Equity crowdfunding platforms clear final hurdle

Start-ups and small businesses finally have the ability to raise money from the general public in exchange for a stake in the company after the regulator approved the first batch of equity crowdfunding platforms.

The Australian Securities and Investments Commission granted licences to seven platforms on Thursday: Big Start, Billfolda, Birchal Financial Services, Equitise, Global Funding Partners, IQX Investment Services and On-Market Bookbuilds.

But the regime is still restricted to small public companies, while the vast majority of start-ups and family companies are private. Legislation to extend the rules to proprietary companies is before Parliament, with other bills dominating the legislative agenda in recent months.

Annie Parker, chief executive of start-up co-working space Fishburners, said the start-up community had been waiting for a long time.

"It's great to finally see Australian start-ups have the capability to raise funds in return for equity, it's been a long time coming," Ms Parker said. "There's more work to do to make sure it's as competitive as other global markets, but it's a step in the right direction."

Crowdfunding emerged about 10 years ago, with platforms such as Kickstarter, Indiegogo and Pozible that enable creators to raise money for a project from the public. Typically they would offer rewards, ranging from a simple "thank you" to a full-scale product.

Equity crowdfunding - or crowd-sourced equity funding as it's officially known in Australia - is a similar concept except the supporters are investors who are given a stake in the business. It has been legalised for several years in many countries overseas, including New Zealand, the United States, Britain and Italy.

On paper Australia gave retail investors access to equity crowdfunding in late September, but it's taken until now for ASIC to grant the first licences to intermediary platforms. The companies raising money through the platforms must be limited by shares with less than $25 million in assets.

The law lets eligible companies source up to $5 million a year through crowd-sourced equity funding and small investors put in as much as $10,000 a year in each company. Birchal, a sister platform to Pozible, is letting investors start with as little as $50.

On-Market Bookbuilds founder Ben Bucknell said he'd seen the success of equity crowdfunding in Britain and he saw equity crowdfunding as a "logical extension" of his company's infrastructure and skill base.

"It's been really successful in the UK," Mr Bucknell said. "They've got a three or four year jump on us. Investors over there have really embraced it and companies [have too] as a source of capital."

Mr Bucknell said extending the regime to private companies was an important step in making it useful for the majority of start-ups. "There is a transitional regime in place that lifts some of typical burdens for public companies, but extending it to private companies is important," he said. "I'm looking forward to it coming through."

A number of deals are already in the pipeline: Birchal is ready to kick off fundraising offers for Melbourne craft brewer SAMPLE Brew and shave club Oscar Razor in February; On-Market Bookbuilds will launch multi-million capital rounds for companies in the medical cannabis and solar energy sectors.

SAMPLE Brew founder Vedad Huric said he sought expressions of interest through Birchal in December and was "overwhelmed by the response", with close to $2 million in potential investment.

He and his three investors, who pitched in about $500,000 between them in mid 2017, would now figure out exactly how much they wanted to raise and the appropriate pricing.

"Our vision and goal was that the success of SAMPLE is largely based on our loyal audience, and the idea was crowd-sourced funding would be a way to give an opportunity to our consumers to own a piece of SAMPLE, and we could call it SAMPLE Collective," Mr Huric said. "I don't think we'd be selling the whole company, definitely not."

SAMPLE, which started in 2014, had turnover of $2.3 million last financial year and is growing rapidly, Mr Huric said. The brand has a strong following in Melbourne and the company would use the capital raised through Birchal to expand to NSW and Brisbane.

This story Equity crowdfunding platforms clear final hurdle first appeared on The Sydney Morning Herald.