Under new legislation passed yesterday unlisted public companies will be able to raise money through crowdfunding from mum and dad investors.
This means that for the first time in Australia smaller companies with less than $5 million in assets and turnover will be able to raise up to $5 million through crowdfunding each year.
Business Insider’s Harry Tucker has more information about the new laws here.
In light of the changes to fundraising, Business Insider reached out to a couple of Australian startups to find out their thoughts on the new rules.
Here’s what they had to say.
Jo Burston, CEO and founder of Rare Birds
Whilst its a step in the right direction for the government to propose equity crowdfunding laws, I am concerned about the amount of red tape and restrictions the current laws pose on startups who wish to raise funds through crowdfunding.
Equity crowdfunding has been running in our global counterparts like NZ, the UK and the US for sometime now with great success. The lessons are right in front of us to learn from and to craft even better outcomes for both Australian startups and investors.
James Crawford, managing director and co-founder of beanhunter.
One thing that’s really important, and arguably more important for early stage ventures, is to not just having money, but having the right people sitting around the table who can help the entrepreneur build the business. Crowd-funded equity as a concept has its merits, but entrepreneurs would really need think through the pros and cons of raising capital from ‘mum and dad’ investors as opposed to other entrepreneur’s who have been successful themselves.
Kara Frederick, director of GrowthPoint Australia
From a macro perspective, this is positive for startups and small business in Australia and therefore positive for the Australasian economy overall which is mostly comprised of small businesses. It can provide a multiplier effect a cross the economy in time. This is a great step in the right direction to increase liquidity to those companies at a time when they need it most.
Importantly, the specific implementation of the bill must also be considered and it appears as though some of this is still moving. There needs to be appropriate risk and distribution mechanisms in place to encourage a transparent and efficient startup capital market.
Sarah Hamilton, CEO and co-founder of bellabox.
It’s an exciting development to allow access to funding that it otherwise only found through infiltrating quite a tight knit community in Australia. I’d encourage businesses to work with companies such as OurCrowd which assists investors and companies seeking funding, to create the necessary structure (give advice on) to deal with that funding and to ensure clarity of information to potential investors.
Rob Nankivell, CEO of VentureCrowd
We want to see equity-backed crowdfunding opened to retail investors but the government’s proposed laws will be ineffectual and perhaps result in adverse selection where retail investors only see deals from startups that have proven to be un-investable by all other sources. The government’s failure to consult with startups and those who will use this system is inexplicable given the rhetoric from the PM Malcolm Turnbull regarding the “Innovation Boom”. Most critically, the legislation as it currently stands would have a huge regulatory impost on burgeoning startups which could easily be rectified by a government truly committed to transformational change. By requiring a small startup to become an unlisted public company, and treat each investor as an individual shareholder, the government is effectively asking startups to have an investor relations department when they may be just two founders with an idea.
VentureCrowd has proved equity crowdfunding can work – we have completed 13 deals with hundreds of sophisticated investors, including Australia’s largest equity crowdfunding deal of $4.2 million for mobile payments startup ingogo. Extending that to a wider investor base will be extremely positive for startups and investors alike, but the regulations proposed in the bill are far too onerous and potentially destructive for startups looking to this investment method. We’re keen to see the outcomes of the Senate committee report on this bill, and hope to see amendments made to the legislation before this becomes law.
(Disclosure: Allure Media, publisher of Business Insider, has a significant stake in bellabox).