Start out as a venture capitalist with just $50

INVESTORS seeking to own a slice of start-up small businesses will soon be able to dive in.

Equity crowdfunding – which will turn everyday Aussies into venture capitalists and angel investors – has been given the green light by the Federal Government and is likely to start matching investors and businesses early next year.

Equity crowdfunding started globally in 2011 and start-up businesses have raised more than $3 billion using its platforms in countries including the US, Britain and New Zealand.

Australian group OnMarket Crowd, one of the first platforms to apply for an equity crowdfunding licence here, says an estimated 200,000 small and medium sized (SME) businesses find it difficult to grow because banks won’t lend them money.

OnMarket Crowd founder Ben Bucknell said previously only rich venture capitalists or angel investors could buy into early stage unlisted businesses.

“Equity crowdfunding is an innovative way to fund someone else’s dream and reap the benefits of being an early stage investor,” he said.

“Through an app or online platform, entrepreneurs will be able to put their businesses up for ordinary investors to consider. In exchange for helping a business raise funds, investors become part-owners in the company. “It might be organic macadamia nuts or a social justice initiative that wouldn’t satisfy a bank’s strict lending criteria.” Investors pay between $50 and $10,000 for stakes in the small businesses. However, investing in early stage businesses is highrisk and a majority of start-ups fail to deliver returns.

Other platforms awaiting approval for equity crowdfunding licences from the Australian Securities and Investments Commission include Sharequity and Equitise, and approvals are not expected until early 2018.

ASIC Commissioner John Price said the new system would support innovation.

“ASIC welcomes the start of the new crowd-sourced funding laws,” he said.

“Crowd-sourced funding helps both start-ups and small to medium-sized businesses and investors access the opportunities that are available from an innovative economy. It is also important for investors to understand the benefits and risks of crowd-sourced funding and we encourage them to refer to the materials on crowdsourced funding on our MoneySmart website.”

As equity crowd-funded shares are usually in unlisted companies, they cannot be sold until a major transaction such as an initial public offer.

ASIC says investors who buy into a business using equity crowdfunding will have a cooling-off period of five business days to withdraw their offer if they change their mind.