The federal government’s promised crowdfunding legislation is under attack, as the industry worries it does not go far enough. The government had promised legislation by the end of the year in its response to the Financial Services Inquiry.
Details released by assistant treasurer Kelly O’Dwyer reveal that crowdsourced equity would only be made available to public companies, and only those that had $5 million or less in assets and $5 million or less in turnover. Companies would also be limited to raising $5 million a year.
The government plans to introduce the legislation next week and assures companies that they would not need to be listed on a stock exchange when they go public, and will be exempted from some of the requirements of Corporations Act. However, O’Dwyer insists the companies need to be public as, unlike New Zealand, distinguishing between private and public companies is an integral component of the Corporations Act.
Crowdfunding is seen by many as a way to close a perceived funding gap for Australian startups. As is already being done in New Zealand, crowdfunding could allow founders to raise funds from retail investors, either in exchange for a product or equity.
Equity crowdfunding does already exist in Australia, through companies like VentureCrowd. But rules regarding who can invest have limited participation in these platforms to a “couple of thousand” investors — those with assets over $2.5 million or an income of over $250,000 in the previous two years.
“Other countries like New Zealand do not distinguish between public and private companies, however, in Australia this is an underlying rationale of our Corporations Act and change would be complex and lengthy, delaying the introduction of [the framework] with ramifications for all businesses and investors,” O’Dwyer told the Financial Review.
The public company requirement, and the potential for a cap on retail investors of $20,000 have come under scrutiny from the startup sector.
“The Australian government has a consistent history of surveying the world, and instead of adopting best practices or even middle of the fairway, decides to instead implement something worse that everyone else, it’s employee share schemes all over again,” said Freelancer CEO Matt Barrie.
The concern was echoed by founder of VentureCrowd, Jeremy Colless. Colless thinks restricting it to public companies rather than nascent startups will mean missing the greatest opportunity for transformational impact.
“It seems somewhat illogical for them to focus equity crowdfunding opportunities away from the area where most innovative companies start their life and from where they need capital funding,” Colless said to StartupSmart.
The focus on public and large companies has also threatened the bipartisan support for the measure, with Shadow Parliamentary Secretary for Startups Ed Husic saying talks had been productive, but Labor would not support “badly framed laws”.
“We’re happy to work with the government on equity crowdfunding reform but we’re not going to wave through badly framed laws that might hinder – instead of aid – the growth of early stage innovation,” said Husic.
You can read more at the Financial Review.
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