Australian crowdfunding restrictions holding back SMEs

Small and medium enterprises are being denied opportunities to access crowd-sourced equity due to Government restrictions, according to a new submission by the Australian Chamber of Commerce and Industry (ACCI).

SMEs struggling to obtain finance are the biggest victims of the Government’s restrictions, the ACCI explains in their submission to the Productivity Commission’s Inquiry Into Business Set-up, Transfer and Closure.

“Capital is the lifeblood of small businesses. Crowd-sourced equity funding will help struggling entrepreneurs secure the finance they need to grow, given the difficulty of accessing traditional sources of investment,” Kate Carnell AO, CEO of the ACCI, said.

“Current regulations in Australia do not allow the sort of crowd-funding we need, as highlighted by the recent Financial System Inquiry. There are certainly risks we need to manage, but the opportunity is too good to pass up.”

Investor funds can be accessed through online investment platforms, which often see investors taking an equity stake in the company. The ACCI said this crowd-sourced angle of funding comes “without the complexity and cost of listing on the stock exchange or other methods of raising capital.”

The Corporations and Markets Advisory Committee, which has since been disbanded, made recommendations to the Federal Government in 2014. The Committee’s suggestions included a cap of $2 million on fundraising over a 12-month timeframe, a limit of $2,500 individual investment per issuer and $10,000 in any 12-month period, and the requirement that equity instruments be issued through a licensed intermediary.

“Crowd-sourced equity funding needs to be simple and reliable. It needs to be as easy as using eBay, and people need to feel confident they are buying into legitimate businesses they can trust,” John Osborn, the ACCI’s Director of Economics and Industry Policy, said.

“Many challenges need to be overcome to establish a good system, but we have no doubt that smart, innovative companies will emerge to solve these problems. The role for government will be to set out simple rules and let the private sector do the rest.”

Israel tech investor Jon Medved, Chief Executive of crowdfunding equity platform OurCrowd, told The Australian Financial Review that Australia had to start embracing crowd-sourced funding if the start-up sector was to prevail.

“We’ve realised the best way to build start-ups today as a small country is across borders, and the more paths in you can offer investors, the more money your start-ups can get at,” Mr Medved said.

“We’re worried about the brain drain too. So many of our entrepreneurs leave to go to the US, and we’re doing what we can to keep people here [in Israel]. Although even those who don’t come back can offer expertise, capital and insight back to the mothership.”

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