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As an up-and-coming business owner, you may have considered raising capital by issuing shares to investors, which is new territory for most business owners. Please know that if you can start and maintain a business, you have the ability to raise capital, but this is the time for good advice.

This article is a summary of the key issues and steps.

First you need to consider how much funding you need to raise to grow your business. What types of investors will you target? Will you raise funds primarily through friends or family, or target angel investors and larger investors?

You need to provide information to investors in a pitch document. What type of pitch document will you choose, and what will you include? You need to know the advertising prohibitions, so you do not break the law.

Lastly, you need to know the legal documents to make a legally binding share issue and move forward to use the money to build your business.

Let’s get started!

Who Can I Offer To?

In Australia, there are certain requirements businesses must meet if they wish to capital raise publically. Disclosure documents are required under Chapter 6D of the Corporations Act 2001 for businesses that wish to do this. However, these requirements are expensive and onerous for many small businesses to undertake.

For this reason, there are specific exemptions to permit offers without a disclosure document under Chapter 6D. These exceptions include:

  • offers to professional investors: (a) a holder of an Australian Financial Services Licence; or (b) a person who manages gross assets of at least $10 million;
  • offers to sophisticated investors: who invest a minimum of $500,000 in securities in the Company, or who provide a Sophisticated Investor Certificate. A qualified accountant provides this certificate no more than six months before the offer. It stipulates that the potential investor meets the Sophisticated Investor Test, i.e. has (a) net assets of at least $2.5 million, or (b) a gross income of at least $250,000 for each of the last two financial years. These type of investors are often termed angel investors;
  • small scale offerings: personal offers, resulting in a maximum of 20 investors, raising up to $2 million, within any 12-month period;
  • offers to people associated with the Company including senior management.

What Do I Include In My Pitch?

Now that you know the type of investors you wish to target for your offer, you need to create an effective pitch document. It may be a PowerPoint or slide deck, and/or a detailed business plan or an Information Memorandum that provides more details of your business and proposal.

The critical information to include is:

  • Your vision and the goals
  • Founder/Management Team
  • Timeline e.g. how much you want to raise, how it will be used and possible results
  • Market, customers and competitors
  • Revenue Model
  • Marketing Strategy
  • A comprehensive disclaimer

Sophisticated or professional investors see many pitches. Make yours great! Practice until you are confident. Be concise. Investors will tell you when they need more information.

  • Tell a story of your business, your ‘why’, as well as ‘what’ and ‘how’
  • Know your audience
  • Communicate your passion
  • Use straightforward language – your pitch needs to be easy to understand quickly
  • Be well prepared – especially for tough questions

What are the next steps?

You now have your investors on the hook, and you need legal documents.

You need a Term Sheet for your offer, which summarises the key terms and includes your proposed investment, valuation of your business and rights associated with the proposed shares. For some general information about Term Sheets, have a read of our articles on Term Sheets.

Upon finalising the key commercial terms, you can move on to legally binding documents. Once the Term Sheet is agreed, it is used to create a Share Subscription Agreement for each investor, summarizing their investment.

The detailed Shareholders Agreement is prepared; this is between the Company and each investor.

If the investor works in the business, it is important to consider vesting. Vesting rules are usually set out in a Share Vesting Agreement.

The Company needs to complete the Company secretarial documents required to issue securities to each investor. These include Company Minutes approving the issue of securities, and a Share Certificate for each investor.

After the shares are issued, you need to update the Company Share Register and to update ASIC using the prescribed ASIC forms.

We have considerable experience in capital raising, for small and large business. We are one of the few law firms to have raised capital ourselves.

For any assistance in negotiating and preparing your pitch documents, Term Sheet, Shareholders Agreement and ancillary documents, please contact one of our specialist capital raising lawyers at LegalVision on 1300 544 755.


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