How to Earn Capital Through Crowdsourced Funding

How to Earn Capital Through Crowdsourced Funding

The purpose of this article is to demonstrate the process and the criteria that are involved in raising capital through the crowdsourced funding legislation and, more importantly, through our platform -FUNDSITION.

INTRODUCTION:

The crowdsourced funding legislation was introduced in December 2017 and, to date, there are roughly 13 licenses owned. To have a license, an individual must have an Australian financial services license granted, which allows them to operate an intermediary platform that brings businesses and investors together. This new channel of crowdfunding campaigns for businesses is really a very exciting opportunity and it’s done in a very efficient and cost-effective manner. It’s great for investors because they can invest in businesses that actually mean something to them and that they care about.

This type of funding is best for established SMEs (small to medium enterprises) that are looking for growth capital.

SMEs have the potential to raise up to $5 million per annum, which is quite an impressive figure. Retail investors can now invest in another’s businesses, but they cannot invest more than $10,000 per company or per issuer per annum. This is no real restriction for sophisticated investors. Another exciting development is that SME’s can now advertise as well, they can go to market ad raise investment.

This is the FUNDSITION business model.

Through FUNDSITION you can drive brand awareness for marketing and media. Education is critical and quite often, SMEs come through our channel partners. To give an example, they are accountants or business advisers. We then take them through a process, in which we go into more detail, to be able to recognize if your business the right fit for crowdsourced funding? We then go through a vetting and compliance process. We go on to the platform, and that gives you an opportunity to then raise funds or raise capital through retail investors as well as sophisticated investors and foreign investors.

You have the potential to raise up to $5 million per annum, but here a couple of the key criteria;

Your business needs to be under $25 million revenue and it has to have under $25 net tangible assets. Your business needs to be a two-director minimum and a majority of them are residing in Australia. Your business needs to be able to publish financial and director’s reports. Annual financial reports are audited when you raise more than $3 million in crowdsourced funding capital, and that’s collectively.

You could do a million in 12 months, a million the next, a million the following. At this point, it changes when you hit the $3-million mark, then you need to be able to provide audit accounts to your shareholders. Up to 50 nonemployee and non-CSF shareholders, unlimited employee and CSF shareholders. Restricted related party transactions or, therefore, having shareholder approval. As you can see, these things really provide good governance. It’s not complicated and it’s also open to proprietary limited companies.

The equity crowdfunding process allows the SME to really get its house in order, all of those important things when you’re taking on new shareholders and the business is growing. We also provide additional online education to support both yourself and investors.
Our process is simple and clear to avoid any feelings of being overwhelmed. So, an SME starts by coming in through the website or social media. They fill out an Expression of Interests Part 1. Part 2 is sent to them, which is a little bit more comprehensive.

We then do an internal review through our investment committee and we decided, “Yes, this is a good company. It has potential,” and then the idea is pitched to the investment committee. From there, we then review it and we say, “Yup, we want to move forward with this and we are happy to move forward.” Then, there’s a process of legal and financial due diligence and once again, in the backend system, we demonstrate all the things that we require that you have to provide.

There’s actually no cost through this process. It’s only when you get through the legal and financial due diligence. And remember, we’re an intermediary platform and we are gatekeepers for ASIC and we are also gatekeepers for the investor.

So, at this point, if you get through the due diligence, which you should, then it’s time for a hosting agreement, and that’s the agreement between your business and us for raising capital on the platform. You then need to develop an offer document, and this is the key document that an investor has to read and acknowledge before they make an investment.

Now, we have a backend process to help you build this or you can work with your accountant and use that backend system to help build this out. It’s not overly complicated but it is the minimum requirement that ASIC made—Australian Securities Investments Commission—that they require.

After you’ve been through that process, it gets signed off by one of our responsible managers. We’ll obviously work with you to make sure that it’s all correctly completed and submitted so that it’s in the required form that we need. Once the RM is satisfied, then we develop a marketing campaign to launch your offer. We have legal signoff on the document. It then goes to a graphic designer to make sure it looks slick, and then it’s just a final check by the RM and then your company directors need to consent.

At that point, it is uploaded on to the website. We build out a company profile on you so that we can showcase it. Video is very, very important for this, and think about video as two to three minutes and that’s your executive summary. So then, what happens is that goes on to the website with all the other information and the offer doc, and then we push that out to the investor base.

Now, if you had some suppliers and customers, we could do an expression of interest before it goes live to gauge interest, and from there, well, once we did go live, we would contact those people first to give them the first opportunity to invest in your company.

FEES:

So, the fee structure is fairly simple. The crowdfunding platforms fee is around 7%, and we do charge 8% if you want to put a percent towards our charity. The marketing campaign fee, well, that will only be around $5000-plus. So, it really just depends on how many customers potentially invest or how much money do we think we need to be able to go and push this out into the marketplace. This is clearly seen as paid advertising.

Due diligence process, well, that’s going to be based upon how much work you can do or how much work you and your accountant can do with the due diligence and also the offer doc development process. Therefore we say $5000 is the minimum. Sometimes it could be less than that, however sometimes the figure is greater than $5000.

CONCLUSION:

It’s really an outstanding opportunity. It’s really a huge real estate for funding that has come about through government legislation so that much-needed growth capital required for SMEs is now available, and it’s available through platforms like ours. But, we believe with FUNDSITION that with our focus on more established businesses, we’re in a much better position to potentially provide a return on investment back to the investors and raise money.

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