Australia: Government review recommends equity crowdfunding

By James Hutchinson and Caitlin Fitzsimmons

Small companies should be allowed to raise capital in the same way websites such as Kickstarter encourage consumers to commit funding to new products, qualifying them to become share­holders in the company, according to a ­government review.

The recommendations were released on Thursday after a long-awaited review by the Corporations and Markets Advisory Committee. It is its last review after the government abolished the body in last month’s federal budget.

Image: Karl Hilzinger

Image: Karl Hilzinger

Investors and start-ups said the scheme would close a funding gap for start-ups seeking between $1 million and $3 million to launch their product or idea. But they warned the move would need caution, to avoid start-ups becoming inundated with thousands of new shareholders.

The regulatory measure, which would mimic similar pushes in the United States, Israel, New Zealand and Britain, is seen as a much-needed shot in the arm for Australia’s venture capital industry, which saw investment nearly halve from its height in 2008, to $111 million in the 2013 financial year.

The amount raised by new venture capital funds more than halved over the same time frame, from $356 million in 2007, to $155 million last financial year.

Telstra chief executive David Thodeywarned on Tuesday that Australia could lose its best and brightest entrepreneurs to other countries if it did not accommodate them financially and through relaxed regulations.

Mark Carnegie, one of several investors preparing to launch an equity crowdfunding scheme in anticipation of the changes, says the recommendations were a “great step” and believed it would open start-up funding to self-managed super funds.

“The whole point is how we break the venture capital logjam; the answer is not institutional money,” he says.

“The truth of the matter is, Australian venture capital as an industry has been an unmitigated disaster. A trained monkey could have done better than the professional venture capital ­industry in Australia.”


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