In a welcome move for startups and innovative businesses, the
Government has committed $7.8 million in the Budget to remove
obstacles for crowd sourced equity funding in Australia.
Crowd funding is a world-wide phenomenon and has the potential
to significantly boost the start-up and small-scale enterprise
sector in Australia across all industries.
In this alert, Partner Michelle Eastwell discusses the budget
initiatives for crowd sourced equity funding and how this could
open up new funding opportunities for your business.
Equity crowd funding enables entrepreneurs to raise funds online
from a large number of retail investors. Unfortunately, Australia
currently lags behind a number of other countries such as the US,
Canada and New Zealand who already facilitate equity crowd funding.
There remains a number of significant obstacles to undertaking
crowd sourced equity funding in Australia (discussed in our
Alert) and at present it is generally only open to
'sophisticated' or 'professional' investors.
Given the significant interest in rewards based crowd funding in
Australia (which allows people to receive a product once developed
in exchange for their monetary contribution), it is likely that
equity based crowd funding (which would allow retail investors to
subscribe for shares in the company) will also receive a lot of
interest in Australia.
One of the recent success stories of rewards based crowd funding
in Australia is of a father and son team from Northern New South
Wales with an innovative beehive design, which sensationally raised
its requested $70,000 within minutes on the crowd funding platform,
Indiegogo, and over US$1.5 million in the first 8 hours of its
campaign. The campaign finished up with US$12.1 million, which goes
to show the significant potential that crowd based equity funding
has in Australia for all industries and start ups if the current
regulatory burdens can be removed in a sensible and commercial
There are a number of well known platforms for rewards based
crowd funding including Indiegogo, Kickstarter and Pozible, which
are focused on consumer products and are also used for donation
funding for a multitude of individual philanthropic causes. The
platforms for equity crowd funding in Australia, including
VentureCrowd, OurCrowd, CrowdfundUP and the Australian Small Scale
Offerings Board, are not as well established and currently have a
very limited audience due to the need for investors to be
'sophisticated' or 'professional'.
As announced in the Budget, the Government will provide $7.8
million over the next four years to ASIC in order to establish a
new regulatory framework to facilitate equity crowd funding and
monitor that framework moving forward. Based on the recommendations
of the Corporations and Markets Advisory Committee in June 2014 and
the Discussion Paper released by Treasury in December 2014
(discussed in our previous
Alert), it is expected that changes will be made to facilitate
easier conversion to a public company as well as simplifying
reporting and disclosure requirements, all of which will reduce
compliance costs and support investment. However, the Government
will still be keen to ensure that an appropriate level of investor
protection is maintained. As always, the devil will be in the
detail of the legislation and we will be watching this closely.
Given the significant funding initially budgeted and previous
announcement by Small Business Minister Bruce Billson regarding the
aim to introduce legislation in the spring session, it is hoped
that Australia will have in place the regulatory regime to
facilitate equity crowd funding in Australia by the end of the
2015/2016 financial year.
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