Crowdfunding: Analysis of Australian Regulations and Global Comparison

This report provides a comprehensive analysis of crowdfunding as a modern method for startups and small corporations to raise investment. It begins with an introduction to crowdfunding, its growing popularity, and its significance in countries like the United States, the United Kingdom, and Australia. The analysis delves into the various types of crowdfunding, including reward-based, charity-based, equity-based, and lending-based models, along with the steps entrepreneurs must take to generate funding. The report highlights the role of crowdfunding websites like Kickstarter and Indiegogo in Australia, and how they have enabled numerous projects and charitable causes to secure funding. It then examines the Australian government's regulations, introduced in the Corporations Amendment (Crowd-sourced Funding) Act 2017, and compares them with those of other countries like the United States, New Zealand, and the United Kingdom. The report also discusses the benefits of crowdfunding for entrepreneurs, particularly those in software development, and concludes with a recommendation for Howard Jones to utilize crowdfunding for his project, emphasizing its advantages over traditional funding sources.

Running head: CROWDFUNDING 0
Business Law Assignment

CROWDFUNDING 1
Contents
Introduction................................................................................................................................2
Analysis of Crowdfunding.........................................................................................................3
Conclusion..................................................................................................................................8
Bibliography...............................................................................................................................9

CROWDFUNDING 2
Introduction
Crowdfunding is a new method of collecting investment for start-ups, entrepreneurs, and
small corporations. It allows small entrepreneurs to collect investment for their projects from
different small investors. Various people such as family, relatives, friends and other people
looking for small investment opportunities can invest their capital into crowdfunding
projects. The crowdfunding has gained significant popularity in countries such as the United
States and the United Kingdom. In Australia, the government has passed new regulations to
enhance the role of crowdfunding.
Crowdfunding provides funding to such entrepreneurs project which cannot be funded by
large financiers such as venture capitalists, angel investors and banks. This essay will provide
information regarding crowdfunding to Howard Jones, to determine whether crowdfunding
method is beneficial for his project. Further, the essay will compare the crowdfunding
procedure of other countries with Australia and analyse the regulations prepared by the
Australian government.

CROWDFUNDING 3
Analysis of Crowdfunding
Technology has grown rapidly in past few years and new innovations are made by
entrepreneurs each day. These innovations have increased the number of entrepreneurs and
people who want to start their own companies. Most of such people require funding for their
projects and traditional method of investment is not suitable for them1. Large investment
organisations, such as venture capitalists, banks or investment firms, prefer to invest their
capitals in potentially large business ideas or high investment projects. It is considerably
difficult for entrepreneurs to generate capital for their investments without selling their idea
to other corporation. Therefore, crowdfunding has gained popularity in past few years.
Entrepreneurs use crowdfunding method to raise capital from small investors for their
projects2.
Crowdfunding connects investors and entrepreneurs through online websites, where investors
can contribute a small amount for entrepreneur’s project. Crowdfunding is a part of the
crowdsourced funding in which capital is raised by the crowd3. There are four different types
of crowdfunding methods. The first method is reward based; in which financiers get certain
incentives by investing in a particular project. The second method is charity based the project
which is non-profitable and works for improving people’s lives are funded through this
method. Various small charitable organisations use this platform to raise capital for charitable
purposes4.
The third method is equity-based crowdfunding; the financiers get shares of the company for
their capital in the entrepreneur's project. The fourth method is lending based crowdfunding,
the capital invested by people is considered as loan and the company repays such loans with
proper interest. To select any one of the above-mentioned methods, it is necessary that the
entrepreneur follows few steps. The most important step is providing full details regarding
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 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.
3 Paul Belleflamme, Thomas Lambert, and Armin Schwienbacher. "Crowdfunding: Tapping the right
crowd." Journal of business venturing 29.5 (2014): 585-609.
4 Helen G. Klaebe, and Rebecca Laycock. "How to work the crowd: A snapshot of barriers and
motivations to crowdfunding." (2012).

CROWDFUNDING 4
the project over at the online websites5. Information includes incentives, objectives, time
frame, product description and other details regarding the project. All such information
should be easily available to the investors along with investment offer6.
Crowdfunding has opened a whole new method for entrepreneurs to generate funding for
their projects. The advancement of small businesses can improve the Australian economy
condition. The popularity of crowdfunding has grown in Australia with the entry of two
popular crowdfunding websites, Indigogo and Kickstarter. These websites enable Australian
entrepreneurs to generate investment for various small projects and many charitable projects
as well. Organisations such as Ninja Blocks and KoalaSafe have generated investment for
their projects through crowdfunding method. Kickstarter has funded more than 22 thousand
small entrepreneur’s projects through crowdfunding and raised more than $500 million in
20147.
An Australian game developing corporation generated an investment of $461,333 through
crowdfunding in 2016 for their real-time action based game. The company is called Satellite
Reign, and they use Kickstarter’s platform to generate the investment8. It has become easier
for application or game developing corporations to generate funding for their programs. The
small investors prefer the crowdfunding route due to its low risks. These investors get
guaranteed rewards from the corporations and if the companies receive huge success,
investors generate revenues as well. For software developing entrepreneurs in Australia, the
route of crowdfunding is significantly beneficial.
The crowdfunding method is not just used by entrepreneurs for their projects, it is also used
by charitable organisations and NGO’s who work for charitable causes. These organisations
generate funding for charitable purposes, such as distributing medicines or raising awareness
regarding the dangerous disease. For example, Melissa Smith was a 22 years old suffering
from Hodgkin’s lymphoma disease. She was also diagnosed with cancer twice while she was
suffering from her disease. After all such diseases, she faced another dangerous disease called
Transverse, when she was 29 years old. Due to these diseases, Smith became paralyzed and
no sensation or feeling was left her body. After seeing sister suffering like this, Melissa’s
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.
6 Jeff Fitzpatrick, et al. Business and corporations law. LexisNexis Butterworths, 2011.
7 Loreta Valanciene, and Sima Jegeleviciute. "Valuation of crowdfunding: benefits and
drawbacks." Economics and Management 18.1 (2013): 39-48.
8 Rebecca English. "Rent-a-crowd? Crowdfunding academic research." First Monday 19.1 (2013).

CROWDFUNDING 5
sister started an online campaign to raise money for her sister’s treatment9. The campaign
came into notice of a famous website called ‘Chive’. The website decided to help Melissa by
starting a crowdfunding page for him. They name the crowdfunding offer ‘Hope for a Home’
is promoted in over their website. The crowdfunding page raised a donation of $413,000 in
just a year and the money was contributed by 12 thousand individuals.
The Australian government has acknowledged the role of crowdfunding which can benefit
their economy and the businesses of small entrepreneurs. New regulation regarding
crowdfunding has established by the Australian government in their Corporations
Amendment (Crowd-sourced Funding) Act 2017. This act provided guidelines for
corporations to raise investment through crowdfunding method10. The act amended the
regulation of Corporations Act 2001 and introduced new crowdfunding principles. The role
of Australian Securities and Investments Commission Act 2001 has also been changed and the
process of collecting license through Australian market license has been updated. Many
market operatives have received an exemption under the new act regarding crowdfunding.
The act applied to the corporations with a market capitalisation and turnover lower than $25
million. The organisations which are not related to listed companies and which are not part of
any holding corporation are also covered under this act. These corporations can use
crowdfunding method to generate a maximum funding of $5 million for their operation. As
compared to traditional regulations, these regulations are fairly easier for corporations. The
regulations required companies to attach a proposal document with their offer of
crowdfunding and such document should provide the online website for crowdfunding. The
online platforms who provide the facility of crowdfunding must receive a license from
Australian financial services11. Small-scale investors can invest a capital of ten thousand
dollars yearly, in crowdfunding offers of entrepreneurs and such investors must accept the
risks of investment within five days.
The investment made by wholesale financiers is restricted by the crowdfunding act of
Australia. The act restricts financiers from investing only a certain amount in a particular
crowdfunding offer. But the act does not restrict the number of crowdfunding projects in
which a wholesale financier can invest. In case of other countries, such as New Zealand,
9 Amir Manzoor. "Crowdfunding for Non-Profits." Handbook of Research on Emerging Business
Models and Managerial Strategies in the Nonprofit Sector(2017): 152.
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.

CROWDFUNDING 6
United States, and the United Kingdom, there are no restrictions on the limits of
crowdfunding investment by wholesale investors12. The lack of restrictions provides more
investment opportunities to the entrepreneurs from a single interested investor. The
crowdfunding procedure in the United States is used by the entrepreneurs to generate funding
for unique and different projects. These projects are different from usual products available in
the market, and they are funded by people’s who are interested in such products.
When compared with other countries regulations regarding crowdfunding, Australia has
comparatively strict policies for crowdfunding. They have restricted various market
operatives form investing in crowdfunding projects and several restrictions are applied over
entrepreneurs as well. These restrictions have been criticized by the market experts; they
provided that the restrictions are against the basic principle of crowdfunding procedure.
These restrictions limit the funding that can be raised by small entrepreneurs. Even with strict
regulations, Australia is one of the five countries who has initiated a legislative step toward
crowdfunding13. This step will benefit the entrepreneurs and small corporations in Australia
and help to enhance Australian economy.
Observations
Small corporations and entrepreneurs can significantly benefit from the crowdfunding
process because it allows them to generate funding easily through small investors.
Crowdfunding is a modern approach to the investment process which uses online websites
and modern ideas to fund a project. It has gained popularity in past few years due to increase
in application and game developers who use this platform to raise capital for their programs.
In the United States, the entrepreneurs use crowdfunding for generating funding for unique
products. With the popularity of equity-based crowdfunding, small corporations started to
raise investment through crowdfunding for their business operations14.
A good example of crowdfunding project success is Oculus Rift, which makes virtual reality
products. Oculus Rift generated a funding of $2.5 million through Kickstarter website for
their virtual reality kit. The company is one of the most successful examples of raising
investment through crowdfunding method. Oculus Rift was bought by Facebook for in 2014
12 Ross S. Weinstein. "Crowdfunding in the US and Abroad: What to Expect When You're
Expecting." Cornell Int'l LJ 46 (2013): 427.
13 Matthew Vitale. "Crowdfunding: Recent international developments and analysis of its compatibility
with Australia's existing regulatory framework." (2013).
14 N. Khadem. "Crowdfunding in Australia a step closer." The Sydney Morning Herald (2014).

CROWDFUNDING 7
for their virtual reality technology at a price of $2 billion15. There are various other examples
as well regarding the success of crowdfunding process. In 2015, small corporations and
entrepreneurs around the world have raised investment of $34.4 billion.
Australia government has passed new regulations regarding crowdfunding in the country
which assists Australian entrepreneurs in raising capital for their investment. These
regulations enable small corporations and entrepreneurs to generate capital through
crowdfunding procedure but it also implied various restrictions over people who can invest in
crowdfunding projects. These regulations are criticised by the market experts, and they
provided that these regulations can adversely affect the crowdfunding procedure. Even with a
lot of criticism, the crowdfunding procedure is much appreciated by Australian
entrepreneurs16. It provided them new opportunities to collect funding for their unique ideas.
As compared to other countries with crowdfunding regulation, Australian laws are compared
as a backward class. But the step taken by Australian government will definitely benefit the
country’s economy positively.
Howard Jones has the option to use traditional sources of raising capital or use crowdfunding
method. The crowdfunding method can be benefited for Howard Jones as compared to other
traditional sources. The idea of Howard is original and interesting which is can assist him in
raising large funds for his project. Another advantage of crowdfunding process is that
Howard will be in full control of his project. Large investment organisations prefer to hijack
projects and implement their own guidelines, which can be frustrating for the entrepreneur.
Howard can adopt equity-based or reward-based crowdfunding to raise investment for his
project. The Australian government has also provided various exemptions to entrepreneurs
which can be beneficial for Howard; therefore, crowdfunding is a better option for Howard
than compared to other traditional sources17.
15 Michael A. Stanko, and David H. Henard. "How crowdfunding influences innovation." MIT Sloan
Management Review 57.3 (2016): 15.
16 Niall Firth. "Crowdfunding successes show value of small donations." (2012): 22.
17 Loreta Valanciene, and Sima Jegeleviciute. "Valuation of crowdfunding: benefits and
drawbacks." Economics and Management 18.1 (2013): 39-48.

CROWDFUNDING 8
Conclusion
In conclusion, crowdfunding is significantly popular among small corporations and
entrepreneurs as a method for raising investment for their projects. It provides an opportunity
to small entrepreneurs to raise capital for their investment through the public. Most of the
investors in crowdfunding are the public who prefer to invest in small projects. Various
countries have created regulations regarding crowdfunding to promote it in between
entrepreneurs. Australia has also implemented new regulations but those regulations have
been criticized by experts. Even with various drawbacks, crowdfunding is still a better choice
for entrepreneurs than compared to traditional methods. Howard Jones should take advantage
of crowdfunding procedure and raise funding through this method. It will benefit his
company in the long run, and he will be in full control of its operations.

CROWDFUNDING 9
Bibliography
Belleflamme, Paul, Thomas Lambert, and Armin Schwienbacher. "Crowdfunding: Tapping
the right crowd." Journal of business venturing 29.5 (2014): 585-609.
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.
English, Rebecca. "Rent-a-crowd? Crowdfunding academic research." First Monday 19.1
(2013).
Firth, Niall. "Crowdfunding successes show value of small donations." (2012): 22.
Fitzpatrick, Jeff, et al. Business and corporations law. LexisNexis Butterworths, 2011.
Khadem, N. "Crowdfunding in Australia a step closer." The Sydney Morning Herald (2014).
Klaebe, Helen G., and Rebecca Laycock. "How to work the crowd: A snapshot of barriers
and motivations to crowdfunding." (2012).
Manzoor, Amir. "Crowdfunding for Non-Profits." Handbook of Research on Emerging
Business Models and Managerial Strategies in the Nonprofit Sector(2017): 152.
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.
Stanko, Michael A., and David H. Henard. "How crowdfunding influences innovation." MIT
Sloan Management Review 57.3 (2016): 15.

CROWDFUNDING 10
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.
Valanciene, Loreta, and Sima Jegeleviciute. "Valuation of crowdfunding: benefits and
drawbacks." Economics and Management 18.1 (2013): 39-48.
Vitale, Matthew. "Crowdfunding: Recent international developments and analysis of its
compatibility with Australia's existing regulatory framework." (2013).
Weinstein, Ross S. "Crowdfunding in the US and Abroad: What to Expect When You're
Expecting." Cornell Int'l LJ 46 (2013): 427.