Technology is giving directors the chance to reconsider their approach to raising funds through equity.
IPO and s708 raisings that use traditional models can be bound by advisor distribution networks that lack the required board visibility. Further, raising money from current shareholders through pro-rata issues is highly regulated and costly when an underwriter is required.
The development of Crowd Sourced Equity Funding (CSEF) Platforms give directors an additional option for accessing investors and funds.
Crowd sourced equity
The boards of both listed and unlisted public companies are progressively looking towards crowd sourced funding platforms to provide visibility for an equity offer and to seek to measure investor interest, whilst minimising the risks associated with poorly or unmonitored communications with potential investors. Crowd funding platforms allow for the required level of board control over communication and engagement with sophisticated investors.
CSEF Platforms provide an avenue for the posting of an offer on a forum that has an existing distribution network, as well as the capacity to reach interested investors, whilst also allowing directors to control the allocations.
Regulating crowd-sourced equity
ASIC has recently undertaken research on how companies and advisers engage with investors and the controls in place to ensure fair and honest communication and allocation. This added regulatory focus brings with it an increased need to be aware of the pitfalls and mitigate against them, whilst still maintaining control of your register and minimising the potential for disruption caused by compliance issues.
In particular, ASIC has identified three areas that boards should consider:
- Marketing Practices in IPOs – traditional marketing models i.e. telephone calls and email distribution can lack transparency around information given and promises made. For more information, see ASIC Report 494 Marketing practices in initial public offerings of securities.
- Sell side Research and Roadshows – roadshows and investor education research needs to carefully consider confidential information. It is essential businesses don’t make unsupported forecast statements. For more information, see ASIC Report 486 Sell-side research and corporate advisory : Confidential information and conflicts.
- Boards must still be able to allocate fairly and in the best interests of the company. For more information, see ASIC Viewpoint: Reviewing allocations practices in capital raising transactions.
Case study: Goldman Sachs
The importance of ensuring fund raising methods are compliant was highlighted recently when ASIC handed Goldman Sachs Australia (GSA) a reprimand over its method of communicating with potential investors. The conduct in question occurred in 2015 and refers to the bookbuild process used by GSA. A bookbuild is the process of generating, recording and capturing demand from potential investors for a capital raising transaction. In this instance, ASIC was concerned that the minimum fixed demand was misrepresented to potential investors.
ASIC dealt GSA what’s known as an ‘enforceable undertaking’ and, as a result, GSA has promised to review its policies on equity capital market transactions, as well as make a community benefit payment of $500,000 (as reported on the ASIC website).
Picking your platform
ASIC’s increased regulatory focus on the traditional models used in raising funds, means you need to ensure the CSEF Platform utilised has controls that:
- Accurately communicate the offer and prospectus content in a balanced way;
- Can quickly and easily amend the offer communications to ensure its status is current;
- Restrict offer access to either sophisticated or retail investors, depending on your target investors; and
- Provide acceptable hosting fees and distribution network.
CSEF Platform technology has the potential for greater control and visibility when raising capital. However, boards must ensure they carefully consider the types of platforms being used in order to ensure fund raising will meet the needs of the Board.
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