The Recent Legislative Changes now allow Retail Investors to Invest in Equity Crowdfunding Offers.
Before September of this year (2017), only Sophisticated and Wholesale Investors were allowed to invest in equity crowdfunding deals. However, as a result of the 2017 Crowd-Sourced Funding Act, Retail investors are now able to participate in new and exciting investment opportunities. The new regulation allows unlisted public companies to raise up to $5 million a year from everyday investors who can invest as little as $50.
This is positive news for Australian equity crowdfunding platforms such as Equitise, which will soon be able to open offers to everyday investors (pending CSF license). Since 2015 Equitise has been active in New Zealand as a retail equity crowdfunding platform, where public offers are open to all New Zealanders.
Jonny Wilkinson, Co-founder of Equitise, who played an active role in changing the regulations says:
“As we have witnessed in the UK and New Zealand, equity crowdfunding is an amazing way for everyone to invest in high growth companies allowing those companies to access the capital they need to grow.”
The advantages of equity crowdfunding for retail investors include:
- CHOICE – invest in the companies you want to support.
- DIVERSIFICATION – invest in a large number of companies improving your chances of better returns.
- ACCESS – investors can now access Venture Capital style investments, an alternative asset class previously out of reach without an investment of hundreds of thousands of dollars.
- PASSION – support companies you believe in and want to support; you might get more than just monetary returns.
- TRANSPARENCY – equity crowdfunding is an open and transparent method for investing.
- CONSISTENCY – the companies who raise money go through a process that makes comparison easier.
Is the New Legislation Removing all the Differences between Retail and Sophisticated investors?
Despite the latest legislation changes, Sophisticated investors, who have always been able to invest in private companies offering securities, are still treated differently to everyday or Retail Investors. In particular, they aren’t shielded by the same benefits and protections as Retail Investors.
Another difference is the requirements that identify a person as a Sophisticated or Retail investor. Retail Investors are everyday people who might wish to invest for various reasons whereas, per the Australian Securities and Investment Commission (ASIC), a Sophisticated Investor is someone who has:
- a gross income of $250,000 or more per annum in each of the previous two years or
- net assets of at least $2.5 million
It’s not only the regulations that have changed but also how people are choosing to invest. The “2017 Australian Investor Study” by the Australian Securities Exchange (ASX), focused on retail investors and their propensity to invest outside their Superannuation funds. The main reasons for them to invest are: planning for retirement, wealth accumulation, supplementing current or future income, travel, saving for bad days and saving for a deposit on a home.
This demonstrates that Australians are becoming more aware and comfortable with the opportunities that exist within investing. Whatever the reason to invest is, the new legislation is an important achievement both for everyday people looking for opportunities to invest and for early stage companies who can now access capital from a new pool of investors.