wider pool of potential investors. CSF allows companies to tap into a wider pool of potential investors, including individual investors who may not have had the opportunity to invest in startups and small businesses in the past.
Raise awareness and build community. CSF can help companies raise awareness and build a community of supporters, loyal brand advocates and investors, which can be beneficial for the long-term success of the business.
Customer acquisition tool. Companies have been able to acquire new customers and shareholders as part of building their CSF offers.
Access to knowledge and expertise. By having a large number of shareholders, a company can access a diverse group of individuals with different knowledge, skills and expertise which can be valuable to the company's growth.
Flexibility in the use of funds. Companies can raise capital through CSF for a variety of purposes, such as product development, marketing and expansion.
Transparency. CSF platforms are regulated in Australia, and companies are required to provide a disclosure document to potential investors which increases transparency and accountability.
Efficient. Birchal’s process is an inexpensive, efficient online process designed with founders in mind. You can raise capital in about 12 weeks.
Set the deal terms. Founders can set the deal terms and control their business for longer.
Suitable for all businesses and all industries at all stages. The CSF regime is industry agnostic and suitable whether the business is pre-revenue or has been trading for 20 years.
Access to investment opportunities. For the first time, retail investors can access investment opportunities previously reserved for venture capital firms and high net worth individuals.
Democratises investing. CSF is open to all (over 18). There are low barriers to entry to invest, with investment amounts as low as $50 or as high as $1m+.
No fees for angel investors. Members of syndicates can invest directly in companies. There are no management fees.
Regulated regime. The CSF regime is regulated and includes investor protections like cooling-off rights.
Become an owner. Investors can become part-owners and support their favourite Australian businesses.
Transparency. The deal terms are the same for all investors, whether you are investing $250, $250,000 or $2.5m in the company.
Ordinary shares. Investors receive new fully-paid ordinary shares, with voting rights.
Portfolio diversification. The CSF regime provides access to start-ups and high growth businesses for those investors interested in diversifying their investment portfolio.
Have any CSF companies IPO-ed?
Yes! A Birchal funded company became the first CSF funded company to list on the ASX in 2021.
What does Birchal do?
Birchal Financial Services Pty Ltd is a CSF intermediary authorised to provide crowd-sourced funding services on the Birchal platform at www.birchal.com.
Birchal Pty Ltd completed a CSF offer on the Birchal platform in 2022. We are the only CSF platform in Australia to do it. We get it!
Tell me more about CSF
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