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Depending on your perspective, there’s undeniably a grim outlook regarding the future of the Australian economy. Retailers are slashing prices too early, question marks are popping up about where we’ll find growth with the mining boom over and what affects Australia will feel from global financial market tremors as a result of recent events (Brexit and can Trump be POTUS?)

Take the forecasts with the proverbial grain of salt – we still have a growth rate of 3.1% – which is great if you look at the rest of the OECD (Organisation for Economic Co-operation and Development). Inflation at a miserly 1.3% (so your money isn’t eroded in real terms year on year) and unemployment is at the average level of 5.7%.

The economy is still growing; people still want to invest in us. With all this cash floating around, there are lots of great ideas and keen-eyed entrepreneurs waiting around to capitalise on it. This is where Business Introduction Services come in. Instead of doing all the hard work yourself to establish a startup (or perhaps you have already, and you want to share your knowledge), it can be incredibly rewarding to introduce your stellar (and cashed up) business contacts to worthy startups looking for worthy investors. Cue a Business Introduction Service (BIS).

What is a Business Introduction Service?

A BIS, according to the Australian Securities and Investments Commission (ASIC), is a service which circulates information about potential investment opportunities. Advertising investment opportunities (i.e. the opportunity to invest and get shares/equity in return) is regulated much more tightly than Donald Trump’s fake tan levels, and startups are restricted to advertising without a disclosure document to investors such as ‘professional investors’, ‘sophisticated investors’ or people who fall into what is called the ‘family and friends’ exemption in section 708 of the Corporations Act 2001 (Cth). However, if you run a BIS and follow the rules set out in Class Order 02/273, companies may be able to approach individuals outside these categories.

Information can be circulated through meetings, or through publications (such as brochures, bulletins or platforms on the web). Who is in the market already? AASOB and Blue Chilli are examples of businesses who run a BIS through both online and offline mediums.

What Rules Apply?

The Corporations Act 2001 (Cth) regulates the offer of securities (shares) in startups and any other company. As mentioned, there are heavy restrictions on advertising investment opportunities. The policy behind these rules is either investors are given sufficient information (via a disclosure document) to make an informed investment decision or investors are in a class which are seen as not needing a disclosure document. The policy is to ensure investors who might be more vulnerable or susceptible to get rich quick advertising are protected. Class Order 02/273 specifically regulated a BIS.

What Are the Advantages of a BIS for an Investor? Plugging the Startup Funding Gap.

Most of the time, investors are restricted to investing in publicly limited companies, (e.g. those listed on the ASX). Everyone wants to make money and no doubt a sizeable proportion dream of investing in the next Facebook. However, many fabulously wealthy Facebook investors were individuals who were in it from the garage-office stage or slightly later. In Australia, if you are running a potentially enormously successful business from your garage, you can’t advertise an investment opportunity in your business to the public at large. Here’s where most start-ups hit a roadblock – what if you don’t have family or friends with a spare $50K to throw around, to boost your business to the next level? It’s called the startup funding gap.

A BIS can be a way for money-hungry startups to meet investors equally concerned with finding the next biggest investment opportunity. Both want to make a profit. For startups without access to a wealthy network, this can be a real bonus. You do not need to know the investor to offer them equity in the business, in return for investment.

Key Takeaways

In Australia, advertising an investment opportunity is heavily regulated. Unless an investor is classified as a sophisticated investor, professional investor, comes within the ‘family and friends’ exemption or another exemption, a business needs to use a regulated disclosure document to advertise an investment opportunity. A BIS can be a way for startups to find investors who want to invest, without these restrictions. Class Order 02/273 regulates the operation of a Business Introduction Service. If you’d like help arranging a BIS or with raising capital for your startup, get in touch with one of our startup lawyers.


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