New Crowdfunding Rules Forget For-Purpose Sector

Social purpose organisations have been left out of the new crowdfunding rules announced by the Federal Government.

Assistant Treasurer and Small Business Minister, Kelly O’Dwyer, revealed on Monday details of crowd-sourced equity funding laws that would allow start-ups and small businesses to reach new investors online.

However, Executive Director of Impact Investing at Social Ventures Australia, Ian Learmonth, told Pro Bono Australia News that, as Minister O’Dwyer stipulated that the laws would only be made available to public companies, the for-purpose sector would not reap much benefit from the changes.  

“Because many social purpose organisations are either Not for Profit in structure or private entities, this change is likely to have little effect for these organisations,” Learmonth said.

“We would welcome the extension of similar rules to Not for Profits and private companies, though, as it would open up important early stage funding for social businesses who may not yet be ready to enter the impact investment market.”

However, the national peak body representing the co-operative and mutual models of enterprise in Australia, the Business Council of Co-operatives and Mutuals (BCCM), said social purpose organisations can access crowd sourced equity funding under cooperatives legislation, and the new rules rules relating to companies may drive some social purpose organisations to choose the cooperative option in order to raise funds via community share offers.

“Existing crowdfunding mechanisms can be used to raise startup capital, both in debt format, as bonds, but also as crowdfunding donations to the startup costs,” BCCM Chief Executive, Melina Morrison said.

“Technology-driven innovation is transforming the financial system and has the potential to deliver significant efficiency benefits and improve outcomes across the financial system,” O’Dwyer said.

“Take crowd-sourced equity funding [CSEF] as an example. In Canada, the United Kingdom, the United States of America and New Zealand, small businesses and start-ups are able to use technology to reach new investors to finance or expand their businesses. Mum and Dad investors are able to buy shares in these businesses through licensed intermediaries.

“Right now in Australia, start-ups and small businesses cannot practically access retail investors due to significant upfront and ongoing compliance costs and red tape. Changing this will unlock innovation and growth.”

The Government’s CSEF laws will be be limited to companies with annual turnover and gross assets of less than $5 million so that the benefits are targeted.

O’Dwyer said while the US model caps the maximum yearly funds at $1 million, Australia’s will be capped at $5 million.

“This means that the founders of a microbrewery in Tasmania can get their business off the ground with the investment of mums and dads in places like Albury and Sydney,” she said.

“Of course, appropriate consumer protection is essential including the licensing of intermediaries, risk warnings to investors and a five day cooling off period for the investment.

“The Government has previously consulted stakeholders on a regime for crowd-sourced equity funding, and will continue to consult while bringing legislation before the Parliament before the end of 2015. We will also consult on options to facilitate crowd-sourced debt funding.”