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

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BRW |Caitlin Fitzsimmons Online editor | First released Dec 4, 2013

Pozible co-founder Rick ChenAustralian crowdfunding platform Pozible is keen to offer equity-based fundraising to local start-ups if the government relaxes the rules on investment next year.

Public submissions to the Corporate and Markets Advisory Committee review on crowd-sourced equity funding closed last week, with most submissions calling for a liberalisation of the existing regime.

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Pozible co-founder Rick Chen, says Australia will “lose out” if it fails to seize the opportunity.

“We as a nation can’t afford to lose this - it’s about how to make Australia more investment-friendly to attract start-ups here or to attract start-ups who are here already to not go offshore,” Chen says, speaking on a panel on “innovation of money” organised by consultancy How to Impact in Sydney this week.

The current rules mean that a start-up can’t raise more than $2 million or transfer equity to more than 20 people in any given 12 months, a system that restricts risky early-stage investment to so-called ‘sophisticated investors’.

However, this is currently under review with CMAC, which includes representation from the Australian Securities and Investment Commission, due to report to government by the end of April 2014.

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The United States, Canada, United Kingdom, Italy and New Zealand have already enabled crowdfunded investment in the past year or so, albeit with different regulatory rules. Peer-to-peer debt financing is also available in many jurisdictions.

The committee received submissions from the Australian Securities Exchange; the legal community, including Norton Rose Fulbright, Minter Ellison and the Law Council of Australia; crowd-funding sites such as Pozible and iPledg; and representatives from the start-up community, social enterprise sector and investors.

There was general consensus that Australia should enable crowd-sourced equity investment in some way, but different suggestions on how to manage disclosure requirements and the risk of fraud.

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