Home' Australasian BioTechnology : Vol 27 No 2 Contents Australasian BioTechnology | Volume 27 | Number 2 19
Investment and Funding
their investment than mere financial return -- that
is, a whole new market of smaller-scale 'angel'
investors. People whose lives have been touched
by cancer, dementia or other devastating diseases
may be more inclined to invest in companies that
focus on treating those afflictions, and be more
accepting of the fact that their investment is both
long-term and inherently risky.
• Reduce the competitive disadvantage faced by
local biotechnology start-ups compared to their
counterparts in countries like the United Kingdom,
the United States and New Zealand, which have
had CSEF regimes in place for some time now.
That said, going down a CSEF path may not be the
right choice for every start-up or early-stage company.
Companies considering CSEF must decide whether
or not it aligns with their business objectives, and
consider the effect it may have on their ability to raise
funds from other traditional sources.
How will Australia's CSEF fundraising regime operate?
Until the CSEF regulations and guidance notes from
the Australian Securities and Investments Commission
(ASIC) are published, exactly how the regime will
operate in practice is unknown. The table above
summarises what we know so far.
Key considerations for life sciences companies
For early-stage or start-up life sciences companies,
the impending arrival of the CSEF
regime presents an exciting
opportunity for alternative
funding during a key phase
in their life cycle, when
costs are high and revenue
streams are low or non-
existent. On the downside,
the long-term effects of
having a large number of
shareholders may raise challenges
for future fundraising rounds,
whether via further capital raisings or venture capital
investment. Balancing the interests and demands of
various classes of investors, including a potentially
large number of CSEF investors, is not necessarily an
easy or desirable position to be in.
Nevertheless, for biotechnology companies
considering CSEF as a viable funding option, now is
the time to consider what measures they will need
to take to ensure that they are ready once the CSEF
framework is up and running later this year.
This article contains general commentary only. It is not legal
advice and must not be relied upon as such. Readers should
obtain specific advice relating to their particular circumstances.
1 'Slow-clap for ScoMo's dodo; equity crowdfunding legislation that is already extinct',
Who is eligible for CSEF?
Initially, the regime will only be open to small, unlisted public companies -- those with less than $25 million in
both consolidated gross assets and annual revenue.
How much can you raise and from whom? Up to $5 million in any 12-month period from 'retail' investors, who can invest up to $10,000 per company in
any 12-month period.
How is a CSEF offer made?
Companies must engage a CSEF platform holding the prescribed form of Australian Financial Services
Licence. There are a number of crowdfunding platforms already operating in Australia (targeting
sophisticated investors). These typically charge a flat fee to host a crowdfunding offer as well as a percentage
of total funds raised.
What are the disclosure requirements?
Biotechnology start-ups have traditionally been limited to making offers to sophisticated investors or
small-scale offers to retail investors, which are exempt from the onerous disclosure requirements under the
Corporations Act 2001.
While a CSEF offer document must still be prepared, it is expected that the level of disclosure will be far less
onerous than under a traditional offer document.
What about private companies?
Given that proprietary companies make up around 99 per cent of company structures in Australia, the
exclusion of private companies from the CSEF regime has attracted strong criticism.1 The government has
responded by releasing draft legislation as part of its 2017--18 budget package that will, if passed, extend the
CSEF regime to private companies. That legislation was open for public comment until 6 June 2017.
Realistically, it will be some time before private companies will be able to avail themselves of CSEF.
What about converting to a public company? The CSEF regime provides temporary relief to newly converted or incorporated public companies from
certain reporting and corporate governance requirements, provided that they complete a CSEF offer within
12 months of incorporation/conversion. This temporarily removes one of the big disincentives and costs
associated with operating as a public company and is intended to encourage entities to convert to take
advantage of the CSEF regime.
However, with the proposed extension of CSEF to private companies, the government proposes to remove
these concessions for companies that convert or are incorporated as public companies after commencement
of the private company CSEF legislation. Consequently, private companies keen to access CSEF as soon as
possible will need to decide whether to convert to a public company to access the regime in September, or
hold out for the promise of a private company CSEF regime.
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