When raising funds through CSF, there isn’t a single part of your offer document that isn’t important. But there’s one part that you can face a hefty fine for omitting. That’s the general risk warning.
General Risk Warning
This paragraph must be included in Section 1 of your offer document, using the exact words as they are shown below:
Crowd-sourced funding is risky. Issuers using this facility include new or rapidly growing ventures. Investment in these types of ventures is speculative and carries high risks.
You may lose your entire investment, and you should be in a position to bear this risk without undue hardship.
Even if the company is successful, the value of your investment and any return on the investment could be reduced if the company issues more shares.
Your investment is unlikely to be liquid. This means you are unlikely to be able to sell your shares quickly or at all if you need the money or decide that this investment is not right for you.
Even though you have remedies for misleading statements in the offer document or misconduct by the company, you may have difficulty recovering your money.
There are rules for handling your money. However, if your money is handled inappropriately or the person operating this platform becomes insolvent, you may have difficulty recovering your money.
Ask questions, read all information given carefully, and seek independent financial advice before committing yourself to any investment.
The Advertising Disclaimer
For all advertising activity, you’ll also need to feature the ‘Advertising Disclaimer’.
It goes like this: Always consider the general CSF risk warning and offer document before investing.
Failure to include this warning is a strict liability offence. Your and/or your company could be hit with a fine to the tune of $6,300.
It seems extreme, but when raising funds through equity crowdfunding, you’re likely to attract some less experienced investors as well as professional ones. It’s your responsibility to remind them that there is an inherent risk within their investment.
If you don’t include this risk warning within your written collateral, you will also be in breach of your CSF Hosting Agreement with STAX.
Where should the Advertising Disclaimer feature?
The Advertising Disclaimer must feature in any forms of digital (e.g. email, SMS, social post) or print advertising you execute.
Because social media posts are classed as advertising, you must include this line along the bottom of every Tweet, Instagram story, and Facebook or LinkedIn post.
In every case, you must use the exact words written above.
We strongly recommend reading through the ASIC good practice guidance from cover to cover. But here are some relevant highlights regarding CSF offerings and EOIs:
- ASIC notes that consumers are ‘highly influenced’ by advertising. It is the CSF founder’s responsibility to ensure clear, accurate and balanced messaging is given, and unrealistic expectations should not be created.
- A CSF offer should never be advertised as a ‘low risk investment’. This kind of vernacular would be in conflict with the general risk warning for all CSF offers.
- Naturally, you’ll want to make reference to past performance to inspire confidence in your potential investors. But this must always be accompanied with a warning that past performance is not indicative of future performance.
- Advertisements should be clearly understood by the audience that might reasonably be expected to see them. They ‘should not state or imply that a product is suitable for particular types of consumers unless the promoter has assessed that the product is suitable for that class’.
- Founders/listees have a responsibility to ensure that graphics and imagery used in advertisements should not be ‘ambiguous or overly complicated’. They should not draw attention away so as to marginalise the effect of any warnings, disclaimers or qualifications.
- When using new media channels for advertising, content limitations should be considered. Their small space or character limit may mean there is ‘insufficient space to provide balanced information’.
- If using audio content, warnings, disclaimers, and qualifications should be read at a speed that is easy to follow and ‘comprehensible by the average listener’.
This article is a guide and is not intended as legal advice. We always recommend you speak with your legal advisor for clear and specific guidance on ASIC regulations.
For an in-depth guide to crowd-sourced funding, you can download Regulatory Guide 261 here.
Regulatory Guide 234 - good practice guidance for advertising financial products and services - can be downloaded here.
To talk to STAX about listing on our platform and the guidance we can provide, get in touch here.