Startup Funding – funding the next big thing?

So you’ve got the idea, the smarts and the motivation but there is that one missing piece to get that great idea of yours to the next level or even of the ground – the $$!

Funding start up or early stage business opportunities can be difficult to crack and you may have heard of and considered the likes of venture capital, angel investment, debt funding, and even considered tapping friends and family on the shoulder and more.

Understanding your funding strategy is a key consideration for any business. And if you have considered giving away a small piece of the dream via equity funding to get things moving you may not have considered the various legal restrictions that can apply.

So, what does the regulatory environment look like in Australia when raising equity capital for a Proprietary Company (Pty Ltd) so that you don’t run foul of the regulations?

The general rule is that a Proprietary Company cannot raise funds form the general public without a prospectus. However, they can raise equity funds without a prospectus by offering it shares to certain people who are likely to be interested in such an offer., including existing shareholders; its senior management employees; or certain classes of investors. Those classes of investors can include offers under a Small Scale Personal Offer or offers to Sophisticated or Professional investors.

A Small Scale Personal Offer is one of the most common form of raising equity funding for early stage companies absent a prospectus. A capital raising will generally qualify for this if you do not raise more than $2m, from no more than 20 investors, in any 12 month period.

When counting the numbers above you can generally exclude those offers to Sophisticated and Professional Investors. Broadly that is those that have agreed to invest at least $500k or who have provided a qualified accountants certificate evidencing that their income or assets are above certain thresholds.

However, there are strict restrictions on advertising any such offer to the public. Each offer must be a personal offer that can only be accepted by the person to whom it was made. Further you must have reason to believe they are likely interested in the offer as a result of some prior connection. So this is generally to family, friends and known business associates.

The last thing any business wants is to inadvertently stifle a great opportunity, so it’s important to get the right commercial and legal advice and consider the best funding strategy for your business’s growth.

Get in touch with M + H Private

M+H specialises in advising and guiding companies on appropriate funding strategies for businesses. To ensure you’re on track right from the beginning, contact the professionals at M + H Private in Brisbane on +61 7 3036 7174 today.

This blog is intended to give an overview of the issues involved and does not constitute legal advice. Given the complexity of the legal framework it is important that you consider appropriate legal advice on any capital raising before it proceeds. M+H have strong relationships with corporate lawyers and will happily make introductions for the appropriate advice.