Risk-averse investment rules work to protect property while starving startups of funding

It seems the government’s innovation statement may be strangled by excessive regulation in a reflection of Australia’s risk-averse culture.

 

Even before its actual release it appears the statement has hit rough waters, as industry figures and the opposition criticise the proposed legislation that companies be public before they can raise money through crowdfunding.

 

In itself this requirement isn’t a major barrier as prominent industry figures have pointed out, although it will have the effect of making crowdfunding an option for more established ventures rather than early stage startups, which probably won’t be a bad thing for investors, employees and founders.

 

The requirement does however show a deeper-seated problem in Australian government and regulation – a desire to legislate risk out of the system.

 

An Australian paradox

 

For tech startups, along with other businesses in new industries this creates a paradox as most of them will fail and their investors lose their money. Trying to protect backers of these ventures guarantees they won’t raise money.

 

So in trying to create a risk-free environment, regulators end up killing the ecosystem.

 

From an Australian perspective, the risk-free environment makes sense to a mindset that believes property is guaranteed to double every decade.

 

Why invest in something that will probably fail when borrowing to speculate on an apartment is certain winner?

 

Protecting property


Attitude towards property has created another Australian paradox where the real estate industry is exempt from most consumer and investor protection law.

 

The sad truth is the average Aussie has more protection in buying a smartphone case from a $2 shop than they do when purchasing a $2 million dollar home.

 

Because property speculation is seen as risk-free, there are few regulations or barriers to Australians gearing up into houses and apartments but for productive businesses and startups the obstacles for raising capital are substantial.

 

Ultimately, if Malcolm Turnbull and Wyatt Roy want to change the focus of Australian business and investors they are going to have to change the mindset of regulators and voters.

 

To change that mindset will take some brave steps, for the moment it’s far more likely the budding Australian innovation renaissance is likely to be suffocated by risk hating regulators.

 

 

Do you know more on this story or have a tip of your own? Raising capital or launching a startup? Let us know. Follow StartupSmart on Facebook, Twitter, and LinkedIn.

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