MoneySmart (the website is run by the Australian Securities and Investments Commission (ASIC) to help people make the most of their money) created an article on buying shares through crowdsourced funding. See the MoneySmart article link directly below or read the article contents here.
Buying shares through crowd-sourced funding
Crowd-sourced funding (CSF) (also called 'equity crowd funding' or 'crowd-sourced funding of shares') is a way for start-ups and small and medium-sized companies to raise money from the public to finance their business. You can invest up to $10,000 a year in a company and in exchange you'll receive securities in the form of shares.
Crowd-sourced funding of shares is different from crowd funding
Crowd-sourced funding of shares is different from the donation-based crowd funding typically used by artists or entrepreneurs to raise money for one-off projects.
If you want to invest in a company offering shares through a CSF website, you will be asked to acknowledge that you have read and understood the risk warning (see screenshot below) listed on the website and in the offer document.
You can only invest up to $10,000 per company in a 12-month period, so your application will be rejected if you try to invest more than the cap.
You have a cooling-off period of 5 business days to change your mind if you decide the investment isn't for you. During this time, you can withdraw your application to invest and receive a full refund.
Check the intermediary is licensed
Ensure the company has listed their offer on a website that is run by a licensed intermediary. Check ASIC Connect's Professional Registers to see if the website operator has an AFS licence that allows it to legally provide CSF services. If they do, the information will be listed under the section called 'licence authorisation conditions'.
Risks of crowd-sourced funding
Some risks of crowd-sourced funding include:
- Lack of company track record - Some businesses that raise money through crowd-sourced funding are new or in the early stages of development, so there's more risk that the business will be unsuccessful and you may lose all the money you invested. Read all the information available on the CSF website to check specific risks associated with each business, as well as doing your own research on the company.
- Shares may fall or be hard to sell - Even if the company is successful, the value of your investment might fall, and the return you receive could be reduced if the company issues more shares. Your investment is also unlikely to be 'liquid', so if you decide you need the money you've invested, you may not be able to sell your shares quickly, or at all.
- Risk of fraud or insolvency - If your money is handled inappropriately or the intermediary operating the website becomes insolvent and hasn't met its obligation to keep your money separate, you may lose all the money you've invested.
Before investing, read the offer document issued by the company and use the portal on the CSF website to ask questions about the company or investment.
We've provided basic information on the offer document in an article here.
Risk Warning (on Birchal)
Portal Discussion Board (example)
You have the opportunity to ask the business anything you might have questions on