Monday, June 6, 2011

Where to go for capital? The options, the rules, the requirements for each

You’ve decided to offer equity in your company to investors in order to grow your business — but what’s the next step you need to take? In the third of this six-part series on raising capital, corporate advisor Dr Mark Rainbird discusses the avenues you have to distribute your offer to interested parties.

When you boil down the act of raising capital — regardless of how you choose to do it — it’s essentially about finding people who will support your company by giving you cash for shares. That’s it. There are several different ways that one can go about finding these individuals, however, and they all have their advantages and disadvantages.

Know Your Rules for Individuals

Investors don’t necessarily need to be obtained via an established platform like the ASX.
While you can make a personal offer to just about anyone you know, there are varying levels of disclosure that need to be made, as outlined in Section 708 of the Corporations Act.
While I’d strongly advise reading through the section yourself, the main thrust of it is that you don’t need to make disclosure if:
  • the offer is considered to be a personal one, or;
  • the investors are deemed sophisticated, or;
  • the offer is made to someone within the management of the company itself (or a member of their family), or;
  • the offer is made to a trust or company controlled by a person that meets some of the qualities that define sophisticated investors.
There are, however, further restrictions on these disclosure rules. Despite sounding like it might be a new cricket competition, the Twenty Twelve rule is one of the most significant within the capital raiser’s handbook.
Essentially, this dictates that when approaching retail investors, only 20 “concessions” are available to retail investors in a 12 month period. Additionally, Section 734 of the Corporations Act dictates that companies acquiring investors in accordance with the Twenty Twelve rule are unable to advertise or publicise their offer. It is important to note that you cannot “induce people to apply for shares.”

For more information please email BlueMount Capital

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 BlueMount Capital provides venture capital raising and Introduction services to companies seeking capital in the unlisted, pre-IPO and listed capital markets.