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Frequently Asked Questions (FAQs)

#1. What is an Initial Private Offer and how is it different to an Initial Public Offer?

  • An Initial Private Offer (IPO) is another term used for a small-scale private offering, which is the most common form of capital raising that does not require a regulated disclosure statement.
  • Offers made under an IPO offering exemption are generally done through an informal Information Memorandum or ‘IM’.
  • These IPOs are a legal and cost-effective way for high-growth small to medium sized enterprises (SMEs) to raise start-up, early-stage or expansion capital.
  • Unlike an initial public offer, an initial private offer to issue shares does not require the preparation and registration of a costly disclosure document (prospectus).
  • An IPO capital raising may be just the thing to stimulate growth and realise your Company’s true potential faster.

#2. What is a Private Trading Exchange?

  • A ‘Private Trading Exchange’ (PTX) is an Internet-based platform that is set up and owned by any company that has issued, or proposes to issue, securities to raise funds from investors.
  • For Primary Issues: The issuing company can either promote their own issue of securities to investors or engage a Licensed Securities Dealer. A company promoting their own issue of securities does not require a Securities Dealers Licence (AFSL).
  • For Secondary Sales: As the shareholders of a Company own the Company, they also own the Company’s PTX. Therefore, if a shareholder wants to sell some or all their holdings, they can do so by listing the shares they want to sell on the Company’s PTX.
  • Unless the Company in which they hold securities is a public company, shareholders wishing to sell are also limited to 20 ‘retail’ investors per year (Australia) & 35 in the USA.

#3. What types of securities can I issue on my company’s Private Trading Exchange?

You can issue the following types of securities:

  1. Equity Securities
  2. Debt Securities
  3. Hybrid securities

#4. How many investors can I get?

This differs from country to country however in Australia and New Zealand it’s 20 retail investors and unlimited ‘sophisticated’ investors. In the United States it’s 35 retail investors and unlimited ‘accredited’ investors. Always check with your local corporate regulator as to the rules regarding small-scale ‘personal/private’ offers.

#5 When making an Initial Private Offer, will I need to have more than one director?

From an investor’s point of view there is greater comfort if there are more than one director. Investors may be reluctant to invest if the business is seen to be key-person reliant.

#6. Can I raise more capital using another company?

There are set limits as to how many investors and amount of capital you can raise under a small-scale ‘private’ offer, the corporate regulator will aggregate the investors and/or amount of funds raised by related entities or common directors. Beware of the corporate regulator.

#7. When can my investors make secondary sales (share transfers)?

Sales or transfers of securities by individual shareholders must only occur once the Company has completed or closed its capital raising. This is to avoid shareholders competing against the issue price while the company is still in capital raising mode.

#8. When does a Private Company need to become a Public Company?

As your company grows and obtains more shareholders over time, it will reach a trigger point where it must convert (change its status) from private to (unlisted) public.

  • In the USA it’s when it has more than $10 million of total assets; and
  • the securities are “held on record” by either 2,000 persons, or 500 persons who are not accredited investors.
  • In Australia it’s when a company reaches 50 new investors.

#9. How should the Investment Opportunity be portrayed in the Offer Document?

An Investment Document details the investment opportunity. It lists:-

  • The investment opportunity;
  • Why an investor should invest;
  • Why the Company needs to raise capital;
  • What the Company needs to spend capital on to achieve growth;
  • How the Company intends to use investor funds to achieve this growth;
  • The plans of the Company in relation to the use of funds;
  • The value that the Company has thus far – material contracts, IP, profit, etc to justify the share price and capitalised value;
  • Detailed use of funds to hold the Directors accountable for their expenditure.

All the above points need to tie in together to make a consistent and flowing document that explains the investment opportunity.

#10. Can Shares issued in payment of goods or services be allocated to the cash amount to be raised?

The fulfilment of the amount to be raised generally relates to the receipt of cash by the company from the issue of new shares.

However, in some cases if the purpose in the offer document details an expenditure relating to goods and services and these goods and services were supplied in exchange for shares (non-cash consideration), then it may be suitable to ascribe the non-cash consideration to the capital raised.

#11. What is a sophisticated investor?

A sophisticated investor:-

Must have an income exceeding net $250,000 per annum for the last 2 years, or net tangible assets of more than $2.5m (must be signed off by an accountant no more than 6 months prior to the date of share application); or

Invest more than $500,000 in one transaction.

#12. Can more than one person purchase shares as a group? Do they have to form a trust, a company?

You can have up to three (3) people on the one share application as <such & such partnership A/C>. The first person/applicant on the application is the address for receiving correspondence on behalf of the “partnership”.

#13. What type of entity can invest in my Company?

ONLY legal entities can hold securities. The Application for securities must be in the name of a natural person(s), a company or other legal entity.

#14. Can holders of debt in my Company consider swapping their debt for equity?

Yes. You can find a pro forma Debt for Equity conversion/swap offer letter on the Licensees resources page.

#15. How do I know if I am ready for funding?

Complete and Submit a Capital Raising Scenario Form.

#16. How does capital raising in the primary phase operate?

R1, R2, R3 signifies each Round of capital raising.

Companies start off in Round 1 (R1) usually at the most heavily discounted price, once this is closed they move onto Round 2 (R2) at a reasonably discounted price and then the move onto Round 3 (R3) which is usually still discounted based upon their notional valuation but not as discounted compared to R1 & R2 prices.

As an example might be the following Round 1, 2 and 3 details:

Round 1 (R1) = $0.07 per share raising a total of $250,000

Round 2 (R2) = $0.10 per share raising a total of $250,000

Round 3 (R3) = $0.15 per share raising a total of $1,000,000

Note, on your Company’s IPO page there are three lines with red squares – these red squares signify how much of each consecutive round has been sold.

#17. Why are the amounts raised in Rounds One and Two around $250,000.00 and not say $1.5 million?

The reason for the lower amounts in rounds 1 and 2 is that under a “small scale offering” there are only 20 retail (35 in the US) concessions available to you, the issuer. This means that until you actually go into full disclosure (a prospectus) the amount has to be affordable and divisible by up to 20 (or 35 in the US) retail investors.

So, if you were to look to raise say $2.5 to $3 million total for both rounds 1 and 2, this means that the average minimum investment per investor would be between $125,000 to $150,000 each, if there were 20 investors. From experience we’ve found that once you get up past say $35,000 per investor (average entry cost) the going gets tough.

So, you have to get the fund-raising strategy right from the outset so that you keep all options open. This would involve developing a strategic capital raising plan that is both practical and workable (within the confines of fundraising law). Prepare your Capital Raising Scenario.

#18. Beware of the Corporate Regulator – do your research!

  • There are specific regulations relating to fund raising through the Issue or Sale of securities.
  • There can be very serious consequences (heavy financial penalties and/or imprisonment) resulting from non-compliance of the Law when issuing, or otherwise dealing in securities.
  • WARNING: Whether you’re doing your own capital raising, or you’re an accountant, or other advisor acting on behalf of your client, you must ensure you are on top of the regulatory responsibilities and obligations when raising funds.
  • Ignorance of the Law is no excuse!!

#19. If you require assistance, to view our Schedule of Fees

CLICK HERE

Both Private and Public companies can raise capital through an Initial Private Offer.

Could you identify and nurture a ‘diamond in the rough’?

PTX Licensees assist their client companies raise capital and play a mentoring role as their clients progress through the capital raising process. 
Could you identify companies, that with a bit of polishing, have the potential to deliver significant returns to investors and their stakeholders? 

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