A lot can change in 12 months. In September 2017 new laws came into effect legalising equity crowdfunding.
It allowed publicly unlisted companies to harness the power of their crowd. But this wasn’t for the many. Just 1% of businesses were able to access the fundraising approach. The 99% that were registered proprietary companies were left out, unless they wanted to change their structure.
Thankfully though around this time last year, after much campaigning,the rules were relaxed. Startups and SMEs could accept funds from non accredited investors, for a slice of their business.
Which proved vital for the likes of Cannabis Doctors Australia and Mungalli Creek Dairy, raising $1.5m and $750,000 respectively. In total we’ve seen $26m raised in Australia across all the major platforms in the last 12 months.
PledgeMe was the first platform in the region to help harness SME crowds.
We’ve seen in New Zealand just how powerful this approach can be with over $70 million being raised since 2014, in a market one-fifth the size of Australia. The Kiwi framework is most closely linked with the UK’s, with a lighter touch attitude to regulation. In Australia we’ve seen a system adopted that mirror’s the US, where the rules are more restrictive, with warning statements required on every social media post, caps on individual investors, cooling-off rights, and increased compliance requirements for equity crowdfunded companies.
So while the changes in Australia have been for the better there are still improvements which we believe will open up the market beyond the $34m it’s so far grown to be. So far we’ve seen a lot of the companies that have traditionally struggled to gain access to finance, be that based on sector, gender, locality (regional-based) or ethnicity.
Equity crowdfunding is growing the diversity of business globally with those ethically minded and focussed on sustainability now being able to tap into the popularity with their customers.
And the profile of investors is diversifying too, with 60% of PledgeMe’s investors under the age of 35. And going as high as 92.
It’s helping to expand local communities through inclusionary measures, but we can go further.
Some potential ideas include:
Same rules across the board: In other sectors we’ve seen deadline extensions to raises allowed, however in equity crowdfunding a campaign is not allowed to extend past its deadline. Even if unforeseen technical issues were to disrupt a raise, or a crowd were supportive, we haven’t seen allowances made to factor these circumstances in.
Keep it simple: Just as there needs to be a ‘common sense’ approach to regulation, there must be an interpretation of the law which benefits the businesses it was set up to help. Both the UK and New Zealand have tried to keep the legislation around this light, so companies don’t have a lot of added requirements. One example of this is the size of the company raising doesn’t matter in New Zealand – you can be as big as you want to be. In Australia, you have to perform complex calculations to prove that you are, indeed, small in your revenue and asset size. And it doesn’t just capture the information from the company raising investment, it’s across any related company – which includes companies with common directors, shareholding, etc.
Social media: Currently, campaigners are required to include a statement in every post telling their investors to read the risk warning statement and offer document before investing. But, this is also required to be on the campaign page, and in the process of pledging. In a world with 140 character maxes, it doesn’t make sense to require this statement to be repeated everywhere, when it’s already baked into the process on every platform.
There still remains lots to do. The sector has been predicted to grow to $300 billion globally by 2025. However by making things harder and more complicated for companies, we’re impacting the potential for growth. For us to achieve our potential and fully harness the power of the crowd, we need to keep things simple and think inclusively. There are examples globally, or even closer to home, across the ditch, for best practice on this. A focus on inclusion really can be the way we all grow together.