Equity crowdfunding has gained momentum recently as an alternative source of early-stage capital in Australia. But it’s been a long time coming.

The first submissions were made to the federal government’s Corporations and Markets Advisory Committee (CAMAC) back in 2013 in response to a CAMAC discussion paper on how Australia’s equity crowd-funding industry should be regulated.

After that, it took almost four years for the first crowdfunding legislation to pass through parliament.

But Matt Vitale, co-founder of crowdfunding platform Birchal, says changes to corporations law of this nature were always going to take a while.

“A lot has been made on how long it’s taken. But having a look at the things that needed to happen, and the stakeholders that needed to opine on what are some really fundamental changes to the corporate regulatory landscape — there was a lot that needed to be agreed,” Vitale told Stockhead.

“We’ve also had a couple of elections in that time and leadership challenges. So its been on and off the radar.”

After years of regulatory debate, crowdfunding legislation finally got signed into law in May 2017 with the successful passage of the Corporations Amendment (Crowd-sourced Funding) Bill 2016.

However, there was an important catch — only unlisted public companies were allowed to raise capital via equity crowd funding.

That meant privately-held, limited liability (Pty Ltd) companies — which make up the vast majority of early-stage companies in Australia — were excluded.

Nevertheless, in January 2018 the first licenses to host crowdfunding offers were granted to seven platforms including Equitise, Birchal and OnMarket.

Game changer

For most of last year, equity crowdfunding was live in Australia for unlisted public companies that met the legal criteria.

Digital bank Xinja kicked things off with Australia’s first equity crowdfunding campaign, raising more than $2m from around 1,000 investors in March 2018.

But Birchal co-founder Vitale found that “for most of last year, we were speaking to a lot of interested companies that couldn’t really come to terms with converting to a public structure.”

“I think the government really just wanted to get some legislation in and get it started and in our view, that was probably the right decision,” Vitale said.

Then in September, the industry got the shot in the arm it was looking for: Legislation finally passed through the Senate that saw crowdfunding laws extended to proprietary companies.

And over the last five months, Vitale says business has “exploded” with the platform now having closed seven successful deals.

So, given the extended lag-time for Australia’s crowdfunding industry, how does the local sector compare to other jurisdictions in the early going?

“If you look at 2011 in the UK, and the volume of deals and investments that were put through over there, then Australia is tracking on par if not slightly head of the UK at this stage,” Vitale said.

“It’s gonna be interesting to see how this plays out, but certainly our pipeline — and interest among businesses that want to raise money in this way — is very healthy.”

“But whether these businesses will be able to entice investors to invest in them is the other side of that equation. And that’s something that we work on on a daily basis and a deal by deal basis.”