Need the Market Size of Equity Crowdfunding in Australia

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Need the Market Size of Equity Crowdfunding in Australia

Crowdfunding only became legal in Australia in March 2017. Prior to that, companies like Equitise provided discrete equity-based crowdfunding solutions to particular investors via New Zealand, which was allowed. In light of the newness of the law and the restrictions it puts in place, sources have been unwilling to estimate the total addressable market. In 2016, before the changes in the law, KPMG reported the market size of equity crowdfunding in Australia to be $10.51M USD, however, this represented a massive decline from the year before, when it was $56M USD.

METHODOLOGY


After a thorough search of Australian media and international business media, as well as government statements, industry reports and internal business documents, we were unable to find any sources that had made an estimate as to the potential size of the equity crowdfunding market in Australia. There has been no shortage of companies seeking to enter the market, but it appears to be too early to tell how much the business could be worth, given the restrictions placed under the new laws.

We have outlined what those restrictions are in order to provide a picture of why projecting the total addressable (or total feasible) market is a difficult proposition, as well as some other relevant background information.

There has been some work done to analyze comparative crowdfunding markets, with Australia one of the countries included, however the only work of this type that we could find was available for purchase only. The KPMG report we have cited has limited information publicly available, but the full report can be purchased as well.

Corporations Amendment (Crowd-sourced Funding) Bill 2016


The bill that made crowd-sourced funding legal in Australia was passed in March 2017, having been introduced the year before. (Bills are named according to the year in which they are introduced, not the year in which they are passed into law.) The first crowd-sourcing companies were able to start business in September 2017. The law allows crowd-sourced funding, but also sets parameters for its use. These include:

— Eligible companies may raise a maximum of $5M AUD.
— A single donor may contribute a maximum of $10,000 AUD to a single company in a single calendar year.
— Proprietary businesses were excluded. (This has since been amended, however the prior rules were still in effect in September.)
— Only companies with less than $25M AUD in assets and annual revenue are eligible.
— Providers must have a financial services license.
— Providers are responsible for vetting companies applying to use their platform.
— Investors are allowed a five-day "cooling-off period", during which time they may choose to withdraw their investment.

As of January 2018, only seven companies had obtained a license from Australian Securities and Investments Commission: Big Start, Billfolda, Birchal Financial Services, Equitise, Global Funding Partners, IQX Investment Services and On-Market Bookbuilds.

The initial bill was heavily criticized, because it excluded 99.7% of Australian companies from participating. Furthermore, Equitise estimates that only 1% of applicants make it through their vetting process.

Even with the changes, the law still imposes what some perceive as onerous restrictions on the proprietary companies eligible:

— At least two directors
— Accounting-standard compliant financial reporting
— Auditing of any company that raises $3M AUD or more
— Related party transactions are restricted

COSTS OF BUSINESS


Birchal charges its clients setup costs of $1,990 AUD plus the federal Goods and Services Tax (GST, 10% in Australia), which is refundable upon the successful completion of the crowd-sourced funding offer. Then, they charge 6% of funds raised (plus GST) if the CSF offer is successful.

Additional costs are also borne by companies, such as audits, which can be in the range of $20,000.

With the tiny number of companies currently eligible to participate, some have predicted that the competition may be too great to allow companies to make profits before proprietary businesses come on board.

CONCLUSION


The crowd-sourced equity funding market in Australia has been worth as much as $56M in recent years, however this was before legislation that officially allowed it to take place. The law as initially passed excluded 99.7% of Australian companies from accessing CSF, and while the law has currently been relaxed, it is too early to tell how many proprietary companies will qualify, and how many of those will decide that the benefits of participation outweigh the costs.
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