Wednesday, 10 February 2016
Corporations Amendment (Crowd-sourced Funding) Bill 2015; Second Reading
As I was saying before the debate was adjourned in relation to the Corporations Amendment (Crowd-sourced Funding) Bill 2015, it is very important that we have a very strong and thriving innovation ecosystem. Part of that is making sure that funding works. Funding is part of the ecosystem. Of its very nature as an ecosystem, all components have to work together. In the funding space that means that crowdfunded equity has to work together with venture capital, with angel investment and with traditional forms of finance with a view to ensuring that new start-ups can get the money that they need to start and then to grow. The purpose of ensuring that we have such a strong ecosystem is to help start-ups get going and have very high growth in their early years with a view to, hopefully, follow the example of some great Australian firms like Atlassian and scale up to become a global firm. But we would like them to be able to do it a lot more, and we would like them to be able to do a lot more of it here in Australia. That requires a more mature funding system for start-ups where they can get better access to the funds that they need to start.
It is important, in considering that, that we get one of the strands of the bow of funding for start-ups—that is, as I say, crowd sourced equity funding—absolutely right when we legislate a new framework for that funding option for people, because it is really important that the sector feels as though this will be a positive move forward when it comes to finding an additional source of funding. Of course it is very important that, as members of parliament, we can have confidence that these laws will be laws that will be acceptable to the sector and to the public at large.
As I was saying earlier, there have been some very strong concerns expressed by some very significant and respected people in relation to this bill. Angela Perry, who is a world renowned expert on employee share ownership and who is part of Employee Ownership Australia, has made a submission to the Senate Standing Committee on Economics in relation to this bill raising some concerns. I was talking before we adjourned about the issue of the corporate structure for firms to be able to access the crowd sourced equity funding arrangement.
This bill requires a firm to become an unlisted but public company before gaining access to the crowd sourced equity funding regime. The Employee Ownership Australia submission to the Senate inquiry into the bill has made the point that this actually puts a significant amount of compliance burden on the firm right at the time they are starting up and trying to be a high-growth firm. They are being asked to do something they would not otherwise do. As Employee Ownership Australia says, transitioning from a proprietary limited company to a public company is something that it might do when it is getting ready to list, when it is at a significant size already. It is not necessarily something that it is going to be doing at the very beginning when it is that very new high-growth starting-up firm.
As Employee Ownership Australia say in their submission, there is a lot of cost. It is not just the additional compliance burden in time but of course time is also money. They say, for example, one of the key costs is a requirement to have an auditor and audited accountants, which smaller companies may not need. This can be a significant cost for a small organisations for $15,000 per annum. The financial statement and content requirements also may cause some concerns for entities that do not wish to give full disclosure for competitive advantage. This is a significant and serious concern. It is a concern that has been expressed to me in private discussions with people who have got an interest in start-ups and in growing Australia's start-up and innovation ecosystem. It is an important concern.
I think the people in this place will find that the sector wants this done. There is no doubt about it; the sector wants the crowd sourced equity funding regime in place but wants it done right. There has been a variety of issues like the definition of 'related entities', for example, and the way that might work in situations where a start-up is not just relying on crowd sourced equity funding but is relying on venture capital. There is a range of other issues as well.
What Labor is saying is: go back to the sector, work out these issues, continue to consult and discuss. We will not criticise the coalition for taking that additional time to deal with the crowd sourced equity funding regime because we want to see this done right, because it is a matter of bipartisan position in this place that Australia needs a good strong crowd sourced equity funding regime as part of our innovation ecosystem, so we want to see it done right.
But as the shadow parliamentary secretary also said when he spoke to the bill, in the event that the coalition fails to go and engage with a view to ironing out those wrinkles, fails to get this bill into the form that it needs to be in for it to be something that would be not just acceptable but celebrated by the sector then we are going to have to consider how further reform might need to be taken when we are in government. We are going to have to revisit it. Of course the most efficient and best way to deal with this is to get it right from the very beginning, so further consultation would be appropriate.
It is not as though we do not have a range of experts willing to give us their expertise, give us the benefit of their views about the regime as it has been proposed. I mentioned Employee Ownership Australia because I think that they have made a great submission to the Senate inquiry. It is very concise and it draws the attention of the inquiry to a number of issues with the bill. They are also a stakeholder that engages with our bipartisan parliamentary friendship group on innovation and enterprise—and I note that the member for Banks, my co-convener of that parliamentary friendship group, is here in the chamber as we speak. It is a bipartisan group that engages very well with stakeholders to discuss what is needed for growing the innovation and start-up ecosystem in this country.
Another one of the stakeholders that has been very constructive and forthright in engaging with parliamentarians including through that friendship group is the Australian Private Equity and Venture Capital Association Ltd, known by its acronym AVCAL. They have also given us a great submission to the Senate inquiry to tell us what they think can be done to better implement the crowd sourced equity funding regime. Like all stakeholders and like Labor, they really welcome the implementation of the regime. They are very keen to see this crowd sourced equity funding regime put into place but, again, have raised several issues.
I mentioned earlier the related parties restriction. This is really something that needs to be dealt with because you do not want to inadvertently have a situation where coinvestors get caught up in the definition of 'related parties' and, as a consequence, you are actually reducing the pool of funding that a start-up is able to obtain by operation of these laws. That would be an unintended consequence and a shame, particularly given the funding that is available in the sector at the moment still needs to grow.
We still have immature funding in this country for start-ups. It is something that needs to be dealt with. It is something that both sides of this parliament are working very strongly on. Deputy Speaker Broadbent, You would have read Labor's very detailed and extensive innovation policy that we put out early in 2015. One of issues that needs to be dealt with is the available sources of funding in Australia need to grow. While that is happening, the last thing we would want to do as a parliament is inadvertently cut off funding options for start-ups through not having an appropriate definition of 'related entities' and therefore inadvertently catching co-investors.
A range of other submissions and issues have been raised by the Australian Private Equity & Venture Capital Association, AVCAL, as I have said. They are also concerned about the requirement under the bill as it currently stands that firms be unlisted public companies, for the reasons that were expressed in the submission to which I have previously referred. So there are a number of issues. There is an opportunity right now to deal with them, to continue the bipartisan spirit we have in trying to make a better start-up ecosystem in the interests of this country's economy. Now is the time, before the bill is passed, to iron out those wrinkles.
Crowdsourced equity funding is actually important for real businesses, for firms that are trying to start up, trying to grow, trying to scale and trying to become global firms. I do not say by any means that this is the be-all and end-all of funding for start-ups, but it is an important component. It will help some of our newer start-ups to try to emulate success stories like SEEK.com and Atlassian. Everyone in this place wants to see more success stories like those firms. High-growth start-ups are firms in which there are a lot of opportunities not just for the entrepreneurs themselves but also for the creation of jobs, which is something that our economy sorely needs.
The importance of funding obviously cannot be overstated when it comes to those starting up firms. That is why it is a genuine pleasure—I know I have talked about some of the concerns we have with the bill—to be here to speak in support of the concept of having crowdsourced equity funding as a framework in Australia. I think it is also timely—given that the Corporations and Markets Advisory Committee, also known as CAMAC, has given such good and strong advice on this framework—to acknowledge the real value of CAMAC and the advice it provides in this nation. I have spoken in this parliament before against coalition moves to abolish CAMAC. This is another example of CAMAC showing its value as an adviser.
The bill itself has a lot of really good features. I do not want to seem like I am being unnecessarily negative. But it is important that, in creating these frameworks, we work together—not just with the people here across the aisle, but with the sector; with funders; with start-ups themselves; with peak bodies like StartupAus, which is a really great organisation; with the accelerators; with the incubators; with the universities; with the research bodies; and of course with the stakeholders like AVCAL and Employee Ownership Australia and New Zealand, which I have mentioned, who are so willing and ready to assist.