To provide insight on the role that share registries play in the capital raising landscape, particularly for companies who raise capital via equity crowdfunding, OnMarket interviewed Matt Mills from Boulevard, a new share registry that focuses on the unlisted, start-up market.
To start us off, can you please explain the role of a share registry?
A share registry is a service that records who owns equity in a company. This means there's an independent source of truth when it comes to the ownership, requirements, and the obligations a company's directors have to those who have invested funds. Commonly, for businesses who don't have a share registry, their registers are kept in the form of a spreadsheet outlining who bought what ownership for what price.
A share registry is a layer above that accuracy, being a third party company or platform that takes the ‘spreadsheet’ off the company's hands and manages it. With the company's input, they provide greater accountability, ultimate transparency, and deliver a higher sense of trust when compared to just relying on the company itself who are simultaneously juggling sales, production, operations, marketing, etc.
Is appointing a share registry required by law?
A share registry is. not mandatory, it's not a service that must be adopted by any company director. The only requirement is that each Australian business has a register, meaning they track who has invested in the company and at what valuation. However, a share registry suggests a greater level of professionalism and works to protect both the company and the shareholders.
Often investors prefer to invest in company's who use a share registry platform because it gives them confidence that the company is taking their shareholder responsibilities seriously and certifies their investment will be logged correctly, indefinitely. Once the investor has their shares issued by the share registry, they are invited to join the platform and can view all updates made by the company. For obvious reasons, this is preferred because the shareholder can obtain information immediately without relying on the company. It gives investors confidence that reporting and lodgement is being executed accurately and properly.
Aside from passing an experienced investors' due diligence check, benefits for the company include streamlined administration and risk mitigation as responsibility around reporting is shared. We communicate to investors and provide them with requested documents, we remind the company when reports are required and take lead on tedious admin tasks.
What is the relationship between an intermediary platform, such as OnMarket, and share registry's?
A a share registry, our responsibilities come into play at the end of a capital raising process. Our purpose is to serve both an intermediary, like OnMarket, in terms of ensuring that all the compliance requirements are met before the raised funds are released to the company, and on the flip side, we service the company by conversing on their behalf and managing their shareholders in a single platform.
I like to think of it like this: OnMarket is for investors. They come to OnMarket's platform to invest in fantastic companies who are raising capital to grow. But once an investor has invested and becomes a shareholder, where do they go to find company updates and review their shares? They come to a share registry - that's why this process requires us. For intermediaries like OnMarket and other capital raising services, there needs to be a clear point of ‘our platform has been used to raise the funds and now we want to give those funds to the company, but to protect investors, we need to make sure that all their reporting requirements and obligations are complied with ASIC before we release those funds.'
And that's what the register does. It confirms that the shares owed have been issued, that shareholders have received their shares and that all relevant reporting to ASIC has been completed. Finally, that the company has the means to look after their new shareholders at the completion of their raise because accountability, transparency and communication does not only sit on the shoulders of the company - it is shared.
The relationship between share registries and intermediaries are very much complimentary and supportive. The relationship revolves around helping the company streamline required administrative processes and giving confidence to new shareholders that they will be taken care of.
Most importantly, for OnMarket and the company raising, a share registry ensures that there's been a clear handover process - a clear point of contact for those investors post raise and verification that regulatory obligations that come with successfully closing an equity crowdfunding raise will happen.
What does Boulevard need from the issuing company to set up the registry and how long does that take?
The two key pieces of information we need from a company as part of onboarding is the existing company register and the ability to interact with ASIC on their behalf, typically called becoming their ASIC agents. One of our key roles is to ensure the company is meeting obligations, that is ensuring that the company updates ASIC when there's been a new issuance of shares, advice, performance, whenever they received new investment, or if there's any changes to the company, office holders or contact addresses.
That onboarding process typically requires us to pull the existing data, compare it to the existing company register and then make sure those line up. If that's not the case, we work with the company to rectify any historic issues to get them up to date.
So typically, if the register is up to date the onboarding process is very quick and can take 24 hours. Where the process may take longer is in the event where we must do the outlined rectification.
As ASIC agents, do you communicate to ASIC on behalf of the company?
Yes. This is something that most companies typically rely on their accountants to perform but I think the main reason why it makes sense for us to be the agent is because of our direct integration with ASIC. We have a proprietary piece of technology to automatically update, notify, and receive updates from ASIC that's inherently linked to the registry.
Say, for example, the company has just completed an equity crowdfunding raise and issued a heap of shares. That process is fully automated with Boulevard but is manual if you must go through an accountant. In the event where there's a specific need for the accountant to maintain those responsibilities (a common example might be when companies are under a financial licensing regime), we can work with the company and its accountants to ameliorate that situation. So we can work together in those instances, but our preference is to fully unlock our automation capability and leverage our integration with ASIC.
What do you communicate to the company's shareholders and what you prompt them to do?
The only mandatory communication we require from company's is sending an email invite to their shareholders so they can join Boulevard. That communication enables the investor to create an account with Boulevard (if they don't already have one) and log in.
Once they've joined our platform they can see their existing holdings within that company, download their share certificate, download their holding statement and also receive and view any historic announcements made by the company.
Other types of communications are sent directly from the company, but we do assist with reminding them of what they need to communicate and when.
Our platform also provides the opportunity for shareholders to submit questions if those communications not sent. So we spend a lot of time fielding questions and appropriately redirect any questions they have back to the company as well.
We play a very big role in terms of ensuring that everyone receives the information they need.
What are the top 3-5 mistakes start-ups make who don’t appoint a share registry?
The most common errors we see with start-ups or small businesses has everything to do unfamiliarity of what it takes to maintain an accurate registry. It's not a reflection of the company rather, like anything, the lack of experience. These common errors are:
Not complying with the relevant laws and rules regarding taking on shareholders per the Corporations Act. When managing this themselves it can be difficult to keep on top of all regulation requirements because their attention is split between running the business and managing shareholders. Because of this, unfortunately we see a lot of small businesses unintentionally having inaccurate records and being noncompliant.
Lacking appropriate documentation and executing poor communication with shareholders. Whilst juggling business operations and growth strategies, very commonly communication with shareholders gets overlooked, such as quarterly updates, responding to questions and providing them with business documents (like financials). We get a lot of feedback from shareholders who are unhappy with this management because they've trusted the business with their money and poor communication results in poor trust.
Being unable to reconcile their financial statements. Particularly their balance sheet with amounts investment. It's a very common issue due to not correctly balancing cash with equity accounts, usually because they're unfamiliar with how to do this. This, again, reduces accuracy.
Lack of preparedness when potential investors perform their due diligence. A self-managed spreadsheet can easily go astray or be computed incorrectly, which doesn't provide investors with confidence that all investments are correctly tracked. Again, it comes back to not knowing how to effectively manage the registry because it's not something they've had to do before.
How does having a share registry help scale a business? And/or prepare for growth?
As a founder, your primary focus is on growing the business, and hence, reducing the amount of administration while not compromising on shareholder communications and documentation is a key part of achieving that goal. A registry platform helps companies achieve growth in three primary ways:
A registry platform provides a professional looking, easy to navigate, shareholder portal. This allows shareholders to self-serve when it comes to accessing their holdings, reviewing past communications/documents, and downloading end of financial year statements. As a founder or business owner, managing shareholder queries is time consuming. The 24/7 accessible platform reduces the majority of manual labour associated with shareholder management.
Automation of compliance. The last thing founders want to worry about is penalties from ASIC or the ATO for unintentionally not acting compliant. These penalties can be costly and a time consuming process to fix. When it comes to registry management and shareholder management, many of the back office processes that are important are not necessarily the skillset of the founder, so a registry platform asks as risk mitigation and nullifies these stresses.
Being due-diligence ready. A registry platform assists businesses who are in need of growth funding or are accepting investments with enquiries from potential external investors as well as existing shareholders.
What are your top shareholder management tips for founders who haven’t previously had shareholders to manage?
My top 5 tips when it comes to shareholder management from a founder's perspective and registry perspective are as follows:
Communication: This is of most importance and does not stop when you receive funds. Shareholders are co-owners in your business and you should treat them as such. They must always be aware of key decisions, spend, business direction and should be able to answer questions when asked about your business. My recommendation is quarterly business updates and then ad-hoc communications when there's news.
Engagement: Shareholders should be used for R&D and treated as potential investors. Use them as a way of sounding out potential ideas/decisions and see them as a source of potential follow on investment.
Prioritise major shareholders but do not forget minority shareholders: Every shareholder has put their hard-earned money into your business and your time of day. While of course time is finite and it is appropriate to spend more time with larger stakeholders, do not forget the smaller shareholders - you never know whether they may provide a key insight or relationship that could unlock the next level to your business.
Be timely: If you receive a request for information or documentation, try and respond as soon as possible. Nothing creates lack of confidence or mistrust faster than taking too long to reply to an email or follow up a phone call.
Bad news must be delivered as soon as possible: It is your fiduciary responsibility as a founder/director to communicate material information as soon as possible, particular negative material information. Your shareholders care about you and your business, otherwise they would not have invested in the first place. Withholding or taking too long to communicate bad news does not make the bad news any better but makes your relationship with your stakeholders significantly worse.
Do you think having a lot of investors coming from equity crowd funding negatively impacts a company or their cap table?
I don't think bringing many shareholders onboard is a bad thing and it definitely doesn't ruin a cap table. I do however believe some companies may not appreciate the responsibility that comes with having shareholders. Because of this, they may feel as though they’ve ruined their cap table.
Equity crowdfunding has some fantastic benefits. The first being, you can raise a lot of capital without necessarily having to get a lot of capital from a specific individual. You can raise a fair amount from a wide group, which means individual investment per investor is much smaller.
It's also a great way of engaging a community or a customer base, and you can provide participants some sort of in built reward mechanism to enhance customer acquisition and retention.
My favourite aspect of crowdfunding is the idea of rewarding those who've worked with you in the past or purchased off you previously. Think of it like having lots of customers being shareholders in a company, kind of like a co-op, but with shares rather than memberships. I think one of the key thing to be mindful of is that every shareholder is equally important - regardless how many shares they hold.
Therefore it's really important that they have a structured and clear plan around how they're going to communicate, engage and ensure shareholders needs are met.
Another key benefit is very much the dispersion of ownership within a company, which means that no individual shareholder has too much influence and can be a great thing if a company doesn’t want to feel like they're selling too large chunk of their company to one specific investor.