Friday, August 19

Equity Crowdfunding In Australia Requires A Vital Change To Ensure Its Success

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Equity Crowdfunding sucks in Australia and the fault lies squarely at the feet of the inept politicians who would rather waste their time arguing over office relationships than developing policy that can take the country forward.

I am the key demographic for equity crowdfunding platforms. I am in my late twenties, have a passion for technology and a desire to invest in early stage companies.

Furthermore, I have personally invested in eleven startups in the past twelve months alone. Unfortunately not a single one of those has been in Australia!

Why? Because Australian equity crowdfunding legislation is so far behind the eight ball it’s not even funny.

Equity Crowdfunding - Crowdcube Image

In the United Kingdom one of the most popular platforms, Seedrs, received approval from the Financial Conduct Authority in May 2012. Crowdcube, received approval a year later in 2013. Combined these two platforms facilitated over 250 deals in 2016. This was 86% of all crowdfunding activity and 21% of equity investments in the UK.

Across the ditch, the United States finally got their act together four years after the creation of Title III of the Jumpstart Our Business Startups Act (JOBS) and legalised equity crowdfunding in May 2016.

A year later and equity crowdfunding was flourishing with the total capital committed during the first year amounting to more than $40 million. On average each successful crowdfunding campaign raised $282,000 from 312 investors and growth in the sector was accelerating.

Crowdfunding USA 2016

Source: Crowdfund Capital Advisers – 2016 Crowdfunding

Meanwhile back in Australia it has been 5 years since an independent government review was launched into equity crowdfunding and the resulting legislation is largely useless. We are sitting six years behind the UK, four years behind New Zealand, almost two years behind the United States and still can’t get it right.

The biggest issue is that the Australian equity crowdfunding legislation locks out 99% of all Australian companies. To raise money on an equity crowdfunding platform you have to convert your private company to an unlisted public company and face the additional administrative burden of doing so.

As highlighted by Rob Nankivell, CEO of VentureCrowd, back when the proposed structured was released “Start-ups want to be out there disrupting industries, they don’t want the administrative burden that being a public company entails,”

It’s not like we didn’t have a proven model to follow. The New Zealand Financial Markets Conduct Act came into effect in 2014 and provided a minimum set of standards for companies to follow. Namely, that issuers must comply with the general fair dealing provisions in the FMC Act. That is to say that they cannot engage in misleading or deceptive conduct, but are not otherwise subject to the same disclosure obligations as normal equity offers. I.e. no product disclosure statement or online Disclose offer register entry is required.

Money Raised By ICOs

Money Raised By ICO’s – Source: Fabric Ventures

Meanwhile, while the Australian government has been focused on limiting the ability of people to manage their own finances on regulated platforms the world has seen an explosion in Initial Coin Offerings (or ICO’s), an almost completely unregulated market where more than $5.6 billion has been raised, and $400 million of that lost to scams.

I don’t mention this to start an argument between crypto-bulls and crypto-bears but merely to point out that; a) there is an appetite from members of the public all across the world to invest in new and innovative companies, ideas and technologies and b) to show that “innovation always finds a way”.

So instead of sitting on their hands, wasting time, and seeing Australia slip further behind the rest of the world I think it’s time for politicians to look at what’s happening in the world and realise that there’s a lot worse people could be doing with their money than putting a couple of hundred dollars into a startup that’s trying to create jobs and grow the economy.


About Author

Paul Towers is a passionate supporter of the Australian startup ecosystem and the Founder of Startup Soda. Originally, Startup Soda was solely a newsletter that helped curate the best content from the Australian startup community, more recently however it has turned into a media platform with the aim of improving coverage of Australian Startups, Founders and VC's.

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