Crowdfunding safer down under: Birchal

Australian equity crowdfunding platform Birchal has responded to criticisms of the investment vehicle raised in the UK, saying they did not apply to the Australian market.

The UK’s Financial Conduct Authority warned last week that crowdfunding was a “high-risk investment” and has the “potential for capital losses”.

“It is very likely that you will lose all your money,”the Authority said.

Birchal’s Matt Vitale told Brews News that the UK and Australian crowd-sourced funding regimes are considerably different.

“In many ways, the level of disclosure required under the UK CSF regime is far lower than Australia’s,” Vitale said.

“For example, in Australia, every CSF offer – regardless of its size – must produce a CSF offer document including prescribed information about the company, its directors and senior management, the offer, financial information and key risks and warnings,” he explained.

He said that Australian intermediaries, such as Birchal, hosting crowd-sourced funding offers must conduct background checks on companies and key personnel, and review the offer document to ensure it meets the minimum statutory requirements and is not misleading.

“In the UK, offers of up to EUR 8 million are exempt from the requirement to produce a prospectus. This means that the level of disclosure provided to investors is far lower than in Australia, but also the barrier to entry for companies wanting to make such offers.

“Given the nascent stage of the Australian crowdfunding regime it is difficult to say how this will play out, but the fact is that although it is far easier for companies to raise capital in Australia now, there are still a number of checks and hurdles they need to overcome in order to go to market with an offer.”

However, Vitale said that there is currently no secondary market for CSF securities.

“This means that shares in CSF companies cannot be traded easily – and are typically restricted from sale or transfer within the first 12 months of issue. In general, CSF securities should be seen as medium-term investments, like any early-stage business. The opportunities to realise an investment could include a trade sale or listing of the company, or a share buy back.

“I don’t think there is any guarantee that investors will pile into craft beer without any investment fundamentals to back up their investment decision. Raising capital is never easy, but CSF simply provides a larger potential audience for craft brewers to market their investment offers to.”

Birchal has had recent equity-raise success with Gold Coast-based Black Hops Brewery.

Equity crowdfunding became an option for Australian businesses looking to attract a wider pool of investors after amendments to The Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Act 2018 (Cth) took effect in October last year.

This legislation now permits both public and privately listed proprietary limited companies in Australia to participate in crowdfunding campaigns.

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