SME Equity Capital
- No Banks, Venture Capitalists or Business Angels Required!
It seems that every growing business is faced with this problem
at some stage in their development.
one of the growing pains of entrepreneurship.
Until recently, a lack of viable alternatives to banks, venture
capitalists and business angels has limited enterprises to
growing organically where you re-invest earnings back into
the business year after year, which can be slow and painful.
There is a little known alternative called a Small Scale Offering
that allows you to replicate what big business does to raise
equity capital in return for a share of ownership and unlike
dealing with Venture Capitalists, you need never lose control
of your business.
It allows you to raise capital without the need to issue a
costly and time consuming ASIC registered prospectus which
holds no guarantee that funds will be raised anyway.
A Small Scale Offer bridges the gap between Entrepreneurs
looking for growth capital and investors who are considering
equity investment in emerging enterprises.
Raising capital in Australia is governed by the fundraising
provisions of the Corporations Act, 2001. The regulations are
complex and the penalties for non compliance are severe.
A Small Scale Offer allows an entrepreneur to raise up to
$2 million dollars in a 12 month period from a maximum of 20
non-sophisticated investors, (known as the 20/12 Rule) unless
they use the services of a ‘business investment and matching
service’ where they can raise up to $5million, without
the need to issue a Prospects as long as the rules are followed.
A non-sophisticated investor is your mum and dad type investor
and the law exists to protect them from unscrupulous operators.
There is no limit on the number of Sophisticated, Professional
or Overseas investors that can invest.
There are 2 success keys to a Small Scale Offer - the structure
and your expectations.
The offer needs to be set up so that it is attractive to investors
and should contain inbuilt incentives, given the early stage
nature and risk of the investment. Make sure that early investors
benefit most by pricing the share issue attractively for them,
provide them with a potential exit strategy and don’t
get greedy by only giving up a very small share in your business.
Take care that you don’t value your company too highly
at the start either, or investors won’t see enough upside
potential for them to be attracted. Remember, they are investing
in the hope of a substantial profit in the future.
It’s important too that you surround yourself with a
quality, experienced management team. You can’t do everything.
You will need help from people who have expertise in areas
that you may be lacking. Investors will be far more comfortable
knowing that there is a solid management team driving the business.
Raising capital is always tough, particularly in the early
stages of growth of an enterprise. You need to be realistic.
It needs to be worked at and you need to give it time. Be prepared
to pitch to investors and to answer their concerns. In the
end investors will only put their hard earned dollars on the
table if they believe that you and the team can deliver on
It’s a well worn cliché, but very true when it
comes to raising equity. People buy people. They will ultimately
invest in you, not your widget.