Crowdfunding investment opportunity unleashed

Small and medium enterprises will finally be able to raise funds from the general public in exchange for equity following the regulators issuance of the first batch of crowdfunding intermediary licences.

Yesterday ASIC granted licenses to seven platforms: Big Start, Billfolda, Birchal Financial Services, Equitise, Global Funding Partners, IQX Investment Services and OnMarket Bookbuilds. The regulator promises more licenses will be issued.

For now the regime is restricted to small public companies with less than $25 million in assets. There is pending legislation to extend the rules to private companies and industry groups, including Fintech Australia, will urge the Federal Government to act once parliament resumes in February.

Eligible public companies are free to source up to $5 million in funds each year through equity crowdfunding, with retail investors able to invest between $50 to $10,000 per issuing company per year.

Minister for Revenue and Financial Services Kelly O'Dwyer welcomed the first batch of licences, saying the regime will enable Australian entrepreneurs to obtain the capital they need to turn good ideas into commercial success.

"This new source of funding creates opportunities, especially for small businesses in the early growth stage," she said.

"This is all about delivering more jobs, higher wages and greater growth for our economy by ensuring Australians are able to harness new and innovative ways of developing and growing businesses. "

Ben Bucknell, chief executive of equity crowdfunding site OnMarket, predicts that early adopters of crowdfunding will be Millennials (20 to 36-year-olds).

"According to a NAB Group Economics Report more than 50% of 18-29-year-olds aspire to own their own business," he said.

"With equity crowd-funding, they can. Millennials are predicted to be the main demographic to invest through equity crowdfunding in Australia, as is the case in overseas markets."

He adds that while equity crowdfunding opens new door for investors and growth companies seeking capital, the regime's success will come down to the industry's ability to embrace the new opportunity.

Overseas, SMEs in the UK looking to raise capital have had the option to turn to equity crowdfunding since 2011, and according to a Statista study on alternative finance, more than GBP330 million was raised in 2015 alone. In the US, the JOBS Act (Jumpstart Our Business Startups) allowed businesses to raise US$2.56 billion via equity crowdfunding in 2015 globally.

Crowdfunding first emerged in Australia with the entrance of Kickstarter (2009), Pozible (2010) and Indiegogo (2008), which allowed businesses to raise funds for a project from the public. However founders were restricted to offering 'rewards' such as early access to new products rather than equity.

In September 2017, the Federal Government introduced the Crowd-sourced Funding Act which saw the removal of regulatory barriers to businesses accessing equity crowdfunding from the public. Legislation to allow public companies, which are not ASX listed, to get involved came into effect on September 29.

According to Macquarie research, Australian entrepreneurs want to borrow up to $60 billion a year more than they currently are allowed, to grow their businesses, hire new staff and innovate.

Read more: CrowdfundingEquityFederal GovernmentFinancial ServicesOnMarketASICFintechKelly O'DwyerStartup
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