Australia: Minister Kelly O’Dwyer details equity crowdfunding laws

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The Sydney Morning Herald by James Eyers | November 16, 2015

Assistant Treasurer Kelly O'Dwyer will introduce crowdfunding laws this year. Photo: Alex Ellinghausen

Assistant Treasurer Kelly O'Dwyer will introduce crowdfunding laws this year. Photo: Alex Ellinghausen

Ahead of the federal government's innovation statement next month, Assistant Treasurer and Small Business Minister Kelly O'Dwyer has released details about "crowdsourced equity funding" laws that will allow both start-ups and established small businesses to tap retail investors for equity financing via online platforms.

Under the new laws, participation in crowdsourced equity funding would only be made available to public companies that had $5 million or less in assets and $5 million or less in turnover, and those companies would be able to raise up to $5 million in any year, she said.

Right now in Australia, start-ups and small businesses can't actively access retail investors due to significant upfront and ongoing compliance costs and red tape

Kelly O'Dwyer

Investors will be granted a five-day cooling-off period while intermediaries will need to be licensed by the Australian Securities and Investments Commission.

Related: Australian Government review into crowdfunding: why retail investors could become the new venture capitalists

"Technology-driven innovation is transforming our financial system and has the potential to deliver significant efficiency benefits and improve outcomes across the financial system," Ms O'Dwyer told a breakfast gathering on Monday hosted by the Financial Services Council and BT.

"Right now in Australia, start-ups and small businesses can't actively access retail investors due to significant upfront and ongoing compliance costs and red tape. Changing this will unlock growth and unlock innovation."

The equity crowdfunding​ laws will be a central plank of the government innovation statement to be released in December. They will bring Australia into line with jurisdictions including Canada, the United States, Britain and New Zealand, which allow retail investors to use digital platforms to provide equity to small business.

Related: Fundrise Goes Global: Australia, UK, Canada Now May Invest

In Australia, Ms O'Dwyer said the $5 million cap on the maximum amount an issuer might raise via crowdfunding in a year was larger than in the US, which capped raising at $1 million in any 12-month period.

"This means the founders of a microbrewery​ in Tasmania can get their business off the ground with investment from mums and dads in places like Albury and Sydney," Ms O'Dwyer said.

Additional details – including when the laws will come into force and potential limits on how much investors can put through a platform each year – will be announced in the government's innovation statement.

Ms O'Dwyer said the legislation, which the government would introduce to the Parliament this year, would establish a regime for licensing platforms and would require risk warnings to investors.

The government also intended to consult on whether the laws might, ultimately, be extended to debt funding.

View: Open Letter to PM-Designate Trudeau - Crowdfunding: enabling global entrepreneurship, the future of Canada’s innovation economy

Crowdfunding start-ups welcomed the announcement of some of the details of the laws and said the government needed to move swiftly to implement them and study their effectiveness.

"It is good to see Australia is finally moving in the right direction," said Jack Quigley, the managing director of CrowdfundUP, a real estate crowdfunding platform. "We hope this doesn't take another six to 12 months to become a reality and the government moves fast. Consideration should be given to a quick review, within 12 months of the laws coming into force, to see they are working in practice, so we don't get stuck with a system paying lip service to the industry."

Mr Quigley also said the laws should be extended to debt crowd-sourcing, given the financial system inquiry specifically said that crowdfunding should be available for both equity and debt.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country.  NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  Learn more About Us or visit www.ncfacanada.org.

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