Since 2017, Crowd-Sourced Funding (CSF) has grown in popularity and become increasingly utilised by Australian founders as an alternate capital raising route. To date, over $219 million has been raised across 298 successful campaigns. With many misconceptions put to rest, more founders are turning to CSF to raise capital and more investors are turning to CSF to source exciting investment opportunities.
OnMarket has created this article for Australians who are interested in investing in CSF campaigns but have yet to do so. Based on our conversations with investors, we've put together a list of the most common FAQs in hopes of bettering your CSF understanding.
What is Crowd-Sourced Funding?
Crowd-Sourced Funding (CSF), also known as Equity Crowdfunding, allows unlisted, early-stage and growth companies to source equity funding from retail, sophisticated and high-net-worth investors.
Using an ASIC certified intermediary, like OnMarket, companies can direct networks and audiences to their CSF offer and invite them to invest. In return, these investors become shareholders.
This particular avenue of capital raising enables the company to leverage all types of relationships, for example, friends, family, suppliers, clients and product users. In summary, CSF enables Australian businesses to tap into a wider pool of potential investors while building a community of engaged supporters.
What types of companies can raise via CSF?
According to ASIC regulations, companies who have less than $25m in assets & $25m in revenue can raise via CSF. Eligible private and unlisted public companies can raise up to $5 million every 12 months and shareholders who are brought onboard via a CSF campaign are exempt from the 50 Shareholder Cap.
Whilst CSF is not tailored to a specific industry, B2C companies tend to dominate the space. In 2022, 89% of companies who successfully closed a CSF raise were B2C businesses.
Am I eligible to invest and how much can I invest?
To invest in Australian CSF offers you must be an Australian Citizen over 18 years old with proof of identity (passport, drivers license, etc). Your investing limit depends on the type of investor you are.
If you are a sophisticated investor, there is no limit on how much you can invest in a CSF offer. To be classified as a sophisticated investor, you must have a minimum of $2.5 million in assets or have earned $250,000+ in gross income over the last two financial years, as evidenced by your accountant. If you are not a sophisticated investor, you are a retail investor. Retail investors can invest up to $10,000 in a company over a 12 month period.
How do I sell my shares?
Unlike public companies that are listed on ASX, businesses who partake in a CSF campaign are private or unlisted companies. Because you are receiving equity in an unlisted company, you cannot sell your shares unless the company lists on a secondary market or experiences a liquidity event.
If I can't sell my shares, when and how do I receive a return on my investment?
Companies who run a CSF campaign are early-stage or growth companies. Generally speaking, they may have a 3-5 year plan to scale the business and execute their go-to-market strategy. Whilst there is the opportunity for various liquidity events, such as an IPO, exit sale, or dividends, a return on your investment is never guaranteed. Please be sure you read the CSF risk warning prior to investing for more information.
Why should I read the CSF Offer Document?
As a return on your investment is not guaranteed, we strongly encourage all investors to attentively review the offer document to ensure you make an informed investment decision.
An offer document is an ASIC obligation for all companies who would like to raise capital via Crowd-Sourced Funding. According to ASIC regulations, companies must prepare and publish a CSF offer document that provides a transparent and honest outline of the business. This includes their business model, go-to-market strategy, key business risks, competitor analysis, the capital structure, the corporate structure, financials, use of funds, etc.
What is an expression of interest campaign?
Each CSF campaign begins with an expression of interest. During this campaign, companies invite those associated with the business or interested in the business to place non-binding indications of interest. Through directing traffic to their expression of interest landing page, potential investors can review the company's business model and pitch video, attend a virtual investor Q&A, receive company and campaign updates from the founders, and gain information on results-to-date and use of funds.
The expression of interest period is focused on education and directed to those who are interested in learning more about the company and being kept up to date on campaign milestones.
Perhaps most importantly, those who express interest receive priority access to invest when the offer goes live. This is known as a 'private investment period.' Investor rewards may also be offered by companies raising which could be enhanced during the private investment period or for 'early bird' investors.
What is the difference between an expression of interest campaign and live CSF campaign?
A live campaign comes after the expression of interest and private investment period. Unlike the expression of interest campaign, during the live campaign interested individuals can make an immediate investment.
These potential investors can review the specific company and investment details via the CSF offer document and ask questions directly to the founders. There are usually two parts to every CSF offer campaign: a priority access phase (a.k.a private investment period) given to those that submitted an expression of interest and a public phase (a.k.a live campaign) when the investment opportunity is accessible by everyone.
How can I see my shares once the offer has closed?
CSF companies usually appoint a share registry to ensure shareholders are serviced and managed. A share registry is a service that records and keeps a note of who owns equity in a company.
Once the CSF offer has successfully closed and the share registry has allocated your shares, you will receive an email instructing you on how to set up an account on the share registry's online platform. Your account enables you to view your shares, inquire about specific company details and receive company communications.