Join the Crowd

2018-07-31 08:29:40

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Welcome news, as ASIC issues the first batch of licences allowing seven intermediaries to help small and innovative companies to raise funds from a crowd of investors, following commencement of the Government's equity crowdfunding framework in September 2017.

This framework, has removed regulatory barriers inhibiting Australian entrepreneurs from obtaining the growth capital they need to turn good ideas into commercial successes. 

Consistent with ASIC's approach of batching licence applications, the first batch of crowdfunding intermediary licences has been issued to: Big Start, Billfolda, Birchal Financial Services, Equitise, Global Funding Partners, IQX Investment Services and On-Market Bookbuilds. The Government looks forward to more new entrants.

Companies will now be able to raise funds through offers hosted by these intermediaries, with the first offers expected to be available shortly.

Eligible public companies will be able to raise up to $5 million in funds through equity crowdfunding, with retail investors able to invest up to $10,000 per issuing company per year.

More information on the existing CSEF regime for public companies is available on the ASIC website.

The equity crowdfunding regime complements the tax incentives for angel investors in start-ups, the introduction of Open Banking and development of an enhanced regulatory sandbox for new and innovative FinTech products and services.

Good news!

 

Published By: TOM

Getting ready for an ATO ruling

2017-11-21 13:04:56

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Faced with standoffish investors, many companies are considering an ATO private ruling to confirm that they qualify as an early stage innovation company (ESIC).

Whilst a ruling would be based on the facts at a given point of time (like our indicative listings), the appeal of the regulatory approval is obvious.

So what sort of things are needed and should I take that approach with my company?
 
Some of the details are require include;

- Group structure;
- Financial statements of the company and any '100% owned subsidiaries'; 
- Intellectual property or provisional/granted patents relevant to the company;
- Current documentation, including; 
      Business plan, inc;
             - description of the innovation being developed
             -  evidence of steps or activities taken and proposed in commercialisation 
             - timeline
             - competitor analysis (comparative) 
- Prior year Company Income Tax Return(s)
- Details as requested by your assessors

Essentially the Private Binding Ruling (PBR) is a mini audit, so don't expect to convert the ATO staff into seed investors. All though, equally you may be surprised to find that they are keen to work with you towards an outcome, particularly if you've done the required groundwork.

But why wouldn't you do an ATO PBR?
 
- Time.... (expect 6-18 weeks depending on how well prepared you are, and how complex it the innovation is)
- Cost....  (expert advice isn't free, and going it alone is problematic and could be very costly)
- Options (what about the 100 points test! is AOK in the right situation)
- Failure  (yes, that's right, you could fail a PBR on the principals test)

The last point is of interest particularly due to the tendency for firms to believe that they are the only ones innovating when in reality the market is quickly moving and pinning down a potential advantage is less important than growth. If that sounds like you, then a PBR could be a bad move, particularly when 100 points could be only a $50k investment and R&D claim away!

In any-case, we are keen to assist and happy to provide you a free interchange for investors and the company to keep track of your ESIC status whilst you get back to making the impossible happen!

You rule,

Tom

 

Published By: Tom

Feast or famine? Does ESIC status = Investment?

2017-11-21 13:04:53

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We've had a series of enquires regarding the uptake of investments that meet the ESIC requirement, so what's my take on this?

- It seems that investors are finding ESIC an extra, rather than a purpose to invest*
- An investment friendly startup might close the round quicker or at an improved valuation**
- Investment doesn't happen just because of ESIC eligibility

This might not be the full story as we do not offer a matching service, only a transparent tracking service. *It may also be due to the fact that ESIC status remains unclear due to ambiguities regarding the application of the law (and or delay in ATO Private Rulings).

So far, most of the investors involved in closed rounds never engage us, so we are typically dealing with the founders, accountants and lawyers, perhaps the lead investor of a prior round.  This may change as we cross the line into the 2018 tax year and the investors & companies are in a position to claim the offset.

In may ways its still early days for ESIC, 

​Cheers,

Tom 

 

Published By: Tom

ESIC on Incorporation?

2017-11-21 13:04:37

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If ESIC concessions were designed to assist independent follow-on investment in companies, can an investment upon incorporation qualify for the concession?

Its a question we've been asked a few times now and thanks to some kind research and contributions from the ATO and others we are getting to the nub of it.

Chances are the answer will be NO, YOU WERE NOT AN ESIC at the time of investment (probably)!

The law isn't precisely saying this, however it does operate to close out founders and affiliates from the loop. Call this unfair, but be clear, the exclusion of founders was by design.

So what happens if your venture was trading as a sole trader/pship and you incorporated upon receipt of funding???

In this instance, the money was new, and that money could be independent, so its the same as any other ESIC investment right? Wrong.

In terms of the company, you need to ask two tricky questions;

- Was the company, immediately after receipt of the funds 'genuinely focused on developing the innovation'
- Are the investors affiliates (or acting in concert with the founder)

We think that neither test is impossible to pass, however both are particularly problematic for founders, for example; were you acting in concert or in accordance with the wishes of investors when you incorporated? Yes? So why are you not affiliated?

It gets worse, as often that formation capital would be handy to add 50 points towards subsequent points based innovation (i.e. the 100 points test).

Our advice, get an ATO ruling! These issues will turn on your personal facts, up and until such time as a general determination issues to help clarify the matter. Even then, its going to be a tricky area.

Go well,


Tom

 

Published By: Tom

When keeping it simple is no longer an option

2017-11-21 13:04:34

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People fond of the KISS principal rarely find themselves engaged in ESIC. Its too far from the comfort zone and as such, we're frequently confronted with ESIC assessments that are far from vanilla.

Innovative advisers often put in place complex foundations, for reasons such as; 

 - Asset protection
 - Licencing 
 - International markets
 - CGT planning
 - Exit, ETC

The concern is that many of these designs and models maybe unhelpful when one considers the law's pertaining to ESIC. 

Take the 'vanilla' separation of IP and trading strategy. Holding PL with two 100% owned subsidiaries.

For a start you've got issues with R&D, but that aside, will the ATO agree that investment in Holding PL is investment in an ESIC when its actually IP co that owns the innovation and trading co that's engaged in commercialisation?

We've seen this exact model rejected by the ATO, even with consideration of the consolidation regime.

OK, that may not be the result in trial, or in other circumstances, however its a good clue regarding the policy interpretation and may result in many early stage innovation companies becoming ineligible ESIC's.

Its a developing area and one of considerable interest.

Consider a two company structure where company B acquires the IP of company A. Good from an investment clarity perspective. Innovation = share ownership = commercialisation, however more difficult for consideration of the early stage, revenue, expenditure and incorporation tests.

For Startups, fail fast & pivot aren't just buzz words, they're a method statement, so the intersection of ESIC laws, complex structuring and innovation is sure to cause more than a few trials before these complexities are drawn out.

Don't drown in complexity; Get your MVP, funding, move forward, fast! 

That's what ESIC is trying to incentivise,

Cheers,

Tom

 

Published By: Tom