Caution should be exercised when looking to crowdsourced equity funding (CSEF) to make it easier for startups to raise capital, according to OneVentures partner and managing director Dr Paul Kelly.
Kelly says he’d rather see the government create a regulatory environment which allows individuals to allocate a portion of their managed super funds into venture or innovation investments.
“This may be a less risky way for mum and dad investors to contribute to the support of an innovation economy,” Kelly says.
“Unless institutions are encouraged to invest in innovation in Australia we will as a country continue to languish in terms of innovation commercialisation.
“Superannuation funds are simply not investing in VC.
“Even if a small fraction opted in, it would make a huge difference to the Australian VC landscape.”
Last week, the Corporations and Markets Advisory Committee called on the government to make it easier for Australian businesses to raise capital through online crowdfunding platforms by allowing all Australian adults to invest in companies through such platforms.
Currently, CSEF is only available to wholesale investors with more than $2.5 million in investable assets or annual earnings of around $250,000.
The committee recommended individual investors be limited to investing $2500 in a particular company and $10,000 each year.
“It’s an interesting addition to the whole investment environment,” Kelly says.
“But it’s a very recent phenomenon and it’s difficult to measure returns on investment, there’s little known about what is a successful crowdfunding equity strategy.
“Retail investors should approach this very cautiously.
“A trial process with wholesale or qualified investors would be a good alternative to immediately opening crowdfunding to retail investors, as these investors possess stronger knowledge and the experience to make informed decisions.”
Kelly says it doesn’t address the real problem in Australian venture capital: that is where companies go for funding after they’ve secured seed funding.
“In Australia in the last five years the amount of capital for early stage companies has actually doubled through incubators and angel funds and so on,’’ he says.
“The real shortage is what happens next.
“Companies are generally having to look elsewhere for larger capital investments and as they succeed and they grow, they are forced to go offshore in many occasions.
“The government should pair crowdfunding with more relaxed regulations and initiatives to encourage later stage funding.”