Crowdfunding is an area of alternative finance that has been slow to grow in Australia, not helped by the complex regulation surrounding it. Recently Communications Minister Malcolm Turnbull has spoken out about the delays of crowdfunding legislation in Australia. He said that new rules that should be introduced by the end of the year should mirror New Zealand’s scheme. Crowdfunding is technically legal in Australia but the regulation and compliance surrounding it is so complex it is rarely undertaken by young companies.
The government’s commitment to updating the regulatory framework surrounding crowdfunding was reaffirmed by Treasurer Joe Hockey in his budget speech but no key details have been provided. Back in December the Murray report highlighted the importance of crowdfunding for the Australian economy and suggested that the government update the legislation surrounding fundraising. Although any new regulations need to balance the needs of companies and potential investors. Existing plans suggest that a start up would automatically become a public company after early stage exemptions and face a fundraising limit of no more than $2million per year with individual investors being able to commit only $2,500 to a company per year.
By contrast the regulatory regime in New Zealand is much more conducive to equity crowdfunding. New Zealander and PledgeMe founder Anna Guenther has been outspoken in her thoughts on crowdfunding in New Zealand. The New Zealand regime is set to be more laissez-faire than the proposed Australian rules.
“We're trying to democratise the market. I think, 'Let the crowd decide’.”
Conversely Chris Gilbert, co-founder of another New Zealand based crowdfunding platform Equitise, argued:
“The thing that scares me is that the process is made too easy in New Zealand. It should be difficult to get a licence to operate an equity crowdfunding platform. We don't want to make it too loose with what's required [in Australia] because that could result in Ponzis going through. We don't want retail investors to be fleeced.”
We have seen some activity in the crowdfunding space in the past few months, especially in relation to real estate crowdfunding. In March Australia’s first real estate crowdfunding platform, CrowdfundUP launched. Interest rates are currently at record lows of 2% in Australia and this is helping to fuel a property bubble, CrowdfundUP is saying that the platforms can help people invest into this fast growing market. Venture Crowd is another equity crowdfunding platform and at the end of April it moved into the property crowdfunding market. The platform also recently partnered with a group of angel investors, Sydney Angels, to help boost investment through the platform.
Despite this flurry of activity in the past couple of moths the regulatory regime is preventing the industry from achieving growth seen in other markets such as the UK. We will be watching to see how this market continues to evolve over the coming months.