Here’s what you need to know from the recently released Corporations and Markets Advisory Committee report about crowdfunding for startups and SMEs.
After my article last week, an entrepreneur who has a vested interest in crowdsourcing reached out to me to further discuss crowdfunding, specifically for small business.
He was frustrated key overseas markets had enabled investment via crowdfunding platforms, which ultimately meant investment stayed in those countries, instead of flowing out. Seeing startups in Australia leave for overseas, and take their skills, ideas and the money with them, was a definite soap box moment for my guy.
It reminded me of how little has been learnt from overseas e-commerce retailers, who are now incumbent in the Australian market. Are we ever to learn and get to market faster and smarter with these new opportunities to keep or bring wealth into our country?
The good news is, with countries like New Zealand who legislated in April 2014 and the UK, US and Canada embracing crowd funding, there is a useful contribution Australia can make and achieve some balance between regulation and innovation across borders.
I saw a speech by Communications Minister Malcolm Turnbull, fortunately he was talking with his commercial, not political, cap on. He very much pushed the fact regulation had to get out of the way of innovation. It is suffocating our market and our talent in Australia.
In New Zealand, the key points are:
- No cap for investors
- $2m cap for over 12 months for issuers
- No licences yet granted, but there are I am sure a few being prepared as I type
Key points from the CAMAC report that are likely to impact an announcement in Australia soon about legislated crowdfunding models for SMEs are:
- Caps, I suspect, will follow New Zealand. This is fine as below $2m in lending to SMEs is usually the major pain point. It is often easier to get $5m than $100,000.
- To get funding it is suggested that you should be a public company. The crowdfunded investors as your shareholders. However, CAMAC are considering a category for “exempt” public companies (Pty Ltd companies, for example), to overcome the red tape and disincentives of startups promoting themselves.
- Disclosure is transparent – with clear structured guidance on what that means.
- Advertising guidelines adhered to.
- 18 years plus of legal capacity
- Limited investment of $2,500-$10,000 for all issuers in a 12 month period
- Accept risk
- Cooling off period and withdrawal rights applied
Fi Bendall is the managing director of Bendalls Group, a team of highly trained digital specialists, i-media subject matter experts and developers.