Cross-Border Fundraising: What Australian Startups Need to Know About Raising from US Investors

Australian startups are increasingly looking to the US for capital. The logic is straightforward — the US venture capital market is roughly 20 times the size of Australia’s, with deeper pools of capital at every stage and a larger network of investors who understand technology businesses. But the path from a warm introduction to a US VC to actually closing their money involves navigating two separate legal systems, and getting it wrong can be expensive.

Here’s what you need to think about before — not after — you start those conversations.

The Dual Regulatory Problem

When an Australian company issues securities to a US investor, two bodies of law apply simultaneously: Australian fundraising rules under the Corporations Act 2001 (Cth), and US federal and state securities laws under the Securities Act of 1933.

On the Australian side, Chapter 6D of the Corporations Act requires disclosure (typically a prospectus) for offers of securities unless an exemption applies. The exemptions most relevant to startups raising from overseas investors are:

• Small scale offerings (section 708(1)) — personal offers to no more than 20 investors in any 12-month period, raising no more than $2 million.
• Sophisticated investors (section 708(8)) — investors who meet certain wealth thresholds (net assets of at least $2.5 million, or gross income of at least $250,000 in each of the last two years) and are given a sophisticated investor certificate by a qualified accountant.
• Professional investors (section 708(11)) — which includes entities that control at least $10 million in gross assets, or hold an Australian Financial Services Licence.

Most US venture capital funds will qualify as professional investors under Australian law, making the Australian side relatively straightforward. The harder question is compliance with US securities law.

US Securities Law: Regulation D

Under US law, any offer or sale of securities must either be registered with the Securities and Exchange Commission (SEC) or qualify for an exemption. Registration is prohibitively expensive and time-consuming for a startup raising a venture round. Instead, Australian companies rely on the private placement exemptions under Regulation D of the Securities Act.

Rule 506(b) is the most commonly used exemption. It permits an unlimited amount of capital to be raised from an unlimited number of “accredited investors” (and up to 35 non-accredited but sophisticated investors), provided there is no general solicitation — meaning you can’t publicly advertise the offering. In practice, this means your fundraise must be conducted through direct introductions and private networks, not LinkedIn posts or pitch event stages.

Rule 506(c) allows general solicitation but requires that all purchasers are accredited investors and that the issuer takes “reasonable steps” to verify their accredited status. This is a higher bar than 506(b), where the issuer can rely on self-certification.

A US accredited investor includes any individual with a net worth exceeding US$1 million (excluding their primary residence), income exceeding US$200,000 in each of the last two years, or any entity with assets exceeding US$5 million. Most institutional VC funds comfortably qualify.

Critically, even though your company is Australian, if you are offering securities to persons in the United States, US securities law applies. The SEC’s jurisdiction is based on where the investor is located, not where the issuer is incorporated. You’ll also need to file a Form D with the SEC after the first sale of securities, and comply with applicable “Blue Sky” laws — the state-level securities regulations in each US state where investors are located.

The Delaware Flip Question

At some point in conversations with US investors — often early — you’ll encounter the expectation that your company should be a Delaware C-Corporation. Most US VCs are structured, both legally and economically, to invest in Delaware entities. Their fund documents, tax treatment, and standard legal paperwork all assume a Delaware corporate structure.

A “Delaware flip” (or “flip-up”) involves creating a new US parent company incorporated in Delaware, which becomes the 100% owner of your existing Australian company. Your existing shareholders exchange their Australian shares for shares in the new Delaware holding company, maintaining the same ownership proportions.

The typical flip involves:

1. Incorporating a new Delaware C-Corporation (US TopCo).
2. Existing shareholders transferring their shares in the Australian company to US TopCo.
3. US TopCo issuing new shares to those shareholders in equivalent proportions.
4. Migrating any convertible instruments (SAFEs, convertible notes, options) to the new entity.

A straightforward flip takes 4–6 weeks and costs roughly US$30,000 in combined legal and tax advisory fees, though complexity in your cap table or shareholder arrangements can push this significantly higher. Companies often run the flip in parallel with the fundraise itself, paying the costs from the round proceeds.

Should You Flip?

Not every cross-border raise requires a flip. Some US investors — particularly those experienced with international deals — will invest directly into Australian entities. If your round is led by an Australian VC with US co-investors following on, you may be able to avoid the restructure entirely.

But if a US lead investor is setting the terms, they will almost certainly expect a Delaware structure. The decision should be driven by the specifics of your round, not by a general assumption that flipping is necessary or desirable. Flips are complex, add ongoing US compliance costs, and are difficult to unwind.

Tax Implications

Cross-border fundraising creates tax issues on both sides of the Pacific that founders frequently underestimate.

Capital gains tax on the flip. When Australian shareholders exchange their shares for shares in a new Delaware entity, this is technically a disposal for Australian CGT purposes. However, CGT rollover relief may be available under Division 615 of the Income Tax Assessment Act 1997 (Cth), which defers the capital gain where shareholders in an Australian company exchange their shares for shares in a new interposed holding company. Qualifying for this relief requires careful structuring — it is not automatic.

Withholding tax. If the Delaware entity pays dividends to its Australian subsidiary or to Australian shareholders, US withholding tax applies. The Australia-US Double Tax Agreement reduces the withholding rate to 15% (or 5% for companies holding 10% or more of the voting stock), but you need to plan for this.

Transfer pricing. Once you have an Australian operating subsidiary owned by a US parent, the Australian Taxation Office will scrutinise any intercompany arrangements — management fees, IP licences, cost-sharing agreements — to ensure they reflect arm’s length pricing.

US tax filing obligations. A Delaware corporation must file US federal and state tax returns regardless of where its income is earned. If the Australian operating company remains the primary revenue-generating entity, this may not result in significant US tax, but the compliance cost is real and ongoing.

Investment Instruments

The choice of investment instrument matters more in a cross-border context. The standard Y Combinator SAFE (Simple Agreement for Future Equity) was drafted for Delaware C-Corporations, and its terms don’t always translate cleanly to Australian companies. If you’re raising on SAFEs from US investors into an Australian entity, the document will need to be adapted — the conversion mechanics, definitions of qualifying financing events, and governing law all need attention.

Convertible notes are more universally understood across jurisdictions but introduce their own complications, including the characterisation of the instrument as debt (with potential withholding tax on interest payments) and the need to comply with any applicable money lending regulations.

If you’re raising a priced round with US lead investors, expect the documentation to be based on US-standard templates — typically the NVCA (National Venture Capital Association) model documents — rather than the AVCAL equivalents used in Australian rounds. Your Australian lawyer will need to work alongside US counsel to ensure the terms work under both legal systems.

Practical Steps Before You Start

Before approaching US investors, get your house in order:

1. Clean up your cap table. US investors and their lawyers will conduct rigorous due diligence on your capitalisation. Ensure all share issues have been properly documented, ASIC forms are up to date, and any convertible instruments have clear terms.

2. Engage cross-border legal counsel early. You need lawyers who understand both Australian corporate law and US securities law. This usually means an Australian firm working alongside a US firm, or a firm with offices in both jurisdictions.

3. Model the costs. Between legal fees, tax advice, potential restructuring costs, US compliance, and ongoing filing obligations, raising from US investors is materially more expensive than a domestic round. Make sure the cheque size justifies the overhead.

4. Understand the timeline. Cross-border rounds take longer to close. Budget 3–6 months from term sheet to close, not the 4–8 weeks you might expect for an Australian-only round.

5. Don’t flip prematurely. If a US investor hasn’t committed, don’t restructure your company on the assumption that one will. Flips are expensive and difficult to reverse.

The Bottom Line

Raising from US investors can be transformative for an Australian startup — not just for the capital, but for the networks, credibility, and market access that come with it. But the legal complexity is real, and the costs of getting it wrong range from blown deal timelines to securities law violations with serious consequences.

The founders who navigate this well are the ones who treat the legal and tax work as part of the fundraise — not an afterthought.

If you’re considering raising from US investors and want to understand your options, get in touch. We help Australian startups structure cross-border rounds that work under both legal systems.

For related reading, see our guides on convertible notes vs SAFEs and liquidation preferences in priced rounds.