Crowdfunding in Australia a step closer
This is an extract of an article written by Nassim Khadem, Deputy Editor BusinessDay | Dec 8, 2014, Fairfax Media
Entrepreneurs will soon be able to take advantage of crowdfunding.
Crowd-sourced equity funding to help start-ups in Australia looks a step closer.
The Abbott government released on Monday a discussion paper on how Australia could create a regulatory system that protected investors who decided to take a punt on start-ups.
Crowdfunding, which allows a large number of investors to make small equity investments in a company, has taken off globally, growing to more than $5.1 billion last year. But Australia has been slow to join and current regulations impede crowdfunding.
A Treasury discussion paper comes after the final report of the financial system inquiry called on the government to enable crowdfunding.
Many submissions to the inquiry suggested Australia was already lagging other countries in crowdfunding and called for a new regulatory regime to enable it.
“A well-developed crowdfunding system can aid broader innovation and competition in the financial system,” the inquiry report, led by former Commonwealth Bank boss David Murray, said.
New Zealand revived its commercial laws earlier this year to allow retail investors to provide crowdfunding. The Treasury discussion paper suggests Australia could look to this model, although the government said it was not locked into any model.
“We are keen to ensure that any crowd-sourced equity funding model appropriately balances supporting investment, reducing compliance costs – including for small business – and maintaining an appropriate level of investor protection,” a joint statement by
Finance Minister Mathias Cormann and Small Business Minister Bruce Billson said.
The Murray report noted the risks associated with crowdfunding investments would require changes to consumer protection laws, including pointing out the risks of failure and fraud.
Allowing debt and equity to be raised from the “crowd” would provide small businesses with an alternative source of capital that could create jobs and lift productivity, it said.
“One of the obstacles that start-ups face is access to capital,” Mr Billson said.
“Crowdfunding would allow them to get that first-start business off the ground with the resources that it needs.”
Scale Investors chief executive Laura McKenzie, a supporter of product-focused crowdfunding platforms such as Pozible, Kickstarter and Indiegogo, welcomed the discussion paper but said her key concern was about investor education.
“It is critical that any endorsement of equity crowd funding is enhanced with an education program both around the risks involved and portfolio approach required,” she said.
“It is also important in terms of the fees and services provided by the intermediary platforms themselves, who take a passive role compared to the traditional, more hands-on venture capital model. My preference is that in addition to investment caps there are also limitations on the fee structures for intermediaries.”
Tim Heasley, chief operating officer of Artesian Venture Partners, which started VentureCrowd, Australia’s first equity-based crowdfunding platform, said the move would incentivise innovation and competition in the financial system.
Chris Gilbert, the co-founder of Equitise, another crowdfunding start-up targeting small business that will launch in Australia next year, said crowd-sourced equity funding would be an easy win for the government. “It is potentially a very powerful tool for early-stage, higher-risk ventures to raise capital in Australia,” Mr Gilbert said.
The head of KPMG’s digital consulting arm SR7, James Griffin, said one of the first great successes of crowdfunding was the completion of the base to hold the Statue of Liberty in New York. “A new record was set by one crowdfunding platform recently, seeing 62,000 people raise more than $13 million to commercialise a project,” he said. “It is particularly important to us as a country, as the remoteness of Australia does not apply when people consider investing via crowdfunding platforms.”
Airtasker chief Tim Fung said while equity crowdfunding was a complex concept, he was confident it would be a huge driver of economic growth in Australia if implemented correctly. “We just need to get the balance right between free markets and regulation.”
Career One chief Karen Lawson said the growth of equity-based crowdfunding would not only enable businesses to launch and grow quickly but would arguably become a barometer for success.
Milan Direct founder Dean Ramler said the model worked well overseas, especially in the United States. “As it stands it is not easy to provide equity to staff,” he said. “If this can change, it would really help start-ups.