The Federal Government has just released its Corporations Amendment (Crowd-sourced Funding) Bill 2015.
The text of the Bill runs for 51 pages, with its Explanatory Memorandum running to 109 pages.
Despite the hype in the lead up to the Bill’s release, that the Federal Government’s legislation would be a panacea to the restrictive regulatory environment in respect of equity funding for small start-up companies, the Bill has largely disappointed the "start-up community" to whom the proposed legislation was directed.
It is disappointing that the government, after an extensive consultation period with the sector, has failed to listen to and address the concerns of its target audience.
The proposed Bill restricts the ability to source funds via crowd funding platforms to "small unlisted public companies".
As most "start-ups" are small proprietary companies (initially hoping to avoid the increased regulatory burden imposed on unlisted public companies) this restriction immediately cuts access to what could have been an important source of equity funding.
Further, only companies with less than $5 million in assets will be eligible to utilise the new provisions and these companies will be limited to raising $5 million a year – although the cap does not apply to sophisticated or professional investors.
Additionally, retail investors participating through these proposed crowd funding platforms will be limited to investing $10,000 per company per year. This restriction has clearly been designed in a misguided attempt to try and ‘protect’ these ‘mum and dad’ investors from themselves, while in reality, they can simply make multiple small investments in multiple start-up companies. So, while this restriction was designed in an attempt to protect retail investors capital, start-up companies eligible to use the new crowd-sourced funding platforms could end up with literally hundreds of retail investors on its share registry.
The amount of time required to manage an extensive shareholder base of this size, is likely to require an inordinate amount of time in managing "investor relations", rather than focusing on what start-ups should be doing and that is on further developing and growing their respective businesses. The new legislation was intended to stimulate growth and innovation but at present, all it does in its current form is deny access to capital to those that need it most and increase the regulatory and administration burden on those that elect to utilise this funding model.
The Labor party has now indicated that it has withdrawn its support for the legislation and it remains to be seen as to whether the Bill will now be amended before proceeding to the Senate.
At this stage, it appears that a golden opportunity has been lost, as the proposed Bill falls short of ameliorating the constraints and concerns raised by the "start-up community" in Australia, in that access to capital will not be any less constrained for the majority of start-ups that were hoping for some relief and the administrative and regulatory burden imposed by this proposed framework, for those companies that can access this model, seems to outweigh the benefits to be derived via this proposed model.