Wanted – Slightly Used Prospectus.
You want to raise funds to start or grow your business. Grab a couple thousand dollars from a couple of hundred people and you’re away. Right? Not quite.
You speak to a few people from the capital raising industry and come across the requirement to prepare a prospectus. Basically, an investor offer document that ASIC need to run a ruler over. Easy! Like everything else, there must be a free template around?
You Google ‘prospectus template’ only to find, well, nothing of great use. What you do find are prospectus’s written by other companies. Brilliant – quasi templates! You download one or two, grab a glass of red and settle in for a mammoth read. How did you go? By page 150 you’re cross eyed and bewildered I’m guessing.
Does it have to be so? No, it does not. I believe the option to write and submit a prospectus to ASIC should be within reach of more aspiring business owners.
Oddly enough, a prospectus is much more suited to a start-up which really has not undertaken much activity yet. The reason that most prospectus’s you’ve downloaded and read are such large documents, is that they need to capture the entirety of the ’current’ business in addition to the proposed business activities that is subject to the raising of funds. For instance, the current business involves how the business historically makes money, elements of the existing supplier/ customer and other agreements in addition to employee/management contracts that underpin the business and all the risks around each of those items.
Further, all this current activity needs to pass legal due diligence tests which often uncovers agreement or contract issues that need rectifying prior to continuing with the prospectus project.
With new start businesses, there is minimal ‘current’ business activity and typically, business activity is dependent upon the raising of funds. So, it stands to reason that the prospectus may be a lighter document. Lighter means cheaper. With less having happened in the business, there is less legal due diligence to undertake so less involvement from the lawyers and thus, less cost.
The other main factor that adds to cost is the complexity of the corporate structure and the investment instrument, or the overall offer. Some businesses propose a complicated corporate structure involving multiple entities, multiple classes of shares with different rights and even multiple offer instruments such as shares and options. Not only is it more difficult to market a complicated structure and offer, it needs more legal input to create ‘it all’, a more complicated legal due diligence process and inevitably higher legal costs.
What’s the opposite of all this? Keeping the structure and offer simple. Consider using one company and one class of shares and don’t complicate it unless you have a really good reason to do so.
Finally, in some circumstances you can even claim the cost of preparing the prospectus from the funds raised using the prospectus.
For assistance please contact The Financial Writing Company 1300 477210.