How the Lawyers See it in Aus!

On Friday 25th July, we attended a seminar “Crowd Sourced Equity Funding – A new source of finance for start-ups and SMEs.” Held by the Commercial Law Association and Chaired by Dr Terry Cutler (Chairman of CSIRO Chile and ex-Deputy Chairman of the CSIRO) it was a most informative assessment of where the CAMAC report stands and how the government should go about implementing the legislation. His opening point was that seed and early stage capital has always been one of the biggest problems in Australia, especially with regard to competitiveness and that equity funding needs to have all the building blocks in place for all of it to work properly. He believes the law can either be a facilitator or inhibitor and how we can facilitate productive activity rather than put roadblocks in the way.

First to speak was Paul Niederer (CEO of Australian Small Scale Offerings Board (ASSOB)), the most experienced man in Australia in using an online business matching service to raise money for businesses, a pioneer in the space. His experience over the last 7 years helping over 300 companies raise capital is impressive and some of the info gleaned and lessons learnt even more so. He asserts that roughly two thirds of each raising comes from friends, family and followers, however the current legislation is letting it down as the approximately $30k average investment and with 20 retail shareholders it is limiting the funds to be raised. He has noted that there is a big psychological difference between reward and equity crowdfunding. Instant gratification versus delayed “potential” return on your money, they’ve found it is about 3yrs when people come looking to find out what is happening with their investment and that ultimately investors want to be involved with things meaningfully, with an emotional connection.

Next up was Andrew Macpherson (Principal Macpherson Greenleaf) one of the organisers of the event, who discussed regulatory arbitrage between Australia and New Zealand. He believes that given over 80 existing bilateral agreements, particularly the Free Trade ‘09 and Financial Adviser ‘12 agreements, the government could be creating problems by departing too much from what NZ have legislated and it may encourage Australian companies to go to NZ to access funding. His asserted that we should adopt the NZ model with some tweaks per the CAMAC report.

Adding some international flavour to the seminar was New Zealand lawyer Bradley Kidd (Partner of Chapman Tripp), who “doesn’t think we should be too hard on ourselves (being the impending Australian legislation)!” He gave us the macroeconomic background as to the New Zealand’s government GDP growth targets and the realisation that roughly $20bn in capital is needed to get there in the next 11 years, which has in part driven their equity crowdfunding legislation. From his perspective it’s great to see NZ launch in this direction, given the confluence of booming social networks, the booming internet economy and potential future ways of raising money. He thinks if they get a march on other countries than it will make them attractive for innovative companies (which may indeed help get them reach their aggressive growth targets)!

Finally John Kluver (Head of CAMAC)who wrote the Crowd Sourced Equity Funding Report finished of the speakers. The report is “the best reference source in the world, as it’s up to date on what is happening not only in NZ but globally.” This then goes on to reflect that his focus was to ensure all of the three parties involved, Issuers, Intermediaries and Investors were represented in a balance manner to ensure there is appropriate legislation for an active and efficient market. One of the points he made that I didn’t agree with was around due diligence and what the Intermediary will need to do, he suggested that the crowd won’t be able to do it effectively. I believe that the platform will need to do basic due diligence as to ASIC checks and the backgrounds of people associated with the company, however there is no better source these days than a crowd accessing the internet and doing their own research! The whole benefit of crowdfunding is the wisdom of the crowd and that is something we will need to rely upon for the industry to succeed.

Overall it was a very interesting morning with some varied opinions but what was clear is that all believe Equity Crowdfunding is the new paradigm for funding businesses and the government and ASIC need to implement a reasonable legislation and framework!

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