Earlier this month, the Australian Securities and Investments Commission (ASIC) announced it had approved the first seven crowdsourced funding platforms (CSFs). It seems that after much debate, equity crowdfunding is finally open for business.
Although not named in the ASIC media release, the seven successful applicants are:
- Big Start
- Birchal Financial Services
- Global Funding Partners
- IQX Investment Services, and
- On-Market Bookbuilds
There are significant limitations to the CSF legislation – namely:
- the type of eligible companies (only smaller, public unlisted companies);
- the amounts individual investors can invest (up to $10,000 per company per 12 month period); and
- how much companies can raise (no more than $5m in any 12 month period)
Also, there is no indication as to whether other CSF license applications are still pending, or which applications may have been rejected. It may also be difficult to assess the relative merits of each platform, since there only appears to be one class of license.
Meanwhile, legislation is already in the pipeline to extend the CSF regime to proprietary companies – which would significantly expand the potential number of issuers.
Compared to some of the largest initial coin offerings (ICOs) over the past 18 months, a $5m capital raise looks like small change. If anything, ICOs took the decade-old crowdfunding experience and supercharged it with Blockchain, cryptocurrency and decentralized issuance platforms. But then, regulators tend to lag markets and technology; plus, their primary focus is protecting the interests of less sophisticated retail investors (as well as market stability).
It’s also worth remembering that a limited crowdsourced funding model has been available in Australia for several years, almost as long as crowdfunding itself: Enable Funding (formerly ASSOB) was established in 2007, but with a much more restricted license than the latest CSF legislation. (And in other countries, early-stage companies have been able to more easily raise equity capital via market listings on secondary boards of the main exchanges – e.g., Mothers in Japan, GEM in Hong Kong, and AIM in London.)
The new CSF regime (and whatever else comes in its wake) does raise a few interesting points:
1. Although expressly confined to equity issuance in the form of common shares, by giving it a more generic name, does this mean CSF will be used for other types of securities (bonds, structured finance)?
2. What expectations has ASIC placed on the number of raises, and the total amounts to be raised, over the next 3-5 years – how will it measure or define the success of CSF?
3. More importantly, where is investor money expected to come from – will investors switch from property or other assets?
4. How will the increasing practice of issuing digital tokens as traditional securities (and potentially vice versa) add to the demand for CSF platforms and services?
It’s very early days, of course, and very small scale, but judging by the response so far to one of the first companies to take advantage of the CSF legislation, investors like what they are seeing.
Next week: Australia Post and navigating the last mile
The restrictions seem onerous, but as you say, regulators are behind the trend.
Seems odd that they have excluded Pty companies, but included unlisted public companies, unless I have read it incorrectly.
In the early stages, it is much easier/cheaper to set up a Pty structure than an unlisted PC.
Yes, only qualifying unlisted public companies can avail themselves of this funding structure – but this is expected to change. Not sure how high it is on the policy agenda, though….