The limit of 20 investors makes the potential market a very small crowd and ASIC does not see ASSOB as a crowd-funder. Nevertheless, as other jurisdictions consider models for equity crowdfunding, ASSOB has been getting global coverage as an example of a platform that allows a crowd, even though a small one, to provide equity to small businesses without offer documentation.
Niederer says pressure to increase the 20-investor limit is likely to grow in Australia. "I think [section 708] has been very smart legislation," he says, "but the way the world's going, I think there'll be a push to open [the 20 investor limit] up so that smaller amounts can be invested. People can go and put a thousand dollars in the pokies and nobody cares. If they want to have a punt on a company that's in a niche that they love, they should be able to put $1000 into that company, and do it in a way that's relatively easy - but have the assurance that some safeguards are in place."
ASSOB would raise five times more capital than it does if the 20 investor limit was increased to 100 investors, Niederer says, because in most offerings, many potential investors wish to contribute small amounts of capital but companies are forced to reject these amounts because the investor limit forces them to the larger offerings.
ASIC's Tanzer says any change to the existing law to open equity crowdfunding up to a larger crowd is a matter of policy for the government and says there has been "no clamour" by market participants for changes to be made. Should such a change be considered, he urges caution, saying the limit of 20 investors is important and similar to limiting the number of shareholders in an Australian proprietary limited company.
"The policy thinking behind that is that, if you have a relatively small number of people, they're in a position to be much more familiar with the business," he says. "It's the type of thing you see in families or communities. We have the exemption for a very good reason - equity fund-raising is quite a different animal [to pledge and reward crowdfunding] and it periodically entitles investors to a better level of disclosure and requirements of those that offer to them. That protection has been built up over years, due to problems with fraud."
Banks pushed out of the limelight
The extraordinary arrival of pledge and reward crowdfunding and the potential for equity to be raised in a similar way throws down a challenge to bankers as it reflects growing disintermediation in investment markets. While it is too early to declare that crowdfunding will take the reins from the banks, which have dominated equity capital raising, things appear to be moving in that direction. Tompkins reckons the more entrepreneurial banks and private equity players will ultimately take strategic stakes in equity crowdfunding platforms.
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