You can now bring on shareholders – now what?
About 99 percent of Australian small businesses can now bring on shareholders and open a new line of funding thanks to changes in equity crowdfunding laws. Here’s how to get ready.
Funding for small business has been a crucial pain point for years. Thanks to the Royal Commission into banking, there are fears that getting a standard business loan could be harder.
Luckily, equity crowdfunding has emerged as a new option available to small businesses.
While the legislation was put in place on last year, the government recently amended it to allow public unlisted companies and any proprietary company to use equity crowdfunding platforms.
For equity crowdfunding platforms like Birchal, and for small businesses, it could be a game-changer.
“Over 99 percent of all Australian companies are proprietary companies, so that increases the pool of companies that would potentially consider raising funds in this way,” Birchal co-founder Matt Vitale told The Pulse.
The paperwork and disclosure requirements of becoming a publicly unlisted company was simply too hard for a lot of smaller companies.
In fact, only two companies have raised successfully on Birchal since the original legislation was passed – a rate that matches other platforms.
Proprietary companies don’t need to hold annual general meetings, mail out annual reports or have their accounts audited until they raise more than $3 million from investors.
Now more companies can access equity crowdfunding and some of the unique opportunities it provides.
Advocates, not shareholders
“We see [one of] the real game-changers as being the ability for retail investors to participate and the ability to advertise these offers,” explained Vitale.
“Advertising equity offers to retail investors is restricted under the Corporations Act unless it’s a crowdsourced funding offer. This is a real game-changer in being able to offer securities on social media or other channels.”
Companies who can build mass appeal now have the option of bringing on their potential customers as shareholders, deepening the relationship between the company and its customers.
“The biggest advantage we see of equity crowdfunding, particularly for consumer businesses, is that when executed well you get the money that you need but you get a tribe of passionate advocates who love your business and tell everybody else about it too,” said Vitale.
Investors will have skin in the game.
But the relationship between company and customer, and company and shareholder is very different.
Customers as investors
While proprietary companies raising funds on equity crowdfunding platforms won’t need to mail out annual reports, you’ll still need to have this report, and a Director’s report, available for shareholders each year.
Companies will also need to keep a record of shareholders, including the date that the shareholder picked up their shares in the business.
Getting a lawyer or accountant to take you through the finer points of shareholder disclosure is a great idea – and Vitale has written about some of those finer points here.
The finer points are there to protect the shareholder because they’ve put their hard-earned into your business.
That prospect can be daunting, but Vitale says successful companies are the ones who embrace the pressure.
“It’s a bit of a paradigm shift to be in constant communication with people who are intimately involved in your business as shareholders are,” he said.
“Being in regular contact with shareholders will make your company more accountable and better.”
While there are regulatory requirements in place if you want your company to bring on shareholders, it doesn’t mean your communication with shareholders needs to be steeped in eye-glazing legalese.
Take BrewDog in the UK, for example.
One of crowdfunding’s true success stories, BrewDog has ridden the wave of equity crowdfunding to turn from a microbrewer to a multibillion-dollar value multinational.
And its shareholder communication is anything but bland.
“They look at equity crowdfunding as not just a mechanism for raising money, but an opportunity to expand their network and strengthen their brand through involving their customers in their business.”
It’s difficult to bring customers on the journey with bland disclosure documents – but you still need to have all the relevant information available for shareholders.
To get a beat on what information you’ll need to show your shareholders, and when, it’s best to get advice from a lawyer or your accountant. If they don’t know, they can at least point you in the right direction.
“A lot of people will be scared by having shareholders. It’s a big responsibility, but once you know what information you need to impart and when it’s really not so scary,” said Vitale.