Crowdfunding reforms bolster investment pool for Aussie businesses

"It's almost creating Shark Tank for the public, or be your own Shark Tank, which is phenomenal from an innovation perspective in Australia," says Crowdfunding.com.au founder Chaz Prezident (pictured).

Private Australian businesses will soon no longer need to become public companies if they want to access crowdfunding to raise equity, following reforms to the Corporations Act passed this week by the federal Parliament.

Under the current law businesses can only raise money from retail investors through equity crowdfunding if they convert to an unlisted public company structure, but that will change as of 7 October.

Crowdfunding.com.au founder and CEO Chaz Prezident (pictured) says small and medium-sized businesses are already embracing the expansion of the crowdfunding model, and with the new legislative change they will be able to raise up to $5 million each year from retail investors.

"Australian businesses have been waiting for this legislative change since the initial introduction of equity crowdfunding in Australia in late 2017," Prezident says.

"Equity crowdfunding is the most powerful legislative change in the capital raising space in recent times as it gives us the ability to amalgamate micro investments (as little as $100) into meaningful capital contributions to businesses.

"We agree with the Federal Government's approach to balance the funding needs of businesses with the need for appropriate oversight of companies raising funds from the public."

Prize says equity sourced crowdfunding was only proposed to be changed in May last year, and the first Australian financial services licenses for crowdfunding were only issued in January.

"It's incredibly new, incredibly fresh. However, globally it's been around some time. Even New Zealand legalised equity sourced crowdfunding in 2013," he says.

So why has Australia been so slow off the mark to adopt the model?

It all comes down to Australia's rigorous protections of retail investors from potentially dodgy operators, so the Australian government has sought to find a healthy balance between allowing access to the new innovation but also making sure the right checks and balances are in place.

This is achieved through financial services licenses for crowdfunding equity platforms, which Prize says legitimises the process and gives investors more security.

As a transparent investment platform, Prize says crowdfunding gives "investment criteria and the decision making back to the people".

"It's almost creating Shark Tank for the public, or be your own Shark Tank, which is phenomenal from an innovation perspective in Australia," he says. 

In a reading speech about the bill given last year, former Treasurer and now Prime Minister Scott Morrison said the reforms would be a "game changer" for Australian startups and new small businesses.

"Facilitating access to crowdsourced equity is part of the government's agenda to develop a strong and vibrant fin-tech industry in Australia," Morrison said.

"Extending crowdsourced equity funding to private companies through this bill will enable more innovative companies and start-ups to obtain funding from a crowd of investors.

"In return for being able to have an unlimited number of crowdfunding shareholders, participating proprietary companies will have higher governance reporting obligations to protect the large number of investors they will be able to have."

After the legislation was passed, Treasurer Josh Frydenberg reiterated that sentiment on Twitter, claiming it would lead to a stronger economy.

Our new #crowdfunding laws, which passed Parliament yesterday, will support the #smallbiz & start-up sector. The innovative funding model allows investors to make equity investments in companies, helping create jobs. It's part of our plan for a stronger economy. @stuartrobertmp

Josh Frydenberg (@JoshFrydenberg) 12 de septiembre de 2018

Business News Australia