Thursday, May 8, 2014

Equity Crowdfunding in the International Space - Pt. 2 Australia, ASSOB

Australian's equity based crowdfunded investment market is older than most.  Australia also boasts an unique small offering board that has very high start-up success rate--the ASSOB--doubling the success rate of non-ASSOB offerings. 

Australian Securities & Investments Commission (“ASIC”) regulates equity based crowdfunding in Australia under the Australian Corporations Act (“Corporations Act”). Under the Corporations Act, public companies can raise funds from the public by filing a prospectus. Section 708 of the Corporations Act exempts small scale offerings from the disclosure requirements.

There are three types of exempted investors under this Section 708:
(1) known investors (family and friends);
(2) sophisticated investors (certified by accountant);
(3) professional investors.
Oh yeah, rich people gets their own ink: Section 708(11) exempts offers made to professional investors who has assets or control of at least $10 million.  Silly people, money is for rich people.

In addition, Class Order 02/273 provides an exemption for persons involved in offers of securities through a business introduction service. The persons exempted under this Class Order are:
(1) operators of the service (“Operator”);
(2) the issuer through a publication or at a meeting publishes or conducts the offer in accordance with the conditions of exemption for Operators (“Issuer”);
(3) professionals who endorse information for the introduction services (“Seller”); and
(4) people who sponsor or publish introduction services (“Endorser”).
Operators must not have any pecuniary interest in the outcome of the investment schemes and must make certain disclaimers (e.g., the investment is high risk) to be afforded the exemption.

The exemption for Issuers contains a $5 million cap for a single investment scheme. Issuers must also ensure the offer publication does not contain any false or misleading statements.

Sellers must ensure the accuracy of statements related to an offering under the exemption and there is a 20 investor cap for the offer issued in the preceding 12 months.

The Endorsers may only publish offers and related statements authorized by an Operator, Issuer, or a Seller.

The Australian Small Scale Offerings Board (“ASSOB”) operates its platform in compliance with Section 708’s exemptions and under the prescriptive requirements of ASIC Class Order 02/273. The ASSOB is often cited in the media outside Australia as an early example of equity based crowdfunding platform.

The ASSOB is organized like a stock market and hosts unlisted Australian companies. It claims to be the only facility in Australia for “secondary” sales of unlisted issued securities on its platform. ASSOB does not market investment opportunities and it does not provide financial advice to investors using its platform. This is because Section 708 does not entitle a company to freely advertise its offers. The only offers that may be openly advertised are those with Disclosure Documents lodged with the ASIC and meet the conditions of the relevant provisions of the Corporations Act. ASSOB therefore only provides investment opportunities to those listed under its subscription service.

ASOB limits each equity offering to twenty (20) non-sophisticated investors per year and promote capital raising campaigns of up to $5 million for unlisted companies. It prohibits participation by foreign companies that are not subject to the Australian Corporation Act 2001. It has a stringent vetting and quality assurance process. Companies listed under ASSOB must submit a quarterly report to include statement confirming solvency, summary of how investor funds have been spent and explanation of any deviations from the use of funds schedule disclosed with the offer documents. The quarterly reports must also include general summary of company’s progress towards stated milestones and any changes that affects the company in any way.

The ASSOB claims to have raised over $137 million to date. According to the World Bank Report, ASSOB shows that 86% of companies crowdfunded on its platform were still operating in 2012, compare to the 40% of noncrowdfunded (non-ASSOB) companies that fail after 3 years.

 The Australian Government, Corporations and Markets Advisory Committee, distinguishes the equity based crowdfunding model under the ASSOB from those anticipated elsewhere in the world. Because Australia has fared well through the recent global financial crisis, equity based crowdfunding schemes anticipated elsewhere (i.e., those allowed to openly market their offers on the Internet) will not likely be as influential in Australia. This assumes equity based corwdfunding schemes are a direct response to decreased investor activity due to global financial crisis.

Some would like it to be an opportunity for the poor to gain access to opportunity and equity.

Silly rich people, 
money is for people.


The Australian government recently did acknowledge the possibility of a flattened world and international forces may impact its equity crowdfunding market place. We shall see. . . 

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