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Small business looks to the crowd for helping hand

As detailed in the recently released Australian Small Business White Paper, produced by the IPA Deakin University SME Research Partnership, securing finance and funding is one of the most critical issues for small businesses in Australia.

Small business looks to the crowd for helping hand
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In particular, the Small Business White Paper highlighted funding problems faced by young firms in uncertain technological or new knowledge environments – because of their unattractiveness to bank lenders.

While still a very young sector in Australia, crowdfunding has already proven to be an effective funding platform for new business in other markets. Crowdfunding allows individual founders of for-profit, cultural or social projects to request funding from many individuals, either in return for future products, equity, debt or donations.

Currently in Australia both crowdfunding lending and equity crowdfunding are restricted to receiving investment from sophisticated investors only. However, there is widespread hope around the crowdfunding community that this will soon change.

“I’ve been working with small businesses for a long time and I saw a bit of a need there for an Australian platform to help them out. But a lot of the time we tend to get more personal than business causes,” noted Nick Karolidis, founder and director of crowdsourcing platform OzCrowd.

Currently limited to donations and rewards-based crowdfunding, Mr Karolidis says he wants to see equity-based crowdfunding embraced in Australia.

“It would be nice to have that third option because we do have a lot of businesses either have a go at rewards-based crowdfunding and it doesn’t work for their business because rewards really works if you’ve got a product that you can ship out to a lot of people,” he stated.

“If you’ve got a service-driven business or something a bit more substantial it’s a bit hard to offer rewards in exchange for contributions.”

Treasury has been consulting with a large number of stakeholders in regards to implementing equity crowdfunding in Australia and, according to Mr Karolidis, there is widespread hope an exposure draft will soon be released and the appropriate legislation will soon be tabled.

The IPA in particular has made an extensive submission on the proposed regulation for equity crowdfunding, which included a comparative analysis of crowdfunding in the UK, EU, US and various other markets.

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