Australia’s planned equity crowdfunding regime is over-regulated and runs the risk of no company taking part, the founder of a New Zealand-based equity crowdfunding company said.
Anna Guenther, founder of Wellington-based crowdfunding platform PledgeMe, said the proposed regulations in Australia could see the country going down the same path as the US, which saw “unbelievably low amounts of capital” invested in the first year after passing equity crowdfunding laws.
<Editors note: This story was published before the government revealed plans to introduce extensions to its crowdsourced equity funding legislation. See separate story here.
Ms Guenther will soon be moving to Australia to test the waters as part of the Queensland government’s HotDesQ program, but said if the laws aren’t working, the company won’t be staying.
“We want to come over and assess how the legislation is going to play out. We’re a bit concerned about over-regulation, and we wouldn’t want to go and get a licence if it wasn’t going to be a good fit for local companies,” Ms Guenther told InnovationAus.com.
“We’ll be seeing exactly how it lands once it comes into force, and then trying to build something that will work for companies,” she said
The Australian government passed legislation allowing for retail investors to take part in equity crowdfunding earlier this year after a protected two-year political fight.
But the reforms mean that company’s seeking crowdsourced equity must convert to a publicly unlisted entity to undertake a funding round, a move that was widely criticised by the sector and Opposition.
The government addressed these concerns in this year’s budget, where it was announced that it would amend the legislation to allow private companies to undertake an equity crowdfunding round.
But no date has been set for when this will be put to the Parliament, with the original laws coming into effect on 29 September.
The amendments would come with a catch too, with a number of new reporting and compliance obligations to be placed on private companies looking to complete an equity crowdfunding round, including a more comprehensive company register, and financial and directors reports that will be audited if the company raises more than $1 million.
Ms Guenther said Australia risks going down the same path as the US if equity crowdfunding is over-regulated.
Equity crowdfunding regulation came into effect in the US in May last year, but only $47 million was invested through the funding route in its first year. In comparison, in the first year of equity crowdfunding in New Zealand, more than $11 million was raised, despite the country having a population less than 2 per cent the size of the US.
“In America it’s similar to Australia, with it going really far down the path of investor protection. It became quite costly for companies to get ready to crowdfund, and the concern is that companies just won’t do it,” Ms Guenther said.
“We agree that there needs to be protections, but that should come through clear warning statements and guidance that companies provide, rather than capping investments and prohibiting how things are advertised and where.”
Industry body Fintech Australia has also raised concerns with these restrictions that they said would be too costly for small Australian companies.
“The cost of an audit could be anywhere from $10,000 to $20,000 which would make the cost of this type of capital raising much less attractive than other forms, and would lead to the regime not being used by anyone,” Fintech Australia chief executive Danielle Szetho said.
Ms Guenther will arrive in Australia on the same day that the equity crowdfunding legislation comes into law.
PledgeMe has been accepted as part of the Queensland government’s HotDesQ program, which aims to lure startups from around Australia and the rest of the world with grants and workspace.
The founder will be living and working in Brisbane for six months before making the decision of whether to officially expand PledgeMe to Australia.
The company has been investigating a possible expansion across the ditch for more than two years, but was waiting for the necessary legislation to finally pass Parliament.
“It took a while for Australia to not only pass the legislation but to realise that it was a thing you should be looking into. This passed in New Zealand in 2014,” Ms Guenther said.
Along with the funding from the state government, Ms Guenther said she wanted to escape the state versus state rivalry in Victoria and New South Wales.
“We felt like it would be a good fit to not be in one of the big main hubs – that’s sort of what we did in New Zealand with being in Wellington over Auckland. We think that’ll mean we can make better connections with people on the ground and not be in the middle of the big rat race,” she said.
There are already a number of platforms set to offer equity crowdfunding from the end of the month that PledgeMe will be competing with, including VentureCrowd, Equitise and Pozible, which recently launched a dedicated platform for the funding method.
Ms Guenther said the company’s experience with New Zealand’s successful equity crowdfunding implementation, and its assistance to participating companies, will set it apart.
“Our point of difference is our experience in New Zealand and focus on really helping companies, we’re focused on making sure this is right for the companies doing it and activating their own crowds,” she said.
“We’re really excited to come over and share our experience and to work with local companies and partners.”