An interesting discussion has arisen this week in Australian equity crowdfunding market as Minister Kelly O’Dwyer wants to require crowdfunded companies to go public.
In reply, Rob Nankivell, CEO of VentureCrowd, states that going public adds a lot of reporting and paperwork that take too much time and cost a lot for a small business. In fact, becoming a public company can actually destroy the chances of a company to become successful.
VentureCrowd, an Australian equity crowdfunding portal, actually acts as one big shareholder that represents the investors, an alternative that is currently possible by local laws. Nankivell also argues that putting caps on the amount a business can raise can be a hindrance to further growth, as some ventures require large sums of cash.
Now let’s analyze the points raised:
- Caps are required by most countries. Usually, an individual cannot invest more than a certain amount, nor he can risk more than a given percentage of his assets in equity crowdfunding. The laws certainly protect the individual from bankruptcy, but restrict his freedom and analysis;
- Companies that raise funds for a given project and act on behalf of the investors are not being covered by most laws. Currently, it’s common around the world that business issue securities directly to the buyers, as portals cannot hold or buy equity themselves, being limited to the role of a mere intermediary;
- Most laws don’t require a company to be public. Worldwide, public companies must have their financial statements audited, must issue quarterly reports and detail a lot of their activity to the financial market. While that transparency makes investments safer, it adds considerable costs and exposes a lot of information that would be business secret in smaller companies. The extra cost and exposition of secret information is not a big hindrance for established companies, but can represent the failure of a small business that does not have a big brand yet.
We will be monitoring this interesting discussion in Australian markets. The results of it may influence other legislation elsewhere in the world.