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Crowd Funding
survey findings

  December 2011

  www.pennampartners.com
Context
•   The United States has recently introduced          •   In an Australian context, crowd funding in
    proposed legislature – ‘The Entrepreneur               exchange for securities is not permitted
    Access to Capital Act’ (“the Bill”) to allow           due to legislature restrictions.
    startups to use crowd funding to raise
    capital in exchange for securities. Whilst         •   Startups in Australia have a concession,
    the Bill has been passed by the US House               commonly referred to as the 20/12/2 rule,
    of Representatives, it is yet to be                    where they are allowed to raise a
    approved by the US Senate at the time                  maximum of AUD 2,000,000 from a
    this survey was initiated.                             maximum of 20 ‘retail’ investors in a
                                                           rolling 12 month period without the need
•   In a nutshell, the Bill will allow startups to         to meet the arguably burdensome
    raise:                                                 disclosure regime. However, a strict no
     –   Annual maximum capital of USD 1,000,000           general solicitation rule still applies.
         or USD 2,000,000 (if audited annual
         financials are provided);
                                                       •   This survey has been carried out to
     –   Annual investment by an investor is
         limited to the lower of USD 10,000 or 10%         determine whether it is beneficial for
         of their annual income; and                       Australia to replicate the US and have a
     –   General solicitation will be permitted with       crowd funding regime (in addition to the
         a consequential amendment being made.             20/12/2 rule).
Findings
1. Would it be beneficial to allow securities crowd funding in Australia as an
alternative avenue to seek seed/early stage capital (i.e. should Australia follow in the
footsteps of the US and bring in reforms to allow securities crowd funding)?


                                             Response


                                      10%
                            10%
                                                                                Yes
                                                                                No
                                                       80%                      Maybe



   Note: Comments were made by some respondents that the appropriate regulatory measures
   should be put in place to protect investors and prevent promoters from abusing this concession.
Findings
2. What would be the ideal maximum amount that can be raised through a crowd
funding platform to ensure the process is still effective, compliance costs are kept at
a minimum whilst maintaining integrity in the process?


                                             Response


                                          10%                             $100,000
                            30%                   10%
                                                                          $200,000
                                                         20%              $500,000
                                                                          $1,000,000
                                30%
               0%                                                         $2,000,000
                                                                          Other

   Note: No survey respondent chose the $2,000,000 option. Some respondents prefer the ideal
   maximum amount to be between $4,000,000 - $5,000,000 whilst others believe it is subjective and
   depends on the underlying venture.
Findings
3. Profile of survey participant




                                     Response

                               0%               Entrepreneur/
                                                business owner
                                         40%
                  50%                           Financial backer


                                   10%          Advisor/service
                                                provider
                                                Other
Conclusion
Summary of findings                                  Points to ponder
•   80% of respondents are receptive to the idea     •   Should crowd funding be undertaken
    of having a securities crowd funding regime          through an ASIC regulated intermediary, by
                                                         any third party or by the investee company
    in Australia, this conclusion has to be viewed       (say via their twitter or facebook a/c)?
    in the light of:
     –   The sampling pool was made of 40            •    What would be an ideal annual investment
         respondents; and                                ceiling cap for a crowd funder to limit loss
     –   Only 10% of the respondents were                exposure and protect the crowd funder?
         investors.
                                                     •   What would be the minimum (financial and
                                                         non-financial) information required to be
•   The majority of the respondents believe that         disclosed to allow the crowd funder to make
    at least $1,000,000 in capital can be raised         an informed decision?
    from a capital raising platform whilst still
    maintaining the integrity and effectiveness of   •   What can be done to minimise company
                                                         secretarial costs given the comparatively
    the process and keeping compliance costs             larger shareholder base if the crowd funding
    down.                                                avenue is being used?

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Crowd funding survey findings

  • 1. Crowd Funding survey findings December 2011 www.pennampartners.com
  • 2. Context • The United States has recently introduced • In an Australian context, crowd funding in proposed legislature – ‘The Entrepreneur exchange for securities is not permitted Access to Capital Act’ (“the Bill”) to allow due to legislature restrictions. startups to use crowd funding to raise capital in exchange for securities. Whilst • Startups in Australia have a concession, the Bill has been passed by the US House commonly referred to as the 20/12/2 rule, of Representatives, it is yet to be where they are allowed to raise a approved by the US Senate at the time maximum of AUD 2,000,000 from a this survey was initiated. maximum of 20 ‘retail’ investors in a rolling 12 month period without the need • In a nutshell, the Bill will allow startups to to meet the arguably burdensome raise: disclosure regime. However, a strict no – Annual maximum capital of USD 1,000,000 general solicitation rule still applies. or USD 2,000,000 (if audited annual financials are provided); • This survey has been carried out to – Annual investment by an investor is limited to the lower of USD 10,000 or 10% determine whether it is beneficial for of their annual income; and Australia to replicate the US and have a – General solicitation will be permitted with crowd funding regime (in addition to the a consequential amendment being made. 20/12/2 rule).
  • 3. Findings 1. Would it be beneficial to allow securities crowd funding in Australia as an alternative avenue to seek seed/early stage capital (i.e. should Australia follow in the footsteps of the US and bring in reforms to allow securities crowd funding)? Response 10% 10% Yes No 80% Maybe Note: Comments were made by some respondents that the appropriate regulatory measures should be put in place to protect investors and prevent promoters from abusing this concession.
  • 4. Findings 2. What would be the ideal maximum amount that can be raised through a crowd funding platform to ensure the process is still effective, compliance costs are kept at a minimum whilst maintaining integrity in the process? Response 10% $100,000 30% 10% $200,000 20% $500,000 $1,000,000 30% 0% $2,000,000 Other Note: No survey respondent chose the $2,000,000 option. Some respondents prefer the ideal maximum amount to be between $4,000,000 - $5,000,000 whilst others believe it is subjective and depends on the underlying venture.
  • 5. Findings 3. Profile of survey participant Response 0% Entrepreneur/ business owner 40% 50% Financial backer 10% Advisor/service provider Other
  • 6. Conclusion Summary of findings Points to ponder • 80% of respondents are receptive to the idea • Should crowd funding be undertaken of having a securities crowd funding regime through an ASIC regulated intermediary, by any third party or by the investee company in Australia, this conclusion has to be viewed (say via their twitter or facebook a/c)? in the light of: – The sampling pool was made of 40 • What would be an ideal annual investment respondents; and ceiling cap for a crowd funder to limit loss – Only 10% of the respondents were exposure and protect the crowd funder? investors. • What would be the minimum (financial and non-financial) information required to be • The majority of the respondents believe that disclosed to allow the crowd funder to make at least $1,000,000 in capital can be raised an informed decision? from a capital raising platform whilst still maintaining the integrity and effectiveness of • What can be done to minimise company secretarial costs given the comparatively the process and keeping compliance costs larger shareholder base if the crowd funding down. avenue is being used?