Crowd Funding – The Australian Government’s Failure to Deliver is Starving Small Business and StartUps
There is only one thing worse than inaction, and that is setting a promise, creating expectation and hope, and then failing to deliver. Add to that the act of removing alternative courses of action for the audience to whom you have made the promise, and it is an example of how to totally disenfranchise the group to whom you made your promise. That is exactly what the Australian government has done to the small business and startup sector with regards to equity crowd funding, and whilst it is hurting the sector, the true pain is yet to come.
In late 2013, the Corporations and Markets Advisory Committee (CAMAC) released a discussion paper on equity crowd funding in Australia, and sought written submissions about the matters they raised. They then promised to hold round table discussions with respondents in the first quarter of 2014 before settling the report. Well the sun is now setting on the second quarter, and as the third quarter dawns, we have little indication as to when this will be progressed and addressed (if ever).
Whilst our outlook is usually optimistic, this glum outlook is based on last month’s federal government budget, which included the axing of CAMAC. At the time of the budget being delivered, we were told that the government review of equity crowdfunding would soon be completed as the final piece of work before the Corporations and Markets Advisory Committee ceased to exist. At the same time, CAMAC executive director John Kluver said the review into crowdsourced equity funding was nearing completion. CAMAC was to report to government late in May and the report will be publicly available from early June, yet none of the respondents have been consulted or advised, so the process has been truncated, with critical engagement with the key stakeholders being seemingly removed from the process. And as at early June, none of the stakeholders have been advised that the latest deadline, that of CAMAC reporting to the government by the end of May, had actually been met or whether it was another disappointment of the failed process.
Repeatedly, the federal government has expressed they are open to enabling online equity-based crowdfunding in Australia to help encourage local tech entrepreneurs to stay rather than be lured to Silicon Valley. As a nation, we need to maintain our IP, and keep investment on shore. This is increasingly under threat as the rest of the world wakes up to equity crowd funding, while Australia continues to lose while they snooze. The talk last year of positive moves to equity crowd funding promised to retain wealth on our shores, and encourage entrepreneurship and job creation – all positive signs for Australians and the Australian economy.
There were also a number of related documents and discussions under contemporaneous consideration by the federal government, including:-
- A submission from senior manager of regulatory and public policy at the ASX, Diane Lewis, which expressed concern about a “market failure” in Australia, where the venture capital market was not developed enough to fill the start-up financing gap, and where bank financing and public listings were not a feasible option.
- Malcolm Turnbull, Communications Minister, was asked about the Coalition’s pledge to change rules governing employee share schemes, which make it unfeasible for Australian start-ups to emulate Silicon Valley players by offering stock options in lieu of high salaries to early-stage employees. His reply was clear – “We need to do more to encourage innovative companies in Australia . . . an obvious area is rectifying the anomalous treatment of employee shares and options in Oz”.
- Last year, chief executives from Australia’s technology sector called on the government to speed up its deliberations on the matter, which have stalled since the Coalition won office last September.
It was the stalling that was creating anxiousness after the government promised so much. Their undertaking to address the matter, and CAMAC’s discussion paper on equity crowd funding in Australia, along with their promise to engage with the sector sent the message that they were serious about small business and start-ups. But since that time, we have only been delivered two things – inaction, and then the axing of CAMAC. Add to this the axing of other federal government assistance programs for small business and start-ups (such as Commercialisation Australia) and we find ourselves in a vacuum of disappointment, with even more motivation for innovators to head off shore to satisfy their needs.
At a time when there is such a thirst for small business and start-ups to receive a mechanism to raise funds, coupled with a government desire to divest themselves of funding programs and risk, there has never been a better time for the Australian federal government to address the issue of equity crowd funding, and for them to permit equity crowd funding to become permissible under law in Australia.