A+ A A-

Crowd-sourced equity funding for startups

Crowd-sourced equity funding for startups

KPMG Regulatory Insights: Crowd-sourced equity funding for startups

As alternative methods of funding increase, startup founders can find themselves inundated with options. Jamie Levy, KPMG High Growth Ventures’ startup lawyer explains the pros and cons of crowd-sourcing your next raise.

Historically startups and early stage companies have looked to venture capital and angel investors to source funding. As previously, restrictions within the Corporations Act 2001 (Cth) limited startups and early stage businesses from seeking funding from alternative sources like retail investors, meaning startups had to always rely on the sophisticated and professional investors for early capital raises.

Fortunately, this changed in 2017, when the Corporations Amendment (Crowd-sourced Funding) Act 2017 (Cth) came into effect, enabling the use of crowd-sourced equity funding (CSEF) by public unlisted companies aka startups. This legislation opened the flood gates on a new source of capital raising and will no doubt support the startup ecosystem tremendously.

What is CSEF?

The CSEF Act provides an alternate source of capital to the traditional methods and allows startups to raise up to $5 million (AUD) in any 12 month period. Investments can come from a large number of retail investors, who each can only invest up to $10,000 in a specific entity in any 12 month period.

An advantage of taking this route is that generally, when retail investors invest in a startup through CSEF they are unlikely to require significant governance rights within the startup. As a result, founders will enjoy more flexibility using retail investors as opposed to the more significant expectations that the professional investing community are likely to demand.

Whilst the CSEF is aimed at startups and innovative companies, the Act can be accessed by all publicly unlisted companies with a few exemptions. For example, the company’s business directors must 'ordinarily reside in Australia' and must have a 'consolidated annual revenue of less than $25 million' are two of the limitations. The exemptions for CSEF can be found here in full.

What is the potential impact?

Whilst we don’t expect CSEF to override the need to access historical sources of fundraising, this new legislation is sure to open up the investment market and will introduce new players into the startup space. This ultimately means more capital for startups and can only be beneficial for the growth and development of innovative companies and ideas.

It is also crucial to remember that investment aside, angel investors and venture capital firms provide expert mentoring, relevant networks and coaching when engaged with a startup. Good mentors in the ecosystem are priceless and the support of a VC who shares your vision is worth its weight in gold in the long haul.

A final thought

When going for a raise or considering an investment opportunity, founders should always consider the terms and conditions of the investment in full; dilution consequences, implications for future fund raising activity and governance rights relating to how they drive the business and utilise funds following a successful raise. A startup lawyer can assist you with the process and also help structure and close investors to support your next phase of growth. There’s no harm in asking.

What our clients say.

  • 1
  • 2
Prev Next


Raphael Troitzsch, Head of Automotive Solutions & Smart Homes at Swiss Re
We can finally stop worrying about doing part of the trip by car, part of the trip by bike, part of the trip by train, and book that in 15 different places, and do the research and the matching of timetables. I'm really looking forward to an era where A to B is the question and not colour of car or which mode of transport at which price. It's all combined, and it's one seamless experience to everyone, not just people in cities and developed worlds, but really everyone.


Charlie Simpson, Head of Mobility2030
This is now moving away from the theory about Mobility and the reality to how it is impacting people’s businesses. The one key message is that no one single organisation, no one single sector, has the answers to this. This implies the degree of collaboration we envisage at the beginning, and the evidence for today is that that is exactly what is happening
- Charlie Simpson, Head of Mobility2030

Subscribe to our newsletter  
Contact Us  


Don't yet have a login? Sign up now!

By logging in and using this site you agree to the membership terms and conditions for Innovators OR for Financial Institutions

Cookies make it easier for us to provide you with our services. With the usage of our services you permit us to use cookies. Privacy Statement
Ok Decline