Government moves forward on crowdfunding legislation
Proprietary companies will soon be able to crowdfund without going public.
In a move welcomed by the fintech sector, the Turnbull government has introduced a bill into parliament that will extend crowd-sourced equity funding to proprietary companies. Promised in this year's budget, the new legislation will extend the existing crowdfunding framework to proprietary companies so they can benefit from the additional funding source.
Businesses will be able to crowdfund up to $5 million a year from retail investors in return for equity in their company.
"We’re finally bringing Australia up to speed with other leading international jurisdictions such as the UK, United States and New Zealand who have equity crowdfunding in place," said Danielle Szetho, CEO of FinTech Australia.
“This will help drive growth and innovation for both fintech crowdfunding intermediaries, and small to medium businesses across Australia through a cost-effective new form of fund-raising."
To keep investors protected, proprietary companies looking to crowdfund will need to meet various criteria, such as having a minimum of two directors and audited financial statements, once the company raises more than $3 million through crowdfunding.
One company already taking advantage of the new legislation is Birchal, a sister brand to rewards-based crowdfunding site Pozible. Birchal was launched as an equity crowdfunding platform enabling startups to take advantage of the new legislation when it comes into effect on 29 September 2017.
Matt Vitale, co-founder and general counsel at Birchal, said equity crowdfunding should involve careful consideration "like any investment".
"Applying for shares in a startup business requires careful consideration of the benefits and risks of the opportunity, and of course your personal circumstances. But like we’ve seen with rewards-based crowdfunding, the ability to establish a connection with a company and become a part of their community can be fulfilling in ways beyond investment. Investment certainly establishes stronger connections," he said.
Vitale also points to the investor protections that are in place in the regime, such as a retail investor cap of $10,000 within a 12-month period, as helping to offset some of the risks involved.
"We consider the regime is sufficiently robust to protect investors at this stage, but understand that ASIC and the government will be watching the industry develop closely and make adjustments as necessary," he said.
Szetho says that FinTech Australia is happy in particular with the safety measures in place.
“We’re pleased to see the recent rapid progress in the development of this draft legislation, and in particular the commitment both sides of government are making to usher in this new source of funding as efficiently and safely as possible,” she said.
For companies looking to get involved in equity crowdfunding, Vitale has the following advice:
"Start early. We’ve built Birchal for businesses of all stages of development. The more time you have to prepare, the greater your chances of success will be."