Friday, December 9th, 2011 - Pennam Partners
Australian crowd funding survey

Following the proposed crowd funding reform in the US, Pennam Partners has recently undertaken a survey to gauge the sentiments around securities crowd funding and whether it is a worthwhile avenue for Australian startups. To put matters into perspective, Australian startups can currently make limited use of crowd funding platform given there are restrictions on general solicitation and the number of retail investors that can contribute without having to meet funding disclosure requirements. Where the crowd funding offer is being structured as donations, pledges, in-specie returns (i.e. goods or services being provided in exchange for funding) or revenue financing, it is likely to be feasible without falling foul to the Australian securities law regime. However, using crowd funding to raise capital in exchange for securities is not currently possible in Australia.

80% of respondents to the crowd funding survey were of the view that securities crowd funding is a worthwhile alternative avenue for Australian startups to seek seed capital or early stage capital. Of particular note, respondents opine that the appropriate regulatory and monitoring measures should be put in place to protect ‘crowd funders’ and prevent sham funding offers.

The thrust of crowd funding is to be able to put an offer to the mass and generate public interest. For crowd funding to be effective, one would argue that the investment barrier to entry should be as low as possible to allow (almost) anyone to contribute if they decide the offer is attractive. The upshot is there will be a broader shareholder base, which will result in a time consuming exercise and an increase in company secretarial costs (for instance share registry fees). Surprisingly, the majority of the respondents believe that at least $1,000,000 in capital can be raised from a capital raising platform whilst still maintaining the integrity and effectiveness of the process and keeping compliance costs down.

Whilst crowd funding is a worthwhile alternative funding source, it should not be undertaken at the detriment of either retail investors, Australian startups or both. There are numerous issues that would need to be addressed before securities crowd funding become a reality in Australia, including:

• Should crowd funding be undertaken through an ASIC regulated intermediary, by any third party or by the investee company (say via their twitter or facebook a/c)?

• What would be an ideal annual investment ceiling cap for a crowd funder to limit loss exposure and protect the crowd funder?

• What would be the minimum (financial and non-financial) information required to be disclosed to allow the crowd funder to make an informed decision?

• What can be done to minimise company secretarial costs given the comparatively larger shareholder base if the crowd funding avenue is being used?

For a copy of the survey findings, refer to the following link: http://slidesha.re/uL35md

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Pennam Partners


Pennam Partners is an investment house which focuses on: (1) M&A, MBO, MBI, divestment assignments and (2) designing capital strategies for unlisted and listed plays and raising capital where necessary. In addition, Pennam Partners acts as a manager for domestic and offshore funds (including VC fund) and work on investment mandates on behalf of investors.
Pennam Partners
P: +613 9221 6219
W: www.pennampartners.com

Keywords

Crowdfunding, Australian crowdfunding, seed capital, early stage, VC, venture capital, angel investor, angel

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