What is Crowdfunding?
Crowdfunding is the concept of funding a project or a business by raising relatively small amounts of money from a large number of people, usually through a web-based platform.
Equity Crowdfunding involves the offer of equity share capital in return for cash funding. Loan Crowdfunding, meanwhile, sees companies apply for a loan from investors at agreed rates and repayment terms resulting in lots of small loans rather than one large loan from a single lender.
How will Crowdfunding work through Squareknot?
A business requiring funding submits a pitch. This includes a comprehensive business plan outlining the investment opportunity, key objectives, plan for achieving those objectives and the level and type of funding that is being sought. This is then vetted by the Squareknot Investment Committee. If successful, the pitch will feature on the Squareknot website and presented to the Squareknot Community of investors.
How long is a funding campaign?
Usually 2-4 months but may vary greatly from business to business depending upon a number of factors including:
- How well established the business is
- The strength of the business plan
- The risks
- The valuation
- The amount of the required funding that the business owners are able to generate themselves
- Potential exit strategies
- The track record of the management team
What happens if the target level of funding is not achieved?
If the business pitch does not achieve 100% of its funding target within the designated period, then the committed investments are cancelled, returned to investors and the pitch is closed.
What are the key differences between equity funding and loan funding?
Equity funding allows shareholders to share in any success that the company has through distributed profits or capital growth in the value of the shares. It also confers voting rights. Equity funding will appeal to investors looking for capital appreciation, dividends and the opportunity to contribute to a business’ success.
Loan funding is generally less complicated than equity funding. It involves a simple loan agreement that details the amount being loaned, the terms and timing in respect of paying interest and repaying the loan and what happens if interest or repayments are not made on time. Loan funding investment may suit certain investors who prefer a guaranteed rate of return and are not interested in participating in running the company or in potentially benefiting from additional profits or capital gains. Importantly, the owners retain voting control over their company.
Can a business apply for both equity and loan funding through the same pitch?
Yes! Squareknot is significantly different from all other crowdfunding websites in that we allow all businesses, including start-ups, to apply for both equity and loan funding in the same pitch.
How do investment rewards work?
As an added incentive to drive investment, businesses have the option of offering a gift of a good or service related to the business. For example a limited edition of the product the company is developing.
Each investment pitch has the option of including the details of any rewards being offered to investors. If the business is not offering any rewards then this section will not be visible to users.
Once the pitch achieves its funding target and the investment agreements are concluded, the business is responsible for ensuring that every investor receives the reward they are due.
What are the costs of using Squareknot?
Investors – Squareknot is free for investors. Once registered, investors can browse the website, view all investment pitches, interact with business owners and other investors and make investments.
Businesses – Commission fees for businesses on successfully funded pitches are:
● Equity 5% of the total raised (min charge $2,000)
○ Repaid within 12 months – 2% of the total raised (min $800)
○ Repaid within 36 months – 3% of the total raised (min $1,200)
○ Repaid within 60 months – 4% of the total amount raised (min $1,600)
● Admininstration charge of $1,000 per pitch
No fee is taken if the pitch does not achieve its funding target.
The commission fee is deducted from the amounts received from the investors.
Squareknot may be prepared to take our fees in equity. This would be negotiated on an individual basis with a business prior to a pitch going live.
What is Squareknot?
Squareknot bridges the gap between Crowdfunding and Business Angels by offering businesses the opportunity to raise finance through any one or a combination of the following methods:
Business Angel Investor Funding
We do this by bringing businesses that want to raise finance together with a large database of sophisticated and personal investors who are prepared to consider making such investments.
Who can invest through Squareknot?
In line with Australian regulation, investment via Squareknot is limited to sophisticated, professional or experienced investors.
What happens if the pitch does not reach its investment target after I have invested?
No money will be taken from your account unless the pitch reaches its target. In these cases, any investment commitment made by you will be cancelled.
How can I minimise my investment risk?
We encourage investors to spread their investment risk by creating a diverse portfolio of investments. This investment strategy will not alleviate all risks, but spreading your money across a number of investments means that any losses have a better chance of being offset by returns and capital gains.
What due diligence does Squareknot undertake on investment pitches?
We undertake a review of the information that a business provides and obtain evidence to support factual statements where we feel that it is appropriate to do so. We only post investment pitches that in our opinion provide investors with a clear and unambiguous investment opportunity.
We strongly encourage investors to undertake their own due diligence and seek professional advice ahead of any investment decision.
Can I cancel my investment?
Yes, an investment can be cancelled at any time before a pitch reaches its target. Please e-mail us at firstname.lastname@example.org if you wish to cancel an investment.
Once the pitch has reached its target you will be contacted to reconfirm your investment and will be provided with the legal documents relating to the investment, with a period of 7 days to review them. You can still cancel your investment at this point.
Once the legal documents have all been completed and signed, your investment is fully committed and cannot be cancelled.
How do I lend?
You place a loan bid on the pitch that you want to invest in, and select the amount you are prepared to lend and the interest rate at which you are prepared to lend at.
Once the pitch closes, if your bid has been successful then you will hold a loan part that will entitle you to monthly payments at the rate you bid.
There may be a situation where the amount that is accepted is less than the amount you bid. This can happen when the rate you have bid has been undercut by other investors, and the business only requires a portion of your bid in order to reach the funding target.
Can I request repayment of my loan before the end of the agreed loan term?
No. Once the loan has been made the repayments will be made in line with the terms of the loan agreement, unless the business is in a position to and decides to repay the loan early.
Is the loan guaranteed or secured?
We will endeavour to secure your loan over assets owned by the business. If the business uses the loan to purchase a specific asset then the loan will be secured over that asset. Where the loan is used for other purposes, for example working capital, we will put in place a fixed and floating charge over all the assets of the company. Where the business does not have sufficient assets to cover the size of the loan, we will seek to obtain personal guarantee(s) from the company director(s).
The type of security and/or guarantee being offered will be highlighted in the investment pitch. Full terms and conditions relating to guarantees and securities will be provided within the loan agreement.
What happens if the business misses a loan repayment?If the borrower misses a payment or only makes a partial payment of the amount due to you and the other investors, we (ourselves or through an agent acting on our behalf) will contact the borrower to inform them that we will reattempt to collect the outstanding payment in respect of that loan the working day after the payment was due. If our reattempt to collect the funds fails 3 working days after the payment was due, the borrower's account will be treated as an overdue account and we will continue to attempt to collect the funds. We may refer the missed payment to a collections agency (the "Collections Agency"), who will attempt to collect the money on your and any other investors’ behalf and you authorise us to use the Collections Agency on your behalf. Any fee that the Collections Agency charges for this initial debt chasing will be added to the loan amounts they are seeking to collect and will not reduce the amount available for distribution to investors.
If the borrower misses, fails to pay or only partially pays two or more consecutive monthly instalments or three out of six consecutive monthly instalments, the loan will be placed into default and the Collections Agency will engage field agents to attempt to collect the total loan amount outstanding. The Collections Agency may deduct up to 40% of the amount it recovers from the borrower and the remaining proceeds will be distributed to investors; where possible this fee will be added on to the loan amount outstanding so as not to reduce the amount investors receive.
If the Collections Agency is still unable to collect the debt they will then investigate with solicitors the amount of debt that is likely to be successfully recovered through the courts. If deemed appropriate, the Collections Agency will instruct solicitors to file court claims to recover the debt. Investors will receive a proportionate share of any funds successfully recovered, less the costs incurred during that recovery. The Collection Agency will act in a fair and equitable manner to achieve maximum recovery for all affected investors, which may include extending payment terms or selling the debt to a third party.
What happens if a business becomes insolvent before repaying a loan?
If a business becomes insolvent and the loan has a personal guarantee, Squareknot or its debt collection agency will pursue the guarantors for the unpaid sums due. If the loan has a fixed and floating charge security agreement attached, Squareknot or its debt collection agency will attempt to realise the assets of the business to repay the sums due to investors. If the loan has specific asset security, Squareknot or its debt collection agency will take possession of the asset and attempt to realise this asset to repay the sums due to investors. If the loan does not have any security, Squareknot or its debt collection will attempt to recover the maximum amount possible as a creditor of the business through the courts.
Can a business repay the loan early?
Yes a business can repay the loan in full before the end of the loan term. You will be paid the full outstanding capital balance plus interest up to the end of the month in which the loan is repaid. Partial settlement of loans is not allowed.
How much can I raise on a Squareknot investment pitch?
There is no strict minimum and maximum amounts that can be raised on an investment pitch. Most pitches will be somewhere between $50,000 and $500,000, however we will consider pitches below and above these amounts if we believe that they will attract sufficient investor interest to meet their funding target.
Can a business have more than one investment pitch running concurrentlyNo, each business can only have one pitch running at any time.
What happens if I secure funding from another source while the pitch is live?Notify us and we will add it to your pitch investment total.
Can a business close a pitch early?Yes, a pitch can be closed at any time.
Can I invest in my own pitch?
Yes of course, and you should encourage all your friends, family and acquaintances to do so as well.
Will Squareknot provide my business with mentor support?Yes, we will discuss this with you when you make your pitch application, and will identify the specific areas in which you require mentor support. We will then try and match your requirements with some of our registered investors who have expertise or experience in that area. With a crowd of investors there is a good chance of getting an investor that can be beneficial to your business.
We can also pair you with our approved consultants and advisors, or the many affiliated businesses that cover a wide range of services.
Can a pitch be amended at any stage?
The business cannot reduce the amount of equity being offered once the pitch goes live, but can increase it, so long as all investors benefit from the increased offer.
Equity pitches cannot raise more than its targeted funding once they achieve their target.
Loan funding pitches, however, can continue to receive bids after it achieves its target. This only serves the purpose of attracting lower interest bids, and the business owner can only accept bids to the value of the funding target.
Once the pitch goes live, the pitch target cannot normally be amended, unless:
1. If a pitch is fully funded relatively quickly and there is clearly an appetite for more investment, then we may allow the business to offer up more equity for a higher investment target.
2. If a pitch reaches a significant percentage of its target but can’t achieve the full amount within the maximum pitch life, we may allow the business to approach the investors who committed to making an investment with a revised business plan that is supported by the lower amount of funding.
How do I protect the confidentiality of my business idea or product?
Unfortunately it is not possible to keep a business idea or product completely confidential while trying to raise funding for it.
Our view is that if you are concerned about telling people about your idea or product in case someone steals it then you don’t have a viable business model in the first place. You don’t need to disclose the magic formula that makes your product or idea unique and special, just how and what you will achieve by taking it to market.
In addition, if you are developing a new product or concept you should ensure that it is protected through copyright and patents. A product or an idea that can be easily copied and brought to market quickly by a competitor may not be the great business model that you think.
Will Squareknot provide mentor support?
Yes. When making your pitch application, Squareknot will identify specific areas that may benefit from mentor support. We will then try and match your requirements with some of our registered investors who have expertise or experience in that area. With a crowd of investors there is a good chance of getting an investor that can be beneficial to your business.
We can also pair you with our approved consultants and advisors, or the many affiliated businesses that cover a wide range of services.