Crowdfunding Regulations in Australia

This assignment delves into the legal framework governing crowdfunding in Australia. It examines various aspects of crowdfunding, including microfinance, equity crowdfunding, and reward-based models, and analyzes how these regulations shape the landscape for entrepreneurs seeking funding through these platforms. The assignment also explores the implications of these laws for both crowdfunding platforms and individual projects, highlighting key considerations such as investor protection, campaign disclosure requirements, and legal compliance.

Running head: CROWDFUNDING 0
Business Law

CROWDFUNDING 1
Introduction
Crowdfunding is a method of financing a project by generating small amount of capital form
a large number of peoples. Generally, the method of crowdfunding is used by entrepreneurs
who cannot get funding from traditional sources. Crowdfunding method connects
entrepreneurs and small financiers via the internet websites. The small financiers include
family members, friends, relatives or other interested investors looking for small investments.
In Australia, crowdfunding is a relatively modern concept introduced a few years ago. The
government has enacted new regulations to promote crowdfunding for the small
entrepreneurs.
The reason for the growth in crowdfunding popularity is that small entrepreneur has
interesting ideas but due to their large number, traditional investors cannot invest in each one
of them. This essay will describe the procedure of crowdfunding to Howard Jones and
evaluate whether it is better for him than traditional sources. Further, the essay will discuss
various theories provided by experts and analyse the role of crowdfunding in various fields.
The difference between various countries regulations will also be discussed in the essay.

CROWDFUNDING 2
Crowdfunding Mechanism
Most of the people have access to the internet which they use for their work, shopping, and
entertainment. The modernisation of the internet allows people to learn and build new things.
The number of entrepreneurs has grown significantly in past few decades due to the
popularity of smartphones and internet-based services. Small businesses also use the internet
to reach a larger audience and enchase their operations1. Increase in a number of
entrepreneurs raises the requirement of funding for their operations. Traditional sources, such
as venture capitalists, wholesale investors or banking corporations, cannot invest in all the
entrepreneurs which left more of the small businesses without funding. Therefore, the
crowdfunding procedure has gained popularity because it connects small entrepreneurs to the
public. A large number of people spend a small amount of investment in the entrepreneur’s
project which helps them raise funding2.
There are four different types of crowdfunding methods which entrepreneurs select according
to their project’s requirement. The reward-based method is based upon providing various
incentives to the financiers, to attract their funding in the project3. Many NGO’s uses
donation-based crowdfunding procedure which allows people to donate to various social and
charitable causes. The equity-based crowdfunding is used by small companies; they provide
shares to the financiers as a reward for the investment provided by them. In lending-based
crowdfunding, the funding provided by financiers is considered a debt which the company
has to repay with interest4.
To raise funding through crowdfunding method, entrepreneurs are required to follow certain
guidelines. The entrepreneurs should provide all the necessary information regarding their
project to the potential investors5. The information includes various aspects of the project
such as price, investment requirement, time frame, specifications and incentives provided by
the company to its investors. All such information must be correct and it must be accessible
with the offer of crowdfunding.
1 Alessandro Cordova, Johanna Dolci, and Gianfranco Gianfrate. "The determinants of crowdfunding success:
Evidence from technology projects." Procedia-Social and Behavioral Sciences 181 (2015): 115-124.
2 Jeff Fitzpatrick, et al. Business and corporations law. LexisNexis Butterworths, 2011.
3 Garry Bruton, et al. "New financial alternatives in seeding entrepreneurship: Microfinance, crowdfunding, and
peer‐to‐peer innovations." Entrepreneurship Theory and Practice 39.1 (2015): 9-26.
4 Ethan Mollick. "The dynamics of crowdfunding: An exploratory study." Journal of business venturing 29.1
(2014): 1-16.
5 Carol Royal, and G. Sampath S. Windsor. "Microfinance, crowdfunding, and sustainability: A case study of
telecenters in a South Asian developing country." Strategic Change 23.7-8 (2014): 425-438.

CROWDFUNDING 3
Commercial and Social Example
There are various entrepreneurs who have used crowdfunding process to fund their projects.
In Australia, there are several online websites which assist entrepreneurs and small
businesses to raise funding for their projects such as Indigogo, Kickstarter, GoFundMe, and
MyCause6. These websites connect public with entrepreneur and help them generate
investment. In Australian, many small technology companies have used crowdfunding
method to raise funding such as Ninja Block or KoalaSafe. Kickstarter websites help to fund
more than 22 thousand entrepreneurs’ project through crowdfunding which raises more than
$500 million in 2014. These online services assist small corporations and entrepreneurs in
Australia to raise investment which eventually benefits the economy of the country.
Pebble Time is one of the most successful crowdfunding projects that attract a large amount
of attention worldwide with their smartwatch. The smartwatch provides various facilities to
users such as calling, emails, fitness tracing a much more. The crowdfunding page of Pebble
time raised more than $20 million through more than 80 thousand investors over Kickstarter
website. Another successful example is Flow Hive, which is an Australian corporation which
harvests honey. They introduced a new method of harvesting honey; customers can turn on
the tap and fresh honey flow right out. In their Australian based crowdfunding campaign,
they raised more than $12 million through public investors. These campaigns prove the
significance of crowdfunding method for commercial purposes7.
Many people and NGO take advantage of crowdfunding method by collecting charities for
social causes; a good example is Saving Eliza campaign8. Eliza was 4 years old when she
suffered from Sanfilippo syndrome. Due to the effects of disease Eliza was not able to feed,
talk or walk. The treatment of Eliza costs about $2.5 million, Eliza’s parents did not have this
much money. Eliza’s father decides to ask for help from the public and uploaded few
homemade video of Eliza’s condition. The money raised online was not enough for Eliza’s
treatment. Those videos were seen by a filmmaker name Benjamin Von Wong, who decided
to help Eliza’s parents. He directed a short film based upon Eliza’s condition and uploaded it
to the internet with a crowdfunding page attached; the movie was called Saving Eliza. People
6 Loreta Valanciene, and Sima Jegeleviciute. "Valuation of crowdfunding: benefits and drawbacks." Economics
and Management 18.1 (2013): 39-48.
7 Amir Manzoor. "Crowdfunding for Non-Profits." Handbook of Research on Emerging Business Models and
Managerial Strategies in the Nonprofit Sector(2017): 152.
8 Julie S. Hui, Michael D. Greenberg, and Elizabeth M. Gerber. "Understanding the role of community in
crowdfunding work." Proceedings of the 17th ACM conference on Computer supported cooperative work &
social computing. ACM, 2014.

CROWDFUNDING 4
started to raise money for Eliza’s treatment and currently, the campaign has raised more than
$1.8 million9. This campaign shows that along with commercial purposes, crowdfunding can
be used for the social and charitable purpose as well.
Crowdfunding Regulations
There are several examples which show that crowdfunding is beneficial for entrepreneurs and
economy of a country. There are several countries that have enacted regulations regarding the
crowdfunding procedure to promote its usage. Recently, Australia has also implemented a
provision to regulate the procedure of crowdfunding in the country. The Corporations
Amendment (Crowd-sourced Funding) Act 2017 has been enacted which provide provisions
regarding crowdfunding used by corporations. The regulations are focused on promoting
crowdfunding while protecting the people from fraud10.
The act amends several provisions of Corporations Act 2001 to provide various exemptions
to corporations regarding the use of crowdfunding method. Many regulations of Australian
Securities and Investments Commission Act 2001 have also been amended to provide
exemptions to market operators. The act limits financiers from spending more than ten
thousand dollars over one crowdfunding project annually11. The wholesale investors are not
restricted from investing in crowdfunding projects, but their amount of investment has been
limited by the law. Corporations having an annual turnover or assets capitalisation below $5
million can raise investment through crowdfunding.
In case of other countries such as the United States and the United Kingdom, the restriction
over crowdfunding project is not available. The Jobs Act 2012 provides regulations regarding
the crowdfunding procedure of companies in the United States. The financiers are allowed to
spend according to their financial status12. Most of the entrepreneurs in the United States use
crowdfunding method to raise funding for their unique and different idea. The regulation of
crowdfunding is conducted by Securities and Exchange Commission (SEC) and the
government has introduced equity-based crowdfunding from 2016.
9 Danielle C. Fumagalli, and Arvin M. Gouw. "Focus: Personalized Medicine: Crowdfunding for Personalized
Medicine Research." The Yale journal of biology and medicine 88.4 (2015): 413.
10 Michelle Eastwell, Jessica Dale, and Felicity Dunstone. "Crowd-sourced equity funding is coming to
Australia." Governance Directions 69.7 (2017): 411.
11 Tony Stumm. "The rebirth of crowd funding in Australia!." Governance Directions 69.2 (2017): 96.
12 Ross S. Weinstein. "Crowdfunding in the US and Abroad: What to Expect When You're Expecting." Cornell
Int'l LJ 46 (2013): 427.

CROWDFUNDING 5
According to the market experts in Australia, the regulations restrict entrepreneurs from
generating large funding for their original ideas. The successful crowdfunding campaign such
as Pebble Time was able to raise a large funding due to the lack of limits. Many experts
criticised the regulations of government and provided that they are against the basis
provisions of crowdfunding. According to Schulz and Mollica (2015)13, the limits applied
over crowdfunding process will reduce the development of crowdfunding process in
Australia as compared to other countries. But, the steps taken by the government will help
small entrepreneurs, such as ‘Flow Hive’ to raise funding for their operations which help in
the growth of Australian economy.
Observation
The popularity of crowdfunding method has grown considerably in between entrepreneurs
and Small Corporation. It is a modern method for raising funding for the small projects by
entrepreneurs. Many countries have implemented a legislative provision to promote and
regulate crowdfunding method which helps in the development of their economy. Australia
has also implemented new provision regarding the crowdfunding method to promote it in the
country. Many experts have criticised the crowdfunding regulations, but most of them agreed
that there was a need for proper legislation over crowdfunding process14. Legalising the
process makes it trustable in between public which is beneficial for crowdfunding since the
public is the key financiers in crowdfunding.
While comparing with other countries, the regulations of Australia are relatively strict over
the limits of investment. In the United States, crowdfunding policies are comparatively easier
which is beneficial for the entrepreneurs. The maximum number of entrepreneurs in the
United States uses crowdfunding to generate funding for unique and different projects. In
Australia, the small-scale corporations and technology corporations use crowdfunding
procedure for investment. Small corporations and entrepreneurs will be benefited by the
regulations of crowdfunding procedure which eventually develop the country’s economy.
The crowdfunding has benefited small corporations into growing their operations worldwide.
Oculus Rift is a good example for understanding the influence of crowdfunding. Oculus VR
13 Leigh Schulz and Mollica, Domenic. ASK THE EXPERT The regulation of crowdfunding in Australia: where
are we and what’s to come?. Australian Banking and Finance. Retrieved from <
http://forms.minterellison.com/files/Uploads/Documents/Publications/Articles/Aus-banking-and-finance-law-
bulletin_leigh-schulz-anddomenic-mollica_aug2015.pdf >
14 N. Khadem. "Crowdfunding in Australia a step closer." The Sydney Morning Herald (2014).

CROWDFUNDING 6
decided to raise funding for their virtual reality headset called Oculus Rift, which gained a
huge amount of attention from the public. The company rose a funding of $2.5 million using
crowdfunding process. In 2014, Facebook decided to buy the company to acquire their virtual
reality technology for $2 billion15. In 2015, the projects of crowdfunding have raised more
than $34.4 billion for various entrepreneurs.
Australian entrepreneurs are expecting the same enthusiasm from the public as well. There
have been few successful crowdfunding campaigns in Australia such as Flow Hive, Ninja
Block, and KoalaSafe, but compared to other countries the numbers are significantly low.
The provisions established by the Australian government have been criticized but they will
assist the progress of crowdfunding in Australia16. The regulations are formed to protect the
capital of public from scam or fraud, but it restricts genuine entrepreneurs from generating
large investment. For future development, the steps of Australian government will improve
the country’s economy.
Howard Jones has an original idea of increasing the life of batteries, which can be beneficial
for a large number of people. Howard’s idea has potential to generate large amount through
crowdfunding procedure. The legislative provisions passed by Australian government will
asset Howard in rising large funding. In case of traditional sources, Howard can only collect
funding from one method and the large investment corporations prefer to control the
decisions of projects in which they invest their capital. Howard can lose the right for making
decisions regarding his own company. Crowdfunding will automatically attract interest
financiers to invest in Howard’s project. The decision-making power will also remain with
Howard in crowdfunding process. Therefore, Howard should select crowdfunding procedure
over traditional sources.
15 Michael A. Stanko, and David H. Henard. "How crowdfunding influences innovation." MIT Sloan
Management Review 57.3 (2016): 15.
16 Denis Frydrych, et al. "Exploring entrepreneurial legitimacy in reward-based crowdfunding." Venture
Capital 16.3 (2014): 247-269.

CROWDFUNDING 7
Conclusion
From the above report, it can be concluded that crowdfunding has gained popularity due to
the modernisation of technology. A large number of people are opening their businesses
which require funding; the traditional sources of funding are not able to invest in such
businesses. Crowdfunding provides an alternative route to entrepreneurs by generating capital
from the public. The entrepreneurs and public are connected over online websites, over which
the information regarding entrepreneur are available. Interested people can invest a small
amount in the project, which later provides various rewards to them. The Australian
government has formed various provisions to regulate the procedure of crowdfunding and
promote it in the country. Crowdfunding provides capital to entrepreneurs to start their
businesses which eventually develop the country’s economy. Howard Jones should select
crowdfunding method for generating investment because it provides various rewards to him.
Howard will be able to generate large amount through crowdfunding than compared to
traditional courses. The power for taking a decision in the project will be available to him;
therefore, Howard should select crowdfunding as a method for raising investment.

CROWDFUNDING 8
Bibliography
A. Books/Article/Journals
Bruton, Garry, et al. "New financial alternatives in seeding entrepreneurship: Microfinance,
crowdfunding, and peer‐to‐peer innovations." Entrepreneurship Theory and Practice 39.1
(2015): 9-26.
Cordova, Alessandro, Johanna Dolci, and Gianfranco Gianfrate. "The determinants of
crowdfunding success: Evidence from technology projects." Procedia-Social and Behavioral
Sciences 181 (2015): 115-124.
Eastwell, Michelle, Jessica Dale, and Felicity Dunstone. "Crowd-sourced equity funding is
coming to Australia." Governance Directions 69.7 (2017): 411.
Fitzpatrick, Jeff, et al. Business and corporations law. LexisNexis Butterworths, 2011.
Frydrych, Denis, et al. "Exploring entrepreneurial legitimacy in reward-based
crowdfunding." Venture Capital 16.3 (2014): 247-269.
Fumagalli, Danielle C., and Arvin M. Gouw. "Focus: Personalized Medicine: Crowdfunding
for Personalized Medicine Research." The Yale journal of biology and medicine 88.4 (2015):
413.
Hui, Julie S., Michael D. Greenberg, and Elizabeth M. Gerber. "Understanding the role of
community in crowdfunding work." Proceedings of the 17th ACM conference on Computer
supported cooperative work & social computing. ACM, 2014.
Khadem, N. "Crowdfunding in Australia a step closer." The Sydney Morning Herald (2014).
Manzoor, Amir. "Crowdfunding for Non-Profits." Handbook of Research on Emerging
Business Models and Managerial Strategies in the Nonprofit Sector(2017): 152.
Mollick, Ethan. "The dynamics of crowdfunding: An exploratory study." Journal of business
venturing 29.1 (2014): 1-16.
Royal, Carol, and G. Sampath S. Windsor. "Microfinance, crowdfunding, and sustainability:
A case study of telecenters in a South Asian developing country." Strategic Change 23.7-8
(2014): 425-438.

CROWDFUNDING 9
Stanko, Michael A., and David H. Henard. "How crowdfunding influences innovation." MIT
Sloan Management Review 57.3 (2016): 15.
Stumm, Tony. "The rebirth of crowd funding in Australia!." Governance Directions 69.2
(2017): 96.
Valanciene, Loreta, and Sima Jegeleviciute. "Valuation of crowdfunding: benefits and
drawbacks." Economics and Management 18.1 (2013): 39-48.
Weinstein, Ross S. "Crowdfunding in the US and Abroad: What to Expect When You're
Expecting." Cornell Int'l LJ 46 (2013): 427.
B. Others
Schulz, Leigh and Mollica, Domenic. ASK THE EXPERT The regulation of crowdfunding in
Australia: where are we and what’s to come?. Australian Banking and Finance. Retrieved
from < http://forms.minterellison.com/files/Uploads/Documents/Publications/Articles/Aus-
banking-and-finance-law-bulletin_leigh-schulz-anddomenic-mollica_aug2015.pdf >