Scrap the caps on crowdsourced equity funding, Treasury told

Blue Chilli start-up accelerator program founder and investor Sebastien Eckersley-Maslin supports the idea of the $2 million raising cap but can’t see why the Government would limit equity crowdfunding campaigns to 100 participants.

Submissions to a Treasury enquiry have raised concerns that new crowdsourced equity investment legislation will be hampered by being overly complex and misguided.

The opening up of crowdsourced equity funding has long been advocated by technology start-ups, which see it as a way to attract crucial early backing. The proposed legislation has developed significantly since the first discussion paper earlier this year, which required small businesses and start-ups to become public companies to be able to raise small amounts from many investors to close rounds of up to $2 million.

Despite these developments, business advocates and technology entrepreneurs remain concerned about a cap on the maximum number of investors and also the fact that small Australian firms have been disallowed from raising more than $2 million in this way since 1999.

The current discussion paper caps the number of investors a start-up can raise from at 100. However, the Australian Chamber of Commerce and Industry said this would stymie the intent of the legislation, which was to give businesses access to a greater number of investors investing smaller amounts.

It said this cap could keep Australia’s scheme far behind successful established models such as those in Israel, the United Kingdom and New Zealand.

Australian Chamber of Commerce and Industry senior manager of economic policy Tim Hicks, told Fairfax Media both caps could severely hinder the uptake of the new opportunity when it becomes available.

“The model the government is proposing to proprietary companies is a positive step but we think that the shareholder cap needs to be increased significantly,” Mr Hicks said.

“Our preferred model is to instead cap the amount an individual can invest in a particular offering and a raised amount a company can raise.”

Blue Chilli start-up accelerator program founder and investor Sebastien Eckersley-Maslin supports the idea of the $2 million raising cap or similar, to prevent the rise of a less regulated quasi-Australian Securities Exchange.

“But I do not understand why there should be a limit on investors you can access,” Mr Eckersley-Maslin said. “The whole point of this approach is to raise little amounts from lots of investors.”

Mr Eckersley-Maslin said the United Kingdom’s more open policy was key to the ecosystem’s explosive growth over the last few years with almost 40 per cent of seed funding now coming from retail investors with more than £84 million ($184 million) flowing into early stage tech companies on 2014.

Companies are already positioning to take advantage of the changing rules. Artesian-backed VentureCrowd, a platform for crowdsourced equity fundraising currently limited to sophisticated investors, has hired Rob Nankivell as its new chief executive to drive its expansion to include retail investors once the new laws begin.

“We are positioning ourselves to take into our account that the laws will change, and that’s how we approach every conversation to make sure our tech is scalable to enable a much bigger amount of investors to be involved in the deals,” Mr Nankivell said.

VentureCrowd has raised almost $10 million for several start-ups since launching. It is also expanding into crowdsourced investment for real estate projects.

In May, Minister for Communications Malcolm Turnbull said he expected legislation to be drafted by the end of the year  and that the best solution would be just to copy New Zealand’s system.

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