WEBINAR

Five years of Australian crowd-sourced funding

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Global thought leader on crowd-sourced funding, Professor of Law and Fulbright Scholar Andrew A. Schwartz shares insights from a decade of on-the-ground research comparing the US, UK, Canada, Australia, New Zealand.

Joined by Birchal, he discusses how Australia’s crowd-sourced funding market compares.

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Australian crowdfunding vs global markets‍

On the eve of releasing a decade of on-the-ground research in his book Investment Crowdfunding Professor Schwartz shared key insights into successes and limitations of success in Australian crowd-sourced funding, and how we stack up with other equity crowdfunding markets around the world.

Here, we summarise how crowd-sourced funding has become established and performed as a sector. Watch video for full discussion!

Widespread agreement on lack of VC and angel funding

In many places, Australia included, it was widely felt that there was insufficient venture capital and angel investing for the number of quality companies and good ideas seeking to be funded. Crowd-sourced funding provided a new source of capital for early stage ventures, which were widely viewed as socially beneficial, as they grow the economy, created new jobs, and developed new products. Crowd-sourced added valuable funding support to the startup economy.

More access to funding for women-founded businesses

Raising money through equity crowdfunding allowed for greater inclusivity, with the statistics on women owned, women-founded and minority-founded businesses showing they have had trouble getting their foot in the door with venture capitalists and angel investors. In contrast, of raises over $1 million in the US, about half are women founded businesses - 10X the numbers in traditional venture capital.

Australia now second largest market per capita

The US has grown steadily and while Australia started late compared to other countries, its success grew quickly to become the second biggest crowd-sourced funding market per capita globally. New Zealand performed consistently well, but hasn’t grown largely due to $2m funding limits.  The UK has become the world leader by a strong margin, with the market worth US$17.70 per capita compared to Australia, at US$2.12.

Early myths about business quality have proven untrue

From the earliest days, there was concern that dodgy or fraudulent or low quality companies would be raising money in this way and investors wouldn’t be fully informed. But there proved to be five key mechanism that have proven it untrue:

• Gatekeeping - to offer securities in this way, you need to get listed by on a licensed platform
• Voluntary disclosure - to get investors to come back it’s in the strong financial interest of platforms to only allow legitimate and promising companies
• Online reputation - platforms that list companies on websites put their online reputation on the line
• The digital trail - the transparency of the platforms means details are listed there on the website forever
• Wisdom of the crowd - a deal needs to gain enough momentum to fund, so provides some protections if it doesn’t amass enough support

World split into two on mandatory deal disclosure

The world can largely be split into two types, with New Zealand and the UK considered the liberal jurisdictions. Liberal, meaning free and deregulated.  The rest, including Australia, follow a standard model of securities regulation, namely mandatory disclosure filed with the SEC or ASIC. The big split is on mandatory disclosure. The US and Australia have a required set of information that must be provided. New Zealand and the UK don't.

Positives about Australia’s crowd-sourced funding system

Prof Schwartz recognised Australia’s system was a very good system in the whole, with benefits including :

• $5m limit - startups often need several million to scale u the amount isn’t so large as to overly expose investors to risk
• Retail investment limits - most of the jurisdictions, but not New Zealand, have a limit on how much each retail investor may invest
• 5-day cooling off period - other regions differ, but this provided a ‘sensible window
• 90-day deal period - the US have a year to hit the raise target versus Australia which has 90 days. The UK and NZ have no limit but platforms commonly set 60 - 90 days

Watch the video for more insights and discussion with Birchal Cofounder & CEO Matt Vitale and Chief Legal Officer Kellie Morton.