CLA Seminar on Crowd Sourced Equity Funding – ASSOB

CLA Seminar On EquityCrowd Sourced Equity Funding was explored from many different angles at the Commercial Law Institute of Australia half-day seminar on Friday 25th July 2014.

It was an interesting and informative day, introduced and chaired by Dr Terry Cutler, Principal, Cutler and Company; Chair, CSIRO Chile. You can read the full program of the day in this post here.

I left the seminar with a few thoughts:


  • Crowd Sourced Equity Funding WILL be legislated in Australia! It is just the detail that needs to be worked out.
  • The CAMAC report was considered well researched and thought out, but they also had time pressures on delivery. John Kluver, Executive Director of CAMAC would have liked more time to liaise with the start up community.
  • There are various opinions on the recommendations in the CAMAC report in terms of regulations and how restrictive they are.
  • The New Zealand approach is forward thinking, but CAMAC believe that the requirement of full disclosure in their report is a better approach.
  • It is important that when crowd sourced equity funding legislation is introduced that it goes well. If it doesn’t, then not only does it get bad press but people will lose faith in this great source of funding.

There was so much covered on the day, that this post will merely cover the first presentation of the day. Future posts will look at the NZ approach and the CAMAC report.

ASSOB history of equity raisings and the effect of ASIC regulations

We had the benefit of hearing from one of the world’s experts on the subject – Paul Niederer, CEO of the Australian Small Scale Offerings Board. We should remember in the rush of excitement about this ‘new’ source of funding that ASSOB have been operating for around seven years with unlisted companies and therefore have a unique understanding of dealing with retail (or unaccredited) investors, as well as sophisticated investors.

Some key stats:

  • ASSOB has raised over $139 million for early stage and growth companies.
  • Over that time, they have funded 310 pitches which had an average equity offered of 21%.
  • The average number of investors was 14.
  • The average percentage of retail/unaccredited investors for pitches was 60%.

A more recent entrant, CrowdCube, has been operating for around three years and is around 1/3 of ASSOB’s dollar volume.

I liked how Niederer compared reward crowdfunding with crowd sourced equity funding. Reward crowdfunding gives you more ‘instant gratification’ – the time period to receive ‘return’ in terms of a reward is set out clearly. It’s true however that there was a lengthy wait with the Pebble Watch! But with equity it is ‘hope’. The hope of the investor is that they will get a return on investment. The period of expectation is stretched out to three years. It’s not expected to be an instant return.

Without the ability – or should I say, means – to be registered with ASSOB as an investor, I found it very interesting to see the backend of the system. Maybe I’m just nosy, but I particularly enjoyed seeing a profile page of a company seeking investors. Like we are familiar with in reward crowdfunding, the issuers prepare a video pitch, along with updates and key investment documents.

Niederer also explained about six degrees of separation – or, as in the example of LinkedIn, three degrees of separation. With equity funding from the crowd, there will be the capital raising team and three more degrees removed from the team.

The capital raising team comprises of Founders, shareholders, directors, management etc.

1° The first tier of investors are friends, family, fans and followers (of the issuer).

2° This next level would comprise the friends of the first investment team.

3° The third level are those investors with no connection to the issuer. These may be angel investors, accredited and professional investors.

CLA-Seminar-Crowd-Sourced-Equity-ASSOBIt was interesting, and logical, to hear that the 1° investors had a more emotional reason to invest, while the 3° investors did so for rational reasons. Niederer reported that on average 50% of a raise came from 1°, with the remaining spilt evenly over 2° and 3°.

Niederer has stated before (for example, in this post) that he believes that a lot of the CAMAC report was structured around the 3°. A lot of start-ups will raise money from the 1° and 2° tier. If the Australian government adopt the recommendations that only 20 of the unsophisticated investors, over a twelve month period, can contribute over $2,500, then it will restrict a company from reaching the required amount to start up. Many, Niederer included due to his experience with the stats on ASSOB, would like to see this raised to 50 or even 100 unsophiscated investors. Or for that matter, even, 49 – to keep it under 50 for the Pty Ltd companies.

I also recommend reading this post from Niederer, written before the final CAMAC report was received.

Two other interesting things came out in the question session after this presentation.

Q: What increases credibility when pitching?

Paul Niederer: Three things!

1. The Story. Do people want to know more?

2. The Team. Is the team balanced and credible?

3. The Followers. Does the company and/or concept resonate with people out there?

Q: What trends and changes has ASSOB and you (Paul Niederer) seen over time?

Paul Niederer: One is that before 2008, a company would be going for a raise of $1.5 to $3 million. Over time, with cloud computing, outsourcing etc the amount needed is a lot less. So the volume of each raise has been reduced.

For information about fees charged to use ASSOB, see this link.

There was a lot more discussed, but these are my top line thoughts from this part of the discussion at the Commercial Law Institute of Australia half-day seminar on Friday 25th July 2014.

I’ll be reporting on the presentations from the NZ perspective and the CAMAC report soon.

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