Self-managed superannuation funds will soon be able to invest in potentially high-growth unlisted companies as a new era of crowdsourced equity funding begins.
The federal government’s Corporations Amendment (Crowd-sourced Funding) Act 2017 came into effect on 29 September 2017. The Act, passed by Parliament in March, provides a legislative framework for crowdsourced equity funding in Australia.
Peter Townsend, principal at Townsends Business & Corporate Lawyers, says SMSFs will have access to investment opportunities in emerging companies that have typically been the preserve of professional investment funds and high-net-worth investors.
“Crowd-sourced funding platforms help organisations raise funds from large groups of people who typically provide small amounts. Crowdfunding sites, such as Kickstarter in the United States, have raised billions of dollars for commercial and not-for-profit projects,” Townsend says.
“Equity crowdfunding broadens the concept by allowing earlier-stage companies to raise funds from investors in exchange for equity in the business.”
The Australian Crowd-sourced Funding Act, in its final consultation phase, proposes several reforms. Retail investors (those with less than $250,000 in income or less than $2.5m in assets for each of the last two financial years, certified by an accountant) can invest up to $10,000 per company each year through an equity crowdfunding campaign. Wholesale investors have no investment-size restrictions.
The Australian Small Scale Offerings Board (ASSOB) is Australia’s largest crowd-sourced equity funding site. Another platform is BRICKX, an Australian-first fintech that buys blue-chip property in residential areas, is generating interest from SMSFs.
This may be the new way forward for property investors who have less purchasing power at their disposal, with crowdfunding sites or intermediaries like ASSOB opening up opportunities that they would have previously missed out on.
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That said, the need for SMSF trustees to do due diligence is “substantial”, Townsend warns.
“Crowdfunding sites may have limited operating records, may not have robust compliance or governance systems, or do inadequate checks on companies on their platform,” he says.
“SMSFs appear keen on an exposure to this type of asset but should act from a prudent investment approach rather than a ‘get-rich-quick’ mentality.”
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