With equity crowdfunding still being a relatively new concept in Australia, there are a lot of questions that get asked during both the Birchal Expression of Interest (EOI) campaigns and Live Offers.
What we've learnt running over 75 campaigns is that questions tend to fall into two buckets: general equity crowdfunding questions and specific crowdfunding questions (relating to a unique campaign).
General Equity Crowdfunding Questions
What is equity crowdfunding?
It’s similar to the crowdfunding you see on Pozible, Kickstarter, etc, but instead of putting money in and receiving a thing (like a product, film etc), you put money into an operating business and you receive shares, becoming a part-owner and shareholder.
Businesses with a strong consumer proposition that want to expand rapidly or raise funding for (ie) more equipment, a new venue or a product/tech release are well suited to equity crowdfunding.
What’s the EOI (Expression of Interest)?
This is a non-binding indication where potential investors can indicate that they’d be like invest into a company on the Birchal platform. Once they have EOI'd, potential investors can see a brand story, get to know the people behind the company and state the minimum & maximum they might invest in the offer when it goes live. This also means that companies can chat to interested investors before the raise goes live.
People who EOI get exclusive first access to an offer before it is officially 'released' to the public.
How is it possible that an unlisted company can have more than 50 shareholders?
Investors that come in through a CSF own ordinary shares in the company but are listed as CSF investors in the share registry. As stated by ASIC RG 261, CSF shareholders don't count towards the 50 cap, even if you have thousands of shareholders in this category.
Is this an equity purchase?
Yes, investors will be buying real equity (aka ordinary shares) in the company hosting the offer. The amount of equity they receive is based on the amount they invest. The shares are typically the same class of shares as the founders and other shareholders.
Read more about investing as an individual, company, through a trust or SMSF here
What rules and legislation governs equity crowdfunding?
Crowdsourced Equity Funding (also known as Equity Crowdfunding) is governed by legislation that is covered by ASIC (RG 261) and can only be facilitated through licensed intermediaries (ie. birchal.com).
Can I sell my shares? How do I make a return on my investment?
One company we worked with once described an equity crowdfunding investment like planting an avocado tree. You plant it, and in 10 years time it may bear fruit (or not!). Crowd-sourced funding is risky by nature, as issuers (companies) using this facility are usually new or rapidly growing ventures.
You may lose your entire investment, and you should be in a position to bear this risk without undue hardship. Even if the company is successful, the value of your investment and any return on the investment could be reduced if the company issues more shares. Ask questions, read all information given carefully, and seek independent financial advice before committing yourself to any investment.
As CSF is designed for Pty or Ltd businesses, investors need to remember that shares in private businesses are not easily transferred and generally illiquid (ie, not traded on the ASX), and there is a minimum 12-month holding period from the date the shares are purchased.
However, once the 12 month holding period has passed after the raise it could be possible to sell to other shareholders or to move the shares acquired during a company buy-back, employee buy-out or 3rd party purchase. This depends on the unique terms set out in each company's constitution and offer document. In most cases, investors divest of their shares during a future exit event - like a sale, IPO or follow-on capital raise. Please consider the unique terms of the company you are investing into to see what their future plans might entail.
Are there tax implications?
The normal rules apply to your investment in a company via CSF when it comes to tax-time, and we recommend investors consult with an accountant depending on their unique circumstances. If the company on Birchal offering the shares is an E.S.I.C (early stage innovation company), there may be tax incentives for you as an investor. Find out more here.
Specific Equity Crowdfunding Questions for a unique campaign
Below are likely questions a business will be asked during their capital raise with Birchal. Most information will be provided in the Offer Document & campaign page at the the Offer Stage.
Will there be a dividend?
What price will be set for the shares?
What will the funding raised be spent on?