ASIC approves seven crowdsourced funding 'gatekeepers'

The Australian Securities and Investments Commission (ASIC) has issued the first batch of Australian Financial Services (AFS) licence authorisations, allowing seven companies to act as intermediaries able to provide a crowdsourced funding (CSF) services.

Introduced in November 2016, the CSF regime came into effect on September 29, 2017. Under the Corporations Amendment (Crowd-Sourced Funding) Act 2017, unlisted public companies with less than AU$25 million in assets and annual revenue can make offers of ordinary shares to retail investors through an intermediary's platform using a CSF offer document containing a reduced level of disclosure compared to a prospectus.

With the grant of these new authorisations, eligible public companies can use the CSF regime to raise capital initially via the online platforms of Big Start, Billfolda, Birchal Financial Services, Equitise, Global Funding Partners, IQX Investment Services, and On-Market Bookbuilds, with more companies to be added to the list in the future.

"ASIC has been assessing applications as a matter of priority, as suitable intermediaries needed to be licensed before fundraising under the new regime could commence," ASIC commissioner John Price said in a statement Thursday. "Intermediaries have an important gatekeeper role which will be key to building and maintaining investor trust in crowd-sourced fundraising."

According to the corporate regulator, the CSF regime is designed to provide startups and small to medium-sized companies with a new means to access capital to develop and grow.

CSF offers are subject to fewer regulatory requirements than other forms of public fundraising.

Read also: Australian startups urged to look to Asia in wake of Trump

Under the new regime, eligible companies can raise up to AU$5 million in any 12-month period, where previous legislation limited the scope of equity crowdfunding to wholesale or sophisticated investors who earn at least AU$250,000 per year or have AU$2.5 million in assets. Retail investors will also be able invest up to AU$10,000 per company per year once they have completed the prescribed risk acknowledgement, and will have a five-day cooling-off period.

Intermediaries must ensure they provide an application facility on their platform that enables people to make applications in response to open CSF offers; prescribed checks are carried out regarding the identity of the offering company and its eligibility under the new CSF regime, as well as information on the company's directors, including whether they have "knowingly engaged in misleading or deceptive conduct"; and adequate arrangements are in place for the management of conflicts of interest, according to ASIC's guide [PDF] for CSF intermediaries which focuses heavily on sustaining investor confidence.

Additionally, the guide advises that important information such as the prescribed general risk warning be published prominently and is easily accessible on the crowdfunding platform, and the CSF offer is closed or suspended when appropriate, such as when the offer is fully subscribed.

A communication facility must also be available for investors to communicate in relation to the CSF offer and make inquiries of the offering company and the CSF intermediary. While the communication facility does not need to be open to the general public, it does need to be monitored and quality-controlled, ASIC's regulatory guide for intermediaries states.

To raise capital via CSF, unlisted public companies must enter into a hosting arrangement with a licensed CSF intermediary, prepare a CSF offer document, obtain consents required for the CSF offer document such as from all company directors, publish the CSF offer document on the intermediary's platform, close the offer as soon as possible, declare the offer complete, and issue shares to retail investors, according ASIC's regulatory guide [PDF] for public companies, which was published ahead of the scheme's go-live in September.

Innovation and Science Australia (ISA), earlier this week revealed that AU$800 million was invested into local businesses by Venture Capital Limited Partnerships (VCLPs) during the 2016-17 financial year, with the total number invested to-date tipping AU$5.1 billion.

Committed capital, the amount investors have agreed to contribute to a partnership, increased by AU$600 million to AU$6.9 billion in 2016-17, which ISA said was the highest level of committed capital in VCLPs ever achieved.

The VCLP and the Early Stage Venture Capital Limited Partnership (ESVCLP) programs are designed to stimulate the Australian venture capital sector by attracting both domestic and foreign capital into Australian VC markets.

The ESVCLPs program provides tax concessions for both Australian and foreign residents that invest into funds registered under the program, explains the annual report [PDF] from the independent body charged with researching, planning, and advising the government on all science, research, and innovation matters.

Since inception, AU$437.6 million has been invested by ESVCLPs in Australian businesses, with AU$194 million invested during the 2016-17 period.

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