The Crowd Sourced Equity Funding Report produced by the Corporations and Markets Advisory Committee (CAMAC) argues that crowd-sourced equity funding (CSEF) should be facilitated in Australia as it has the potential to “encourage the Australian start-up entrepreneurial sector, especially in the crucial early stages of project and product development".
The report defined CSEF as a “method of online fundraising”, where enterprises offer small investors a shareholding in a company in return for providing cash to the company.
CAMAC argued CSEF could prove to be commercially successful for crowd investors and create employment and other economic benefits.
AVCAL chief executive Yasser El-Ansary said Australia has been lagging behind other developed economies in setting out a policy framework to support this new and evolving approach to raising equity capital by start-up businesses.
“This report provides us with a comprehensive analysis of how we should move forward with facilitating a market for equity crowdfunding in Australia, while ensuring there are appropriate safeguards for investors who might not have significant experience investing in high-risk ventures,” said Mr El-Ansary.
He believes equity crowdfunding is certainly worth exploring but said we must ensure “we don’t add new administrative complexity which leads to a significant increase in compliance costs for start-up businesses”.
“What start-ups don’t want to have to do is spend significant amounts of money on lawyers and accountants to manage their compliance obligations; they want to focus their resources on bringing their innovative idea to life and creating a commercial business,” said Mr El-Ansary.
CAMAC said there are barriers, however, to the use of CSEF, including the shareholder cap and the prohibition on public offers of equity in these companies.
The report said while some of the barriers to the use of CSEF by proprietary companies could be alleviated by interposing a managed investment scheme between the company and its crowd investors, this would also mean additional compliance requirements.
CAMAC therefore argued in the report that it would be most appropriate to introduce a “self-contained regulatory structure for CSEF, which could involve creating a new type of corporate entity and designing specific regulatory arrangements for the fundraising process”.
