What crowdfunding means for the wealth industry
Many family-owned businesses across Australia are not pre-IPO candidates nor are they willing to hand over management to venture capital or private equity firms.
In the absence of any obvious transition to their children or other family members these businesses are often left with little option but to sell to a competitor or entrust the sale of their business to a business broker – many of whom are not sufficiently experienced.
As such they struggle to monetise and achieve value. This means that after 30 to 40 years of hard work, they are not enjoying the returns they deserve.
The wealth industry and equity crowdfunding (called crowd-sourced funding “CSF” in Australia) may seem, at first pass, like odd partners but we see a material and beneficial linkage between the two.
Under the CSF rules businesses with up to $25 million revenue or less than $25 million in net tangible assets can raise up to $5 million dollars per year.
As an example, this means a $15 million family business can monetise over a three-year period. This also represents the perfect opportunity to transition the business from a family operation to a professional managed entity with likely incremental increases in value along the way.
A few weeks ago, one of our team members suggested to me that CSF had a ‘convoluted identity’ and we have been struggling to find a more apt description since. The reasons for this identity struggle are obvious and, at this stage, numerous.
Some of these elements include:
- The legislation is new (it came into effect in September 2017)
- Licenses, of which there are only a handful, were granted in January 2018
- The number of completed transactions in Australia can be counted on one hand
- It’s heavily associated with startups and tech businesses
In reality the legal and commercial spine of CSF addresses one of the greatest areas of equity capital market failure in Australia.
This is the area of ‘post venture capital but pre-IPO’.
The wealth industry in Australia is best placed to identify who these businesses are and is therefore best placed to help them access this exciting new legislative change.
For specific advice, speak with your OBT financial adviser on 5462 2277. Rodney Turner and OBT Financial Group are Authorised Representatives of Lonsdale Financial Group Ltd ABN 76 006 637 225 | AFSL 246934.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein. Information is current at the date of issue and may change.
1 Australian Department of Treasury, 2015 Intergenerational Report, Chapter 1. Source: FinEx Wealth