How to avoid a crowd-sourced equity disaster

The last few years have seen the rise of crowd-sourced equity funding (CSEF). Hailed by entrepreneurs and investors as a democratic form of investing, it allows the public to invest in fledgling businesses that have previously been the domain of high net-worth individuals, family offices and professional investors.

Legislation supporting CSEF has been passed by more than 15 countries and this year Australia’s Parliament passed legislation allowing unlisted public companies to advertise their campaigns on licensed crowdfunding portals and raise up to $5 million a year.

Investors earning less than $250,000 a year and owning less than $2.5 million in assets would be limited to investing $10,000 per company per year. However, by restricting CSEF to unlisted public companies, this precluded 99.7 per cent of Australian businesses, mainly private SMEs and start-ups, from accessing crowdsourced funding.

As a result, Treasurer Scott Morrison has announced new CSEF legislation which aims to relax the earlier laws. This new bill will allow CSEF platforms to advertise offers from private proprietary companies, allowing the public to invest in a much larger range of businesses, including start-ups and SMEs. Private companies will now be able to raise up to $3 million through CSEF platforms before requiring an annual audit of their financial statements. These investments will be made on ASIC-licensed crowdsourcing platforms.

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Source: How to avoid a crowd-sourced equity disaster | afr.com