The government has launched a discussion paper on developing a regulatory model for crowdsourced equity funding to spur startups in Australia.
The discussion paper examines how to create the right regulatory framework for the funding model, which allows a large number of investors to make small equity investments in a company.
The paper provides examples of various approaches, including a model implemented recently by New Zealand and one put forward by the Corporations and Markets Advisory Committee in a June 2014 report.
“We are keen to ensure that any crowd-sourced equity funding model appropriately balances supporting investment, reducing compliance costs (including for small business) and maintaining an appropriate level of investor protection,” said a joint statement by finance minister, Mathias Cormann, and small business minister, Bruce Billson.
“Small business and entrepreneurs are a crucial driver of productivity and economic growth.”
The discussion paper is available on the Treasury website; submissions close on 6 February 2015.
The government had called for consultation on a potential regulatory framework for crowd-sourced equity in its recent Competitiveness Agenda.
A similar recommendation appeared in the final report of the Financial System Inquiry, which was released for consultation by the Treasury over the weekend.
Recommendation 18 of the report urges: “Graduate fundraising regulation to facilitate crowdfunding for both debt and equity and, over time, other forms of financing.”
This is critical to promoting growth of startups and other small and medium-sized enterprises (SMEs) in Australia, the report said.
“Funding for SMEs is essential to facilitate productivity growth and job creation in the Australian economy. However, compared with large corporates, SMEs — particularly start-ups — generally have more limited access to external financing and higher funding costs…”
“Globally, crowdfunding is emerging as an alternative funding source for SMEs. Since 2009, overall fundraising via crowdfunding has grown by around 50 per cent annually, although crowdfunding still accounts for a very small share of total financing.”
Making the recommended change will require adjustments to consumer protections, including capping individual investments and clearly communicating risks, the report said.
“Government should then use the policy settings for securities as a basis to assess wider fundraising and lending regulation to ensure it facilitates other forms of crowdfunding, including peer-to-peer lending.”
Labor has backed introducing rules to facilitate crowd-sourced equity, with shadow communications minister Jason Clare flagging it earlier this year as one area where the political parties agreed
He said while startups have little difficulty getting seed funding, they struggle to get the next tranche of capital to drive their business forward. “Crowdfunding will help with this.”