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Crowdfunding framework too restrictive

Trans-Tasman platform Equitise has warned that the Corporations Amendment (Crowd-sourced Funding) Bill 2015 quashes Australia’s chance at creating an open, fair and transparent marketplace for private companies to access capital and growth.

In its submission to the Senate Economics Legislation Committee, Equitise said: “While it is great to finally get a legal framework for equity crowdfunding (ECF), the current proposal will be too restrictive and squanders this great opportunity to open up innovation in our country.

“The bill fails to grab the entrepreneurial spirit that it is intending to drive.

“Its shortcomings risk disadvantaging both the fundraising options of start-ups and other small and medium-sized businesses in Australia, as well as investors who are looking to provide alternative sources of capital.

“There is also a risk if we don’t get this policy correct that we will not be globally competitive and we will lose companies and talent to markets with more favourable legislation.”

In its submission, Equitise explained that unlike any functioning ECF market, the bill introduces cooling-off periods, allowing investors to pull their money within five days of committing it.

“While at a 2D level I can appreciate this may appear to benefit investors, in reality it will not,” the company said.

“As an open and transparent market that gives all investors the same opportunity to invest at the same time without relying on salesmen, there is no duress, people do not require this protection. The greatest problem cooling-off periods introduces is it will allow and encourage market manipulation.”

Further, the bill also looks to limit the opening up of early-stage capital markets through companies only being eligible if they have less than $5 million in assets and turnover.

“The problem with this is that it will concentrate risk and encourage retail investors to place their money in the highest risk early-stage start-ups, losing all the benefits of diversification,” Equitise said.

“For companies looking to raise capital, this misses out on many of those that are most in need and most suitable to attract capital.

“Our early-stage capital markets are broken and many businesses are forced to list on the Australian Securities Exchange or seek funds offshore as their only way to access capital. This is more often impractical and overly costly for businesses focused on growth.”

On 3 December 2015, the Corporations Amendment (Crowd-sourced Funding) Bill 2015 was introduced into Parliament.

The bill aims to promote ECF by removing existing barriers under the Corporations Act and provide greater investment opportunities for retail investors.

The Senate Economics Legislation Committee’s report on the bill is due to be tabled later today.

Equitise was established in 2014 and developed its business model in New Zealand, where ECF has a strong track record and the regulatory environment is ahead of Australia.

Earlier this month, Equitise co-founder and managing director Chris Gilbert told selfmanagedsuper ECF was resonating with sophisticated Australian investors, particularly SMSF trustees, as an appealing alternative asset class.

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