Question:
Discuss About The Case An Australian Crowd Funding Exemption?
Crowdfunding allows small start-ups and entrepreneurs to raise funding for their business ideas. It is different from traditional investment sources such as venture capitalists, banks, or investment firms. The investors of crowdfunding include family members, relatives, friends and other small investors. There are large numbers of entrepreneurs with fresh ideas, who are looking for funding for their business projects. It is difficult for large financiers to invest in each one of them; therefore, crowdfunding has gain significant popularity between small entrepreneurs.
This essay will describe several aspects of crowdfunding to Howard Jones, to assist him in making a decision of funding his idea with crowdfunding or traditional sources of income. The success of crowdfunding in commercial and social sectors will also be analysed in the essay. Further, the essay will value the Australian regulation regarding crowdfunding and compares it with other countries regulations
Crowdfunding is a procedure of financing an idea or business from a large number of small financier’s investments[1]. Crowdfunding is a part of a crowd-sourced funding and alternating investment. The crowdfunding is different from traditional sources of funding a project such as a venture capitalist, bank debt or investment corporations. Generally, these financiers invest their capitals in a large-scale project, and these investors are limited in numbers. Crowdfunding gives small entrepreneurs funding for their projects, so they can expand, create and share their ideas with the world[2]. The projects of entrepreneurs are funded by a large number of small financiers. There are various online portals which assist entrepreneurs in sharing their ideas and small investors to invest in such ideas[3].
There are four different types of crowdfunding options available for entrepreneurs. The first option is reward-based crowdfunding, in which the entrepreneurs provide rewards and incentive to the financiers who invest in their ideas. The second method is equity-based crowdfunding where the investors get shares for the investment they provide. The third method is charity based crowdfunding where the purpose of crowdfunding is some social cause. The fourth type based on lending crowdfunding, in which the investment provided by financiers to entrepreneurs is considered as loan and the entrepreneurs pay such loan with interest[4].
There are few steps that an entrepreneur must follow before raising investment through crowdfunding method. The most important step is disclosure of complete and necessary information regarding the project. The entrepreneur must not hide or alter any information from the financiers. The information includes various specifics such as product details, the goal of business, the requirement of funds, and time frame of the project and reward given to the financiers[5]. All such information must be posted by entrepreneurs over the online portals for crowdfunding.
The popularity of crowdfunding will assist the Australian entrepreneurs in raising funds for their creative ideas. This development will assist in the growth of Australian economy. In Australia, Indigogo and Kickstarter are the two most popular websites for crowdfunding[6]. These websites provide investment to small entrepreneurs for various projects. A popular Australian game developing corporation called ‘Satellite Reign’ raised an investment of $461,333 in 2016, for their real-time strategy video game through crowdsourcing[7]. They use Kickstarter website to post the requirement of investment for their project. More example of successful crowdfunding in commercial context includes Fame & Partners and CrowdMobile. These technical corporations raised an investment of $2 million through crowdsourcing in 2013. Kickstarter reported that in 2014, more than 22 thousand small projects raised investment through crowdfunding. These businesses raised more than $500 million through the online platform of Kickstarter. Many small Australian corporations raised their investment through crowdfunding methods such as Ninja Blocks and KoalaSafe.
Crowdfunding raised funds for not just entrepreneur projects, but many social caused were funded through crowdfunding. Various charitable organisations and individuals use crowdsourcing to raise funds for specific social objectives. For example, Eliza was suffering from Sanfilippo syndrome, due to which she was unable to walk, talk or eat her food. She had this disease when she was 4 years old. Eliza’s father made several videos of her daughter’s condition and uploaded them to social media sites to raise funding for her treatment. The money raised through social media websites was not enough since the treatment of Eliza cost more than $2.5 million. The video of Eliza was seen by Benjamin Von Wong, who is a movie director. He made a small movie on Eliza called ‘Saving Eliza’ and uploaded it over social media websites. The movie gained a lot of attention and raised a donation of $380,000 through crowdfunding. Currently, the crowdfunding page of Eliza has raised more than $1.8 million for her treatment[8].
Crowdfunding is a fairly modern method of raising funding in Australia. The government is adopting the regulation of crowdfunding slowly by passing the act for crowdfunding on 28th March 2017. The Corporations Amendment (Crowd-sourced Funding) Act 2017[9] introduced various new guideline issued by Australian government regarding crowdfunding. This act amended Corporations Act 2001 and added various new principles regarding crowdfunding for small corporations. This act also added few new regulations in Australian Securities and Investments Commission Act 2001. The new amendments regarding crowdsourcing have changed the procedure of Australian market license, by providing various exemptions to the market operators[10].
This act is applied over unlisted organisations with a yearly turnover and asset value lower than $25 million. The organisations that are not subsidiary or related to other listed corporations are also covered under this act. The act gives these organisations right to raise funding up to $5 million through the crowdfunding procedure in a year. The new act also provided regulations regarding new disclosure system which dismissed the requirement of some corporate social responsibility procedures and made the process easier for the organisation. A proposal document and online platform should be mentions in the offer of crowdfunding. All the necessary details regarding the crowdfunding offer must be included in the proposal document. Small scale investors have right to invest ten thousand dollars in crowdfunding projects. The investors must accept the risk of crowdfunding process in five days.
The investment of wholesale investors was restricted by the new act of crowdsourcing. The wholesale investors can invest a certain amount of capital in one particular crowdfunding project. But the act does not restrict the number of projects in which wholesale investors can invest[11]. There is no such limit available in crowdfunding regulations of other countries such as the United States and the United Kingdom[12]. The lack of limits assists entrepreneurs to raise a large amount of investment for their projects. The Australian regulations are strict than other countries regarding the crowdfunding procedures. After passing the act for crowdfunding, the government received a large amount of criticism from start-ups and market experts. The limit provided by Australian act limits the possibilities of large funding for individual projects[13].
Other countries such as the United States, New Zealand, and the United Kingdom have more open and easier regulations regarding the crowdfunding procedure. In united states, the crowdfunding procedure is used by entrepreneurs to raise funding for their different and unique business ideas. For example, Oculus Rift raised an investment of $2.5 million through crowdfunding by using Kickstarter website. In 2014, Facebook bought Oculus Rift for $2 billion and it is still one of the biggest examples of crowdfunding success[14]. The amount rises through crowdfunding in 2015 was more than $34.4 billion worldwide. Australia can adopt the policies of other countries to improve their procedure of crowdfunding. The policies adopted by the Australian government is definitely a step forward in the improvement of crowdfunding procedure but there is still room for significant improvement. The regulations adopted by Australia does not benefit small entrepreneurs, as compared to other countries[15]. The restriction imposed by Australian government restrict small entrepreneurs from using crowdfunding for raising investment for their projects.
Howard Jones can use either crowdfunding method or other traditional methods for raising funding for his idea. For Howard Jones, crowdfunding is a better method for raising investment then compared to other traditional sources. Other traditional sources limit the control of Howard Jones from his own project since they are large corporations, and they prefer to do work according to them. But in case of crowdfunding, Howard Jones would have the ability to control the decision of his projects. Although the regulations of the Australian act have imposed various restrictions on the crowdfunding procedure, still it is a far better option than other traditional investment sources.
Conclusion
The above essay concluded that crowdfunding assists small entrepreneurs and businesses to raise funding for their ideas through small financiers. It can be used for business as well as charitable purposes. In different countries such as the United States and the United Kingdom, crowdfunding’s popularity has grown significantly. Many small entrepreneurs and organisations are using it to raise funding for their unique and creative ideas. Australia has implemented the regulations of crowdfunding but there is still room for improvement. Most of the entrepreneurs and market experts are not satisfied with the Australian regulations, but it is still a positive option for small entrepreneurs. Howard Jones can have various advantage if he decided to raise investment through crowdfunding processes such as lack of stress from a large corporation and more control on the project. The small business in Australian economy has the opportunity to expand their business by using crowdfunding as a route to raise investment.
References
Beatty, Andrea, et al. “Crowdfunding to take-off in Australia?.” Governance Directions 67.2 (2015): 100.
Belleflamme, Paul, Thomas Lambert, and Armin Schwienbacher. “Crowdfunding: Tapping the right crowd.” Journal of business venturing 29.5 (2014): 585-609.
English, Rebecca. “Rent-a-crowd? Crowdfunding academic research.” First Monday 19.1 (2013).
Fitzpatrick, Jeff, et al. Business and corporations law. LexisNexis Butterworths, 2011.
Giones, Ferran, and Pyayt Oo. “How Crowdsourcing and Crowdfunding are Redefining Innovation Management.” Revolution of Innovation Management. Palgrave Macmillan UK, 2017. 43-70.
Isac, Claudia. “Crowdfunding–An Alternative For Financing A Business.” Annals of the University of Petrosani, Economics 14.2 (2014): 133-140.
Juredieu, Franck, and Sébastien Mayoux. “Crowdfunding Legal Framework: An International Analysis.” International Perspectives on Crowdfunding: Positive, Normative and Critical Theory. Emerald Group Publishing Limited, 2016. 81-97.
Kirby, Eleanor, and Shane Worner. “Crowd-funding: An infant industry growing fast.” IOSCO, Madrid (2014).
Laycock, Rebecca A. Crowdfunding and independent screen content production in Australia: A direct economic relationship between producer and audience. Diss. Queensland University of Technology, 2015.
Malouta, Parthena Maria. “Legal aspects of crowdfunding.” (2017).
Pearson, Gail. “Further challenges for Australian consumer law.” Consumer Law and Socioeconomic Development. Springer, Cham, 2017. 287-305.
Profatilov, Denis A., Olga N. Bykova, and Maria O. Olkhovskaya. “Crowdfunding: Online Charity or a Modern Tool for Innovative Projects Implementation?.” Asian Social Science 11.3 (2014): 146.
Profatilov, Denis A., Olga N. Bykova, and Maria O. Olkhovskaya. “Crowdfunding: Online Charity or a Modern Tool for Innovative Projects Implementation?.” Asian Social Science 11.3 (2014): 146.
Ralcheva, Aleksandrina, and Peter Roosenboom. “On the road to success in equity crowdfunding.” (2016).
Vitins, Matt. “Crowdfunding and Securities Laws: What the Americans are doing and the case for an Australian crowdfunding exemption.” JL Inf. & Sci.22 (2012): 92.
[1] Rebecca A. Laycock. Crowdfunding and independent screen content production in Australia: A direct economic relationship between producer and audience. Diss. Queensland University of Technology, 2015.
[2] Jeff Fitzpatrick, et al. Business and corporations law. LexisNexis Butterworths, 2011.
[3] Denis A. Profatilov, Olga N. Bykova, and Maria O. Olkhovskaya. “Crowdfunding: Online Charity or a Modern Tool for Innovative Projects Implementation?.” Asian Social Science 11.3 (2014): 146.
[4] Aleksandrina Ralcheva, and Peter Roosenboom. “On the road to success in equity accounting.” (2016).
[5] Paul Belleflamme, Thomas Lambert, and Armin Schwienbacher. “Crowdfunding: Tapping the right crowd.” Journal of business venturing 29.5 (2014): 585-609.
[6] Claudia Isac. “Crowdfunding–An Alternative For Financing A Business.” Annals of the University of Petrosani, Economics 14.2 (2014): 133-140.
[7] Rebecca English. “Rent-a-crowd? Crowdfunding academic research.” First Monday 19.1 (2013).
[8] Ferran Giones, and Pyayt Oo. “How Crowdsourcing and Crowdfunding are Redefining Innovation Management.” Revolution of Innovation Management. Palgrave Macmillan UK, 2017. 43-70.
[9] Parthena Maria Malouta. “Legal aspects of crowdfunding.” (2017).
[10] Gail Pearson. “Further challenges for Australian consumer law.” Consumer Law and Socioeconomic Development. Springer, Cham, 2017. 287-305.
[11] Andrea Beatty, et al. “Crowdfunding to take-off in Australia?.” Governance Directions 67.2 (2015): 100.
[12] Franck Juredieu, and Sébastien Mayoux. “Crowdfunding Legal Framework: An International Analysis?.” International Perspectives on Crowdfunding: Positive, Normative and Critical Theory. Emerald Group Publishing Limited, 2016. 81-97.
[13] Eleanor Kirby, and Shane Worner. “Crowd-funding: An infant industry growing fast.” IOSCO, Madrid (2014).
[14] Denis A. Profatilov, Olga N. Bykova, and Maria O. Olkhovskaya. “Crowdfunding: Online Charity or a Modern Tool for Innovative Projects Implementation?.” Asian Social Science 11.3 (2014): 146.
[15] Matt Vitins. “Crowdfunding and Securities Laws: What the Americans are doing and the case for an Australian crowdfunding exemption.” JL Inf. & Sci.22 (2012):
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