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Equity Crowd-Funding

Have you seen the latest, newest thing on Kickstarter? Trawled through an endless series of GoFundMe campaigns? Bought art on Patreon? Probably, is our guess.

How about investing in a company through crowdfunding? If that sounds slightly absurd, that’s because until recently – in Australia – it has been. There have been some exciting new developments in the relatively new space of equity crowdfunding, and we’re pretty excited to talk about this today.

First things first: what is equity crowdfunding?

You might have heard about equity crowdfunding being referred to as crowd-investing, investment crowdfunding, or crowd equity; these are all the same things. This is essentially the practice of a private company offering (through online means) private company securities for investment. Although the format may not be familiar, this is still investment into a commercial enterprise, and as such, is still subject to regulation.

So, why do people go this route?

Well, firstly – this method allows big groups of investors to fund small or start-up companies in return for equity. Like the share market, if the business becomes successful and increases in value, then that small section of the business purchased by an equity crowd funder also increases in value. Potential for investment seems to be greatest when it comes to smaller companies – most start-ups benefit from crowdfunding in early days, and move on to other backing or investment as they begin to grow exponentially.

New legislation now allows equity crowdfunding in Australia.

The new laws are an amendment to the Corporations Act, and now allow for unlisted public companies with less than $25 million in annual turnover to raise capital through crowdfunding. Unsurprisingly, this move has been welcomed warmly by the start-up community in Australia.

FinTech Australia chief executive Danielle Szetho said “This new legislation represents an important step to open up early-stage capital markets, which will ultimately help businesses to grow and therefore create new employment opportunities”.

In terms of downsides, there are a few – depending on who you speak to – but the overwhelming reaction is one of positivity for what this means for the Australian market. The largest issue is the legislation states that equity crowdfunding is only available to public companies. A proprietary company would have to become an unlisted public company to raise money in this fashion.

If you’d like to learn more, or explore whether this type of investment may be beneficial for your personal portfolio – or for your business, we’d love to chat further and explain all the ins-and-outs of this new system.

How can YML help?

Talk to our team today to see how YML Group can assist you. Contact us on (02) 8383 4400 or by visiting the Contact Us Page.

 

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