Legislation is a Positive Step But Includes Unnecessary Costs.
According to real estate crowdfunding platform CrowdfundUp, Australia has “missed an opportunity” as released crowdfunding law falls short of ambitions. Following many months of discussion, the Australian government published its “Crowd-sourced Funding” bill allowing eligible companies with gross assets or revenue of less than $5 million to raise up to $5 million in equity from retail (non-accredited) investors.
“It’s a positive step forward for Australia but it is discouraging that the majority of the intended users of the legislation are excluded, particularly existing startups. Effectively, the government is placing unnecessary administration and compliance costs on startups to run a public company in order to access these funds.”
According to CrowdfundUp, another item the legislation failed to address from the Murray Inquiry was real estate crowdfunding and the facilitation of other mechanisms for direct lending, such as debt crowdfunding. In Australia, real estate investment dwarfs all other investment classes, states CrowdfundUp, with approximately $350 billion of property lending extended each year.
The new legislation also skipped over the question of whether crowdfunding providers require an Australian Market License as authorisation to operate in a ‘financial market’.
“Overall, the new legislation is of limited benefit to crowdfunding providers, investors and project sponsors, who will be forced to continue to operate under the existing and outdated legislation. It is in the platform provider’s best interest to oversee the implementation process rather than subjecting their investors to smaller investment amounts. Rather than setting this in stone, the government should monitor the new legislation and crowdfunding activity to adjust as necessary,” concluded Mr Quigley.
CrowdfundUP partner BDO Australia said the legislative developments could change the landscape of funding for smaller companies in Australia.
“The detail of how the legislation will be implemented will be key to the success of crowd sourced funding,” said BDO WA Chairman, Sherif Andrawes. “One key aspect is to what extent crowdfunding providers will be responsible for verifying the financial and business aspects of companies that seek funding on their platform. If the onus is placed fully on the crowdfunding provider, and if liability that lasts for several years after the capital raising, then my fear is that crowdfunding providers will need to be so thorough in their process that it may overlay a very high compliance cost which will put off the very companies this means to help.”
CrowdfundUP was founded in 2013 in Perth, Australia and is backed by a strategic group of investors with over AU$1 billion in combined property assets.