Crowd Sourced Equity Funding in Australia – Has it arrived?
The Government has recently released a set of proposals for crowd-sourced equity funding. The consultation paper, released by Minister for Small Business Bruce Billson, proposes how the government plans to allow public companies to access crowd-sourced equity funding.
The progression is good news for Australian start-ups, who have been waiting for a commitment from the Government on crowd-funding since early last year. If enacted, crowd-sourced equity funding would allow start-ups to raise money from small investors, while giving these investors access to new investment opportunities.
Under the new set of proposals, certain qualifying companies which have not previously raised funds from the public would be eligible for crowd-sourced funding. These companies would be allowed to raise up to $5m annually, which would include any funds raised under the small scale offerings exception that is currently available for "public" companies.
Investment in the qualifying companies through crowd funding would be capped at $25,000, with individual investors only being allowed to invest up to $10,000 in any single company each year. Some start-ups have welcomed these caps as a means to limit the potential damage to investors, while others believe the caps to be too restrictive.
While the consultation paper represents a commitment to certain qualifying companies, it is doubtful as to whether proprietary companies will be eligible for crowd-funding and as such could be disadvantaged. The paper does include a recommendation to allow proprietary companies with fewer than 50 non-employee shareholders to access crowd funding, however this is not guaranteed.
As it currently stands, the failure to incorporate proprietary companies in the new set of proposals has disappointed many in the start-up community, who could be forced to take their business offshore where more funding alternatives are available.
The Government plans to introduce legislation for qualifyinh company crowd-funding into Parliament before the end of this year, however, there is no certainty for proprietary companies.
If you have any questions in relation to the above, please contact your ESV Engagement Partner on 9283 1666.