IPOs for SMEs
Initial Private Offers (IPOs) for Small to Medium Sized Enterprises
Suitable for start-ups, early stage and established businesses.
SMEs can undertake an Initial ‘Private’ Offer to raise debt free, interest free, unsecured funds to grow, even if the business is small or very early stage.
What is an IPO?
An IPO or Initial Private Offer is an affordable way for a startup or early-stage company to raise equity capital. An IPO provides a simple and legal way to make private offers to issue shares to investors.
Unlike an initial public offer, an initial private offer to issue shares does not require the preparation of a costly product disclosure document (prospectus) to be registered with the Australian Securities & Investments Commission (ASIC).
Nonetheless, there can still be advisor fees, legal fees, document preparation fees, lodgement fees, etc. If you’re short on funds, offering Convertible SME Bonds to your early followers may be a way to cover off those initial expenses. Click here to issue Convertible SME Bonds.
Your early followers would have the discretion to choose to convert to equity as the business grows, perhaps at a discounted price to your Company’s proposed IPO share price.
What is Equity Capital?
Equity capital is contributed in return for a share of ownership. It’s not repayable, demands no provision of security (other than the issued shares) and bears no interest.
Establishing a Share Capital Structure for your SME enables you to use your Company’s Shares as a Bid Currency for Mergers, Acquisitions or Takeovers.
Critical to the founders of your Venture is the quantity of shares they will each hold BEFORE you undertake a Share Capital restructuring in preparation for your IPO!
Before you even think about seeking outside investors, it is critical to establish the number of shares each founder will hold.
As investors come in, the quantity of shares the founders hold will always remain the same, it’s only the percentage they hold that will reduce.
The trading exchange for SMEs can support primary issues from your SME as well as a secondary sale platform as an exit pathway for its shareholders.
To establish an appropriate number of shares to be held by the founders of your SME you will need to first create a share capital structure and have a strategic growth plan (SGP) prepared! Download the fillable PDF form here.
The Company structure is immortal (unlike its directors). It has a charter to implement its business plan for the benefit of its shareholders.
An appropriate share capital structure provides the best protection, to the Company’s founding shareholders, from
Vulture Venture Capitalists stealing your Company when seeking investment.
Ideally the founders need to retain at least 51% control.
When seeking investors for your business, it’s helpful if you have …
- A convincing, compelling, credible story;
- A balanced, passionate, capable and likeable team;
- Lots of suitable people to share the story with and engage;
- Lots of compliant ways and means to tell the story.
If you need help drafting a legally compliant investment offer document embodying your story you can email us for a quote.
Warning to Issuers!
In most jurisdictions around the world it is illegal for any person or company to ask two or more people to invest in a business venture, or other investment, without complying with legal rules set down by the Corporate Regulator in that country.
These rules will apply when an offer to invest in a Venture is made by an issuer (of shares) to members of the public. However, sophisticated, professional and accredited investors can have investment offers made and accepted by them.
In Australia, the limit on retail investors is set by the Corporations Act 2001 Sec. 708, which allows a Venture to accept up to 20 retail (Mum & Dad) investors in any 12-month period not exceeding $2million total investment. Any sophisticated, professional or accredited investors (as defined), and anyone who invests $500,000 or more (this is called the Gold Card exemption). These investors are outside of the count (of 20) and is unlimited as to numbers of investors and total amount raised
The Corporate Regulator in the United States is the Securities and Exchange Commission (SEC). Whichever jurisdiction you are in, the issuer should always check with their local Corporate Regulator and/or seek legal or other professional advice before making any offer to investors. There are fines and jail terms for those who breach the law in this regard and ignorance of the Law in no excuse.
Warning to Investors!
Investing in new ventures is not without risk to your capital. Above all, do your due diligence and risk assessment on the issuing company and its directors before handing over your money!! Should you decide to invest, it’s safer to choose a company that provides some kind of exit mechanism (or trading exchange) for its shareholders.
Get started raising funds for your business, or business idea, today!
Salary is for expenses. Equity is for wealth! Don’t let your great idea procrastinate any longer!