One must continually question government stance on over-regulation and inconsistent policies protecting the crowd from self-harm. Currently, anyone can take their hard-earned life savings to any casino and place it all on red, and the government seems happy to allow one to do so. But try to invest $1,000 in a start-up – a venture that has the potential to create employment, generate sustainable returns, and bring a new product or service into being – and the government will stop you so that you don’t naively place yourself at risk of losing your cash. How and why are we in this situation?
For well over a year, the US government has promised to take a proactive stance on bringing sensibility into play through the implementation of the JOBS act. 2013 was held up to be the “Year of the Entrepreneur” with over $300bil of community funding coming on stream to assist start-ups and small business. All of this funding was going to be made available without a single cent coming from government, thus reducing fiscal pressure and potentially assisting to balance the country’s books by energising commercial activity which would generate taxes and spending.
Daunted by the Fiscal Cliff which the US economy faced as Christmas fell at the end of 2012, focus was taken off the implementation of the JOBS Act which was to pave the way for investment crowd funding to become part of the economic landscape. Momentum was taken out of the sails, and we slipped past the critical dates without the fanfare that was to welcome in new legislation. Since that deadline, we have seen the devil getting well and truly tangled up in the detail, and little clarity exists on how the tangle will become unraveled.
Much of the worldwide economic community continues to mark time as we watch the US attempt to unscramble the egg, and sort out to painfully minute detail as to how they will protect investors from any form of self harm by potential lost investment. It seems that the main thing that has been lost is the fact that investment, by its very definition, involves risk. Astute investors mitigate risk by research, assessment, and hedging their outlay. The US government continues “paralysis by analysis”, and dares not make a move for which they could possibly held accountable. Governments that are watching the US and who plan to move based on the US experience (like the Australian federal government) continue to be content to stand in the queue and not move, being satisfied to maintain the status quo.
But the detail is not a “new to world” science. Organisations like the Australian Small Scale Offerings Board (or ASSOB) have years of experience in investment crowd funding. For almost a decade, ASSOB has operated its platform to permit the issue of securities to be made to certain types of investors without a disclosure statement and regulated promotion securities offers. Under the 20/12 rule, companies on the ASSOB platform are able to raise up to $2mil from 20 or fewer persons in any rolling 12 month period. With no frauds in this time, and having facilitated the raising of over AUD $130mil to date, surely this experience must be a consideration on which governments can amend policy to allow broader range investment crowd funding. The experience and the rules of the game are tried and (successfully) tested. Surely there must be grounds there for governments to make a start and allow investment crowd funding to assist in areas to which government budgets just won’t stretch.
Whilst ASSOB has the longest history in investment crowd funding, they are not alone in this space. Employing quite a different model to ASSOB, Crowd Cube in the UK have successfully funded £6mil in start-up, early stage and growth businesses. Their experience extends across sectors including retail, professional services, technology, tourism, IT, education, and oil and gas. Interestingly, and perhaps the greatest testimony to the way in which investors feel suitably comfortable and protected is that 18% of investors have invested multiple times.
Investment crowd funding does not need governments to reinvent the wheel. The experience is there in a number of models, and the overall experience seems to be fair and good, with players from both sides completely aware of what they are entering in to, and with full understanding of the risks and rewards on offer. Governments can access the template by simply engaging with the operators who have proven success under their belts. Then it will be up to them not to draft the game rules (for they are all written), but to define the extent of the rules, to govern prudent investment crowd funding activity, and enjoy robust economies supported by community funding.