Startups will be able to raise up to $5 million from crowdfunding in any one year under changes introduced in federal parliament today.
Treasurer Scott Morrison says different forms of finance are important for innovative, early-stage businesses that may have difficulty accessing funding from traditional sources.
Under the changes, private companies wanting to access equity crowdfunding will no longer have to convert to a public company entity.
“The extension will also increase the ability of retail investors to access early-stage investment opportunities,” says Morrison.
Jonny Wilkinson, co-founder of crowdfunding platform Equitise, has been preparing for the changes for last three years.
“We are looking forward to working with a heap of exciting companies we’ve been talking with over the past few years to bring some exciting deals to market,” he says
“The opportunities for both SMEs and startups to tap into their networks and customers is unprecedented and will allow everyday investors the ability to support things they are passionate about.
“The sweet spot will be established B2C businesses that are looking for growth capital but as we have witnessed operating in New Zealand it can be utilised by many companies that can articulate their value to people related to their business and other investors.”
Under the new rules, proprietary companies will be required to comply with additional obligations to protect investors, including having audited financial statements once the company raises more than $3 million from crowdfunding.
Individual retail investors are limited to investing $10,000 each year in any one company.
FinTech Australia, the peak body for the industry, lodged two submissions and held multiple detailed discussions with the Australian Treasury about the changes.
“We’re pleased to see the recent rapid progress in the development of this draft legislation, and in particular the commitment both sides of Government are making to usher in this new source of funding as efficiently and safely as possible,” says FinTech Australia CEO Danielle Szetho.
“This will help drive growth and innovation for both fintech crowdfunding intermediaries, and small to medium businesses across Australia through a cost-effective new form of fund-raising.
“We’re finally bringing Australia up to speed with other leading international jurisdictions such as the UK, United States and New Zealand who have equity crowdfunding in place.”
Viv Stewart, CEO of VentureCrowd, an equity based crowd funding platform, says politicians from all parties now need to recognise that this is a vital step for the startup sector in Australia and work together to pass and implement the new law in a timely fashion.
“With the extension of legislature now set to cover private companies, startups looking to raise capital through crowdsourcing platforms no longer have to convert their proprietary structure into an unlisted public company. This gives startup founders more flexibility, and greater access to funds to grow their business,” he says.
The corporate regulator ASIC will later this month start accepting accepting licence applications for intermediaries running online platforms for crowd-sourced funding.
“ASIC welcomes the start of the new crowd-sourced funding laws,” says ASIC Commissioner John Price.
“Crowd-sourced funding helps both start-ups and small to medium sized businesses and investors access the opportunities that are available from an innovative economy.
“It is also important for investors to understand the benefits and risks of crowd-sourced funding.”
FinTech Australia is separately working with ASIC on its regulatory guide to accompany the commencement of equity crowdfunding for unlisted public companies on 29 September.
FinTech Australia says it has raised concerns with ASIC about excessive ongoing reporting requirements for crowdfunding intermediaries.
“We also wanted to make sure that intermediaries could flexibly display easy-to-understand summary information to investors to aid with comprehension, including on websites, alongside more detailed required information,” says Szetho.
“We’re hopeful that ASIC has taken our feedback on board.”