We only need a few simple changes to enable Equity Crowdfunding in Australia – Paul Niederer CEO ASSOB

paul-niedererAfter our post last night regarding Crowdfunding & The Submission of the CAMAC report on Crowdfunding Regulations, Paul Niederer, CEO of ASSOB wanted to throw some weight behind the discussion. He clearly outlines the actual legislative changes need to allow Equity Crowdfunding to operate in a meaningful way.


Most people haven’t heard of Crowdfunding let alone equity crowdfunding. What that means is that if regulatory change is required there isnt a lot of domain knowledge about to ensure that what gets implemented is practical and workable. Witness the U.S.A. The path taken is legislative change, then regulatory change then industry implementation.

Already most participants are saying what has resulted is unworkable.

The United Kingdom has taken a more measured approach. The regulators worked with industry participants like Crowdcube and Seedrs to test and refine methods so that eventual changes have been road tested.

Australian regulators are waiting on the outcome of CAMAC’s study of submissions and other countries findings before making a move in the equity crowdfunding space. Hopefully this wont mean a U.S. style implementation.

Legislation, then regulation, then implementation with feedback cycles from industry then updated legislation and regulations.

There is an easier path because Australia has 20 odd years of experience in managing investment from retail investors which has spawned ASSOB the oldest and longest running equity crowdfunding platform in the world.

Eight years, 300 Startup / Early stage raises and $138 million later we believe there is an easier path than the path most countries are taking.

At the end of the day most equity crowdfunding is about legitimising transactions that take place from money invested into the early stage space that comes from friends, family, fans and followers. High net worth investors are already covered by adequate legislation.

A recent article in Forbes stated “For the vast majority of people, money is raised from banks, from personal savings, and from family and friends.” The task of equity crowdfunding regulations is to properly legitimise this.

This is not a new area for Australian regulators as small scale offerings legislation has operated in this space for a long time.

So what is the suggested pathway forward?

Australian regulators are able to modify the fundraising provisions of the Act for ‘minor and technical relief’ without the need of a full parliamentary enquiry or indeed a report from CAMAC or any other government body.

Like the U.K. regulators they can sit down with industry participants and see what would work in practice.

Here are some of the changes that would enable Australia to embrace two huge trends that are driving crowdfunding. Technological Disruption and Meaningful Investing. For a more detailed discussion visit here.

  1. A new category of Equity Funding Portal be established for “Crowd Sourced Equity Funding” CSEF. Maximum $1 million per company per annum with a $2,500 max per investor.
  2. Small Scale Offerings 20 retail investors in a twelve month period should be lifted to 100 but there should be a cap of $25,000 per investor per annum. A maximum of $2 million can be raised per annum including the “CSEF” exclusion.
  3. Broaden the definition of Associates. This group is not fully handled sufficiently in existing legislation.
  4. Add category of “Experienced” investors. These could be for example people that have reached a certain level in Angel and Director organisations
  5. Recognise that consultants can accept shares for services rendered but cannot invest funds. This will assist cash-strapped companies in obtaining the corporate advice they need, without burdening operational cashflow requirements.
  6. Portals cannot give advice or have a pecuniary interest but can curate offerings.
  7. Registered Portals can disclose summaries of the offer information to the public but prospective investors need to log in to see full deal details. Promotions must follow rules as per small scale offerings regulations.

A graphic that summarises this is as follows:

All the changes above can be implemented by the granting of relief from the relevant provisions of the Corporations Act, consistent with ASICs power under s741 (ASIC’s power to exempt and modify) and 1020F (Exemptions and modifications by ASIC) to modify the fundraising provisions of the Act for ‘minor and technical relief’ without the need of a full parliamentary enquiry.
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Pozible shifts focus to China – Industry appeals to the Federal Government to act now on Crowdfunding Reforms

On the 28th of May 2014, the Corporations and Markets Advisory Commission (CAMAC) hands to government its policy opinion on Crowd Sourced Equity Funding (CSEF).

What happens next is likely to be nothing (but possibly interesting).

There are a few options from here.

  • The government takes the policy opinion as writ and starts the process of enacting legislation. However, given the current horse-trading and issues with the budgetary legislation the government is trying to get through, the swift introduction of new legislation seems unlikely.
  • The government takes the policy opinion as being in the “too hard” basket or “too risky” basket and shelves it. Essentially meaning nothing will happen.
  • The government takes the policy opinion as out-of-date, lacking industry consultation and therefore concludes that more consultation is required. The effect being that nothing happens.

So in all likelihood Equity Crowdfunding in Australia will not happen in the next 12 months.

Is this a problem? Yes.

Why? Well it’s a problem because we are missing out on the benefits of CSEF.

Australia is missing out on the benefits of releasing small amounts of money from large numbers of citizens to support causes, business, inventions, research and innovation.

At a time when the government has withdrawn money from Science, Innovation and Commercialization through various budget cuts to the CSIRO, IIF, Commercialisation Australia and the likes, having the citizens “fill the gap” makes inherent sense.

As an example, the recent budget has withdrawn many of the match-funding grants for the startup ecosystem. These grants meant government would help Series A stage startups with match-funding. That means whenever private funding contributed a dollar, so too would the government via Commercialisation Australia. Not anymore.

With CSEF legislation likely on ice, there isn’t another viable means of plugging that funding shortfall from within the ecosystem.

This is not good news for the startup ecosystem. This interview from Jonathon Barouch sums up brilliantly the state of play for the startup ecosystem post budget.

The second issue is the infant crowdfunding intermediaries (the ones that would be market-makers) in Australia are withering, dying or packing up for greener pastures.

The most successful non equity platform from Australia is Pozible with over $20 million in pledges. Pozible is also the most interesting case study. They have built and are ready to fire with equity-based crowdfunding platform under a separate brand, but have basically put their plans on ice.

Instead they have continued their rewards-based crowdfunding success by taking on new markets like China.

Yep, you heard it right.

Pozible will be the Kickstarter of China, not Kickstarter.

Much of this is credit to Rick Chen (originally from China) and Co-Founder of Pozible.

The withering intermediaries include the Australian Small Scale Offer Board (ASSOB). ASSOB claims to be the oldest Equity Crowdfunding platform in the world operating for nearly 12 years under an exemption in the Corporations Act.

They are not small by any means having raised $132m over 12 years via this exemption for companies using their board. But let’s assume a commission to the intermediary of 5% was in place, that’s still only a run rate of $500k per year. (Ed: Many of the sponsors make their money from consulting and preparing information memos)

The lack of clarity and legislation around CSEF is stopping ASSOB growing to levels approaching that of foreign contemporaries like or Crowdcube in the UK.

The “dying” intermediaries are those that launched with the expectation of CSEF legislation coming quickly, meaning they could benefit from rewards-based crowdfunding and equity-based crowdfunding and along the way pickup bigger deal size and deal flow that would make them sustainable.

The legislation hasn’t come (and probably won’t) and they’re essentially run out of runway. For example, iPledg, who’s CEO, Bryan Vadas states “iPledg continues to march on with its head above water, yet is denied the opportunity of generating substantial revenue by providing equity crowdfunding for creative, commercial, charitable and community spaces”.

Perhaps the most telling example is Australian crowdfunding platform Sproutback. Sproutback CEO Brett East says “because of a lack of equity crowdfunding within Australia, we are forced into licensing or selling our technology platform in order to be sustainable. There is no other viable way at this stage”.

Crowder, and events based crowdfunding platform has also disappeared from the local scene (and online) with key staff now residing in New York.

So there you have it. The delays, stalls and likely non-action of the government will mean that a promising line-up of intermediaries in Australia are “withering”, “dying” or heading “off to greener pastures”.

When (or if) Australia does engage like the rest of our trading partners in equity-crowdfunding there will be no home grown talent to make it work.

Perhaps this is why Malcolm Turnbull decided on the day that VentureCrowd launched its retail fund (VentureCrowd is operated by an Australian VC firm with access to the best of the Australian startup ecosystem), Malcolm was spruiking on behalf of Israeli equity-crowdfunding platform OurCrowd.

You may gather from this article a level of pessimism about the future of equity-crowdfunding here in Australia. But the author would like nothing more than to be proven wrong.

All is not lost. The government could;


  • Act swiftly to engage the willing known intermediaries like ASSOB and Pozible.
  • Enact new legislation (as we hope is suggested by CAMAC) that could remove the current barriers (like the 20/12 rule and non-solicitation rule) and encourage mum-and-dad investors (not just sophisticated investors) to join the crowd.
  • If such legislation were to be enacted, say before the end of this financial year the startup ecosystem would embrace it and it would take some of the sting out of the budget cuts.
  • In turn, this would encourage new intermediaries to establish quickly and drive capital flows from citizens to projects that inherently had the backing of the people from a financial and market sense.


Lets hope we see swift sensible action, but lets plan like there won’t be.

Andrew Ward CEO 3 Minute Angels

Andrew Ward CEO 3 Minute Angels

Andrew Ward is the CEO of 3 Minute AngelsAustralia’s largest massage company and one of my old fellow members of Entrepreneurs Organisation. +

Andrew is actively involved in shaping the debate on Crowdfunding and has created a community website to help stimulate discussion and formulate a submission for the Australian Crowdfunding Legislation review.

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