What crowdfunding means for the wealth industry

Many family owned businesses across Australia are not pre-IPO candidates nor are they willing to hand over management to venture capital or private equity firms.

In the absence of any obvious transition to their children or other family members these businesses are often left with little option but to sell to a competitor or entrust the sale of their business to a business broker – many of whom are not sufficiently experienced.

As such they struggle to monetise and achieve value. This means that after 30 to 40 years of hard work, they are not enjoying the returns they deserve.

The wealth industry and equity crowdfunding (called crowd-sourced funding “CSF” in Australia) may seem, at first pass, like odd partners but at FinEx Wealth we see a material and beneficial linkage between the two.

Under the CSF rules businesses with up to $25 million revenue or less than $25 million in net tangible assets can raise up to $5 million dollars per year.

As an example, this means a $15 million family business can monetize over a three-year period. This also represents the perfect opportunity to transition the business from a family operation to a professional managed entity with likely incremental increases in value along the way.

A few weeks ago, one of our team members suggested to me that CSF had a ‘convoluted identity’ and I have been struggling to find a more apt description since. The reasons for this identity struggle are obvious and, at this stage, numerous.

Some of these elements include:

■■ The legislation is new (it came into effect in September 2017)

■■ Licenses, of which there are only a handful, were granted in January 2018

■■ The number of completed transactions in Australia can be counted on one hand

■■ Its heavily associated with ‘start ups’ and ‘tech’ businesses

In reality the legal and commercial spine of CSF addresses one of the greatest areas of equity capital market failure in Australia.  This is the area of ‘post venture capital but pre-IPO’.  The wealth industry in Australia is best placed to identify who these businesses are and is therefore best placed to help them access this exciting new legislative change.

1 Australian Department of Treasury, 2015

Intergenerational Report, Chapter 1.

Source: FinEx Wealth