Australians who want to back early stage companies have two main routes into private startup shares: licensed equity crowdfunding platforms open to everyday investors, and wholesale offers reserved for people who meet income or asset thresholds set in the Corporations Act.
This is general information, not financial advice. It does not take anyone’s personal circumstances into account, and anyone considering an investment should speak to a licensed adviser or accountant first.
The rules decide which investors can take part in a private raise, how much they can put in and how much protection they get.
Retail investors: equity crowdfunding
Crowd-sourced funding (CSF) lets eligible companies raise money from the general public through an intermediary that holds a licence from ASIC. Licensed platforms include Birchal and Equitise.
Under the regime, retail investors can put in up to $10,000 per company each year, according to ASIC, and some offers accept as little as $50. Birchal says it has helped raise about $218 million across more than 300 offers since 2017.
The risks are high. Most startups fail, shares in private companies are hard to sell, and investors in a failed company can lose their entire stake. ASIC says each CSF offer must come with an offer document containing minimum information and a prescribed risk warning, and investors get a five day cooling-off period.
Wholesale investors
Larger private rounds, including pre-IPO raises, venture funds and angel syndicates, are generally offered only to wholesale (often called sophisticated) investors. To qualify through the most common tests, a person needs an accountant’s certificate showing either:
- net assets of at least $2.5 million, or
- gross income of at least $250,000 in each of the previous two financial years.
Those thresholds have not changed in decades, and whether to raise them has been the subject of ongoing policy debate.
Wholesale status comes with a trade-off. Offers to wholesale investors usually come without a prospectus or Product Disclosure Statement, many retail protections do not apply, and investors may not have access to the Australian Financial Complaints Authority (AFCA) if something goes wrong.
Self-managed super funds
Some investors look at holding startup shares through a self-managed super fund. The rules there are less clear cut. A recent AFCA ruling pointed to a separate $10 million test for when a super fund can be treated as a wholesale client, a distinction that has caught some investors out.
Jack’s take
Crowdfunding is the easiest way in, and small cheques are the right way to learn how startup investing actually works. Wholesale is a different game with fewer guard rails. Either way, I’d only ever put in money I could afford to lose.