Australia’s fledgling equity crowdfunding space closed out deals worth just $30 million this year, prompting arguments that an expansion of offsets for early stage company investments could boost the sector.
In the first full calendar year where equity crowdfunding was expanded to all unlisted companies, 50 deals were completed worth close to $31 million. One company, women’s ridesharing app Shebah accounted for more than 10 per cent of that number, raising $3.6 million.
The crowdfunding market is still small in Australia compared to the listed equities where $6 billion was raised through initial public offerings in 2019 despite a choppy market for new shares.
Since 2017, equity crowdfunding platforms have allowed unlisted companies to offer their users equity in companies with small minimum investments of as much as $50. The laws were expanded last year to allow all proprietary companies to access the scheme, though there are still only limited options for reselling shares bought in this way.
The challenges posed by this were revealed this year when the liquidation of crowdfunded restaurant Sash left investors without a way to sell shares.
The majority of funds raised this year came through the Birchal platform, co-founded by Alan Crabbe and Matt Vitale.
Mr Vitale said the 2019 numbers showed equity crowdfunding was off to a “great start” and raise figures were comparable to other nations.
However, he said more could be done to make investing in very early stage businesses attractive.
“We think the regime could be further improved by expanding the early stage innovation company (ESIC) tax incentives, which have been broadly based on the UK’s schemes. Many consider the success of the UK equity crowdfunding regime has been partly due to enterprise investment scheme relief,” he said.
The UK system offers income tax offsets of up to 50 per cent for those investing in seed stage enterprises.
Australia has a similar system for early stage innovation companies, but this is capped at a 20 per cent of the amount paid and there are limits on what can be claimed if not a non-sophisticated investor.
Early stage company offsets is one area that has been raised for review in a senate inquiry into fintech and regtech regulation in Australia.
Co-founder of raise platform Equitise, Johnny Wilkinson, said on average, companies that raised cash through the site hit 250 per cent of their minimum targets in 2019.
“This shows that there is momentum in the industry as more and more people discover this new way to invest,” he said.
Equitise closed 11 deals in 2019. Across all platforms, around 15 per cent of deals don’t make their final targets.
Investors will be able to trial selling equity crowdfunding shares for the first time in 2020, when Birchal Trade launches.
According to its website, the platform is only able to facilitate 100 trades for a company worth up to $1.5 million each year.
Source: Thanks smh.com