Seven Australian equity crowdfunding platforms, including Birchal, OnMarket and Equitise, have received Australian Financial Services licences for crowd-sourced equity funding services, opening the door to a new form of funding for startups and businesses locally.
At the end of 2017, a number of equity crowdfunding businesses had applied with hopes of locking down a financial services license to give them authorisation to operate crowd-sourced funding platforms.
Federal parliament passed equity crowdfunding legislation last March, with applications for licences to run crowd-sourced equity funding platforms opening last September.
Today, the Australian Securities and Investments Commission revealed seven companies have been awarded a license, which commissioner John Price marked as a milestone for crowdfunding in Australia.
“ASIC has been assessing applications as a matter of priority, as suitable intermediaries needed to be licensed before fundraising under the new regime could commence,” he said in a statement.
“Intermediaries have an important gatekeeper role which will be key to building and maintaining investor trust in crowd-sourced fundraising, so we are pleased to have now issued the first tranche of authorisations.”
Acting Treasurer and Minister for Revenue and Financial Services Kelly O’Dwyer confirmed in a statement this afternoon that crowdfunding intermediary licences had been issued to: Big Start, Billfolda, Birchal Financial Services, Equitise, Global Funding Partners, IQX Investment Services and On-Market Bookbuilds.
Speaking to StartupSmart, Birchal co-founder Matthew Vitale says the application had been a long process, and the company was “very happy to finally get a result”.
But despite the long timeframe for approval — Birchal made its application in the last few months of 2017 — and numerous questions from the regulator, Vitale says he’s actually enjoyed the process.
“I’ve worked in private practices for many years and done a number of similar applications for other people, and the process has been consistent with those. It hasn’t been overly burdensome, and they’ve asked a lot of good questions which has helped us design and refine our processes,” he says.
“We’ve got a brand new platform that will do all the things the legislation is designed to do in terms of warning and protections for potential investors. ASIC has been very collaborative.”
At least 10 startups and small businesses are lined up to use the Birchal platform, with the team already running a number of expression of interest campaigns in preparation for the licence being issued.
Vitale says that number is just the tip of the iceberg, however. The Birchal team has been working on a pipeline of equity crowdfund-able businesses for over the past two years.
“We’ve had the benefit of spinning Birchal off Pozible, and part of the reason of launching it was to address those businesses who had success off Pozible and were looking for a bit more,” he says.
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“I expect there will be more startups looking at equity crowdfunding in late 2018 and 2019.”
This announcement means big things for the Birchal team this year, which will be looking to hire more staff to keep up with the expected demand from companies, Vitale says.
The platform already has a well-established expression of interest system for businesses wanting to get involved, which Vitale says he is thankful for.
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Equity crowdfunding’s road to legislation was rocky, and the relatively new form of funding has attracted questions and criticism in the past.
Experts have warned the funding model is not without risks, despite protections for investors and businesses implemented in the legislation. A New Zealand startup which used the funding option entered voluntary administration in October last year.
Vitale isn’t worried, however, and says risk and startups are synonymous with “the nature of investing in the space”, noting the warning ASIC requires Birchal to provide investors reflects the perceived risk.
Addressing other questions about how investors are able to exit from companies they have bought into through equity crowdfunding, Vitale says the team looks to the UK as an example.
“In terms of liquidity of investment, we look to the UK and take cues from that market. They’ve had equity crowdfunding since 2012, and they’re only just now looking at secondary markets for investors to get out of their investments,” he says.
“What we say is that investing in an early-stage business is a medium-term investment. People who are getting into it are not hoping to get out in a few months, and investors need to be comfortable with that.”
Vitale strongly believes equity crowdfunding could become widely adopted in Australia, referring to the £100 million invested annually through equity crowdfunding in the UK, saying there’s “no reason” why Australia couldn’t achieve a similar proportional amount.
Both businesses and investors can benefit from this, says Vitale, who looks to the “astounding” interest in cryptocurrencies such as Bitcoin as evidence that young investors are looking to diversify.
“There’s a number of young investors looking for different asset classes to what their parents were investing in — just look at the astounding amount of interest in cryptocurrencies,” he says.
In a statement, Minister O’Dwyer said ASIC’s issuance was “groundbreaking” and helped remove barriers for Australian entrepreneurs.
“This new source of funding creates opportunities, especially for small businesses in the early growth stage. This is all about delivering more jobs, higher wages and greater growth for our economy by ensuring Australians are able to harness new and innovative ways of developing and growing businesses,” she said.