Equity crowdfunding has been a popular method to raise capital in many countries for the last few years.
Equity crowdfunding enables a large group of individuals (‘the crowd’) to invest in private businesses. The legislation authorising this is Crowd-sourced Funding Act of 29 September 2017.
The legislation means retail investors can now crowd fund companies by investing $50 to $10,000 each year per business. Previously, only angel investors or venture capital firms had access to these sorts of investment opportunities.
Equity crowdfunding legislation allows un-listed public companies to raise as much as $5 million over a 12-month period.
A company approaches an equity crowdfunding platform to raise funds. The platform performs due diligence on the company and ensures it complies with a range of obligations put forward by Australian Securities & Investments Commission.
If a company does not raise the minimum target, then the offer is cancelled, and the funds are returned to investors.
While investing in early-stage businesses is high risk, there can be high rewards.