Government Consults on Crowd Funding
Crowdfunding is definitely the shiny new toy in the box. But if you want to take it out for a play there a few things you should be aware of because from not for profits to big companies, this internet phenomenon has spawned a host of exciting and perhaps not so exciting opportunities.
Tune into You Legal TV this week to find out how the government is getting involved, how it works, the possibly pitfalls and most importantly what you should be looking out for. Happy Crowdfunding!
See below for the complete transcript of this episode -
Crowd Funding—it's the new word on the street. In 2015, Crowdfunding took the world by storm, and in Australia, it's been no different. We are home to over two dozen platforms where you can crowdfund everything from a homeless kitten to an international internet company. Crowd Funding can essentially be divided into two categories: donations and investments.
Charity groups are increasingly looking to crowdfunding as a source of income when grants and subsidies are in decline. There are a great many requests for money to support a good cause and the power of the crowd is huge. Individuals and charity groups are raising tens of thousands of dollars.
When you make a donation to these groups, it's just that, a donation. Companies are also increasingly crowdfunding. They're not seeking a donation but an investment. These terms will vary significantly between platforms and fundraisers. Some Crowd Funding deals are structured like a loan, offering a repayment schedule for your investment and an interest rate of anywhere between 2% and 15%. Other Crowd Funding deals are selling equity. That is a share in their business. A standard Crowd Funding deal of this kind may issue a capital request of $20,000.00, for example, in exchange for 5% of the equity in the company.
Crowdfunding has a huge appeal to investors who can choose to back a product or service that they personally believe in. It also enables people who are not professional investors to make smaller investments. Although Crowd Funding is currently under review by the government, it's important to note that Crowd Funding campaigns are not required to issue a prospectus or any other financial information about their business activities. Crowd Funders are also often start-up companies without proven success, and this makes them a high-risk investment.
If you're considering entering into the Crowd Funding world as an investor, make sure you do your homework and don't be afraid to request financial business plans and forecasts. If you've got any questions about this feel free to give me a buzz or shoot me an email at You Legal.
What Should I Do Next?
Contact us if you would like further legal advice on Crowdfunding. Our lawyers at You Legal will be happy to assist you in whatever way we can.
* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.