1. 1
Research Assignment/ Report: Crowd Sourced Equity Funding
Introduction; In general; 1crowd sourced funding (def.); is when a group of people;
2contribute a fund to support a particular project. Sometimes it is known a 3crowd funding or
crowd sourcing. Originally, it emerged from UK; and has been popularised in the US by
websites such as 4Kickstarter and 5Indiegogo in contempory times. Arguably, for an
6Entrepreneur; a better Equity deal to an alternative form of finance; than Stock Markets;
banks and traditional investor; in 7Australia and worldwide; given below are the basic crowd
funding models. 81.2.3 The Basic Crowdfunding Models;
Patronage Crowdfunding
(1) donation
(2) reward
(3) pre-order
Investment Crowdfunding
(4) lending
(5) equity
(a financial interest)
Table 1: basic crowdfunding models.
Part 1. II. What is “"crowd sourced funding’:
1. In synthesis, to summarise and to (compare and contrast); and to develop
comprehensive summary; of 4 the discussion paper; by the government; there are several
views on the topic; given that; a summary of crowd sourced equity funding (CSEF);
are; 1.It’s new, contempory and innovative financing mechanism; that draws on the
resources of a crowd to expand the current funding options to small business and
proprietary companies; 2.The passion projects are normally pitch online via the
internet’s particular websites; at the general public; at any small time investor; whom is
interested in the project at which they can choose. According to discussion paper
(2014)p5; “9There is no legal definition of CSEF.”
2. The key elements; are they small time investors; 10members of the general public;
wanting to donate personally; a nominal amount; to a few to hundred; to thousands to
millions of people; for perk/rewards for passion project(s) they chose- . The projects range
from many categories; listed on the website such as; Movies; music, film, book
publications, a benevolent or public-interest cause (for instance, a community based social
1
Refer to; YouTube video conference USA on Crowdfunding; ‘https://www.youtube.com/watch?v=Es-Lk50W6oU’;&
Pebble smart watch; https://en.wikipedia.org/wiki/Pebble_(watch)
2
Refer to; Wikipedia; definition; of sources; typically done online;
https://en.wikipedia.org/wiki/Comparison_of_crowdfunding_services
3
Refer to Wikipedia ; def; https://en.wikipedia.org/wiki/Crowdfunding; crowdfunding myths and best practices;
https://www.youtube.com/watch?v=fiauSrIMA5w; April 2014
4 Refer to; successful watch project; raised over $20million online; https://www.kickstarter.com/projects/597507018/pebble-
time-awesome-smartwatch-no-compromises
5 Refer to ; Australia beehive project;raised over $12 million https://www.indiegogo.com/projects/flow-hive-honey-on-tap-
directly-from-your-beehive#/story
6
Refer to ; YouTube; Stanford law school; https://www.youtube.com/watch?v=fACROb5EBfQ;Rockefella crowd
Refer to ‘https://www.youtube.com/watch?v=_ufv0_Wmgyg; indigogo; - donation; for perks;
& Indigogo; crowd funding conference; YouTube; https://www.youtube.com/watch?v=_ufv0_Wmgyg
funding the new venture capital an invitation to fraud and disaster
7
Refer to ; YouTube clip Malcom Turnball talks about crowdfunding; ‘https://www.youtube.com/watch?v=8gf4kJhRETU’;
also HBS review on crowdfunding; https://hbr.org/2012/04/the-road-to-crowdfunding-hell/
8
Refer to; ; Journal article on; http://www.austlii.edu.au/au/journals/JlLawInfoSci/2013/6.html; Vitins, Matt --- "Crowdfundingand
Securities Laws: What theAmericans Are Doingandthe Case for anAustralianCrowdfundingExemption"[2013]JlLawInfoSci 6; (2013)
22(2) Journal of Law, Information andScience 92
9
Refer to p4-5;1 ; Corporations and Markets Advisory Committee, Crowd sourced equity funding — Report May 2014; in
practice, the concept refers to a form of corporate fundraising that envisages start-up or other smaller companies (issuers)
obtaining seed or other capital through small equity investments from relatively large numbers of investors, with online
portals (intermediaries) publicising and facilitating these equity offers to online users (thecrowd).
10
Refer to p4-5; Corporations and Markets Advisory Committee, Crowd sourced equity funding — Discussion
Paper September 2013; ‘Individuals may be invited to contributeto a project, cause, or venture (project):  for its intrinsic
social, artistic, philanthropicor other worth, not in exchange for anything of tangible value: donation funding3  in exchange
for some existing or future tangible reward (such as an existing or future consumer product or a membership rewards
scheme): reward or pre-payment funding.’

2. 2
or co-operative initiative) or a business venture or invention (smartwatches); i.e.
beehive’s; that produce honey on tap;
3. In particular; 11crowd-sourced equity funding can be (defined as) ;( CSEF) Equity Crowd
funding; is when; the backer receives shares of the company; crowd sourced equity
funding; is a funding approach is used to raise investment capital; for passion projects
online.
Part 2 III. What are the barriers to crowd-sourced equity funding for
proprietary companies in Australia and in the Australian corporations legislation
context?
1. 1.Listed are the barriers-in Australia and in Australian corporation context are
;1;Rules; for the number of investor for propriety company 50 non employees and
investor caps; and the limitation for acceditored investors- needing the meet the criteria-
in order to invest- Why? Legal restrictions due to these two rules – prevent free trading
of nominal amounts; for $1- $1000; by the general public which in which they see fit.
Examples which support and clarify the reason(s) give above are the Case study project –
(Beehive; Project- >$12M; by Indiegogo-) Due to their expedition and growth. This
case example forces Australian regulators to consider a change in the current legislation
and to -consider implications. What are the further impacts?
2. Current barriers, the current barriers to the use of CSEF by proprietary companies are: 1.
The shareholder cap (such companies may have no more than 50 non-employee
shareholders), and 2. The prohibition on public offers of equity in these companies (with
limited exceptions). The limited exceptions from the offer restrictions include the small-
scale personal offers exemption and offers to sophisticated investors (including very large
minimum subscription offers).- see diagram 1. on how companies could access CSEF.)
i. Diagram 1: How companies could access CSEF; p17
3. Comparing and Contrasting the case example with the “12Potato salad Project raising;
$55,000 project (on Kickstarter) the purpose of CSEF; come into question; some would
argue is likely to be a frivolous project and absurd use CSEF; However entertaining and
generated considerable media fodder.
4. 2. Cost of Compliance from Small Propriety Company (in Australian and
Australian. Corporation legislation context- to becoming a large proprietary company
due to CSEF; having to issue a prospectus; $330K and other admin costs to raise; a
nominal amount of capital to $2M; $12M or $20M; at the seed and/or being seed/or start
11 Refer to p4; Treasury, Crowd-sourced EquityFunding— Discussion Paper December 2014; CSEF may be particularly beneficial for the
types of businesses that findbank finance moredifficult toobtain,such as start-ups andotherfirms with innovative products
12
Refer to youtube clip;andkickstarter; https://www.youtube.com/watch?v=NjaJ7R-kkFM; PotatoSalad Kickstarter $10Nets $35,000
for Columbus man Zack "Danger" Brown
; https://www.kickstarter.com/projects/zackdangerbrown/potato-salad; PotatoSaladby Zack Danger Brown — Kickstarter

3. 3
up stages. - Why? Restricts 13Inventors- and innovators- to creating goods and services-
that customers the general public want- with unduly regulation and excess regulation
within first 12months of a company in operations.
5. For Proprietary companies; CAMAC position ;currently proprietary companies would
not be able to engage in CSEF to any significant degree, given the shareholder cap of no
more than 50 non-employee shareholders and the prohibition on proprietary companies
making public equity offers (with limited exceptions).
6. 3.Arguably there is; Chicken or Egg situation- with inventors and innovators in first
12months at the Seed or incubation stage- needing capital funding to grow- why? Natural
barrier; (PESTLE)according to Porter 5 forces; - Solution: Too much regulation deters
innovator-entrepreneur and inventor; solving the problem of creating goods and services
people want; - no regulation; is not an acceptable situation for the government; there
needs to be a balance.
Conclusion; There are several barriers- compliance to current limitations place on number
of shareholders 50-non employees; shareholder caps and compliance costs- too much
regulations vs no regulation at all- there need to be balance- the barrier current affect
innovators and entrepreneur in creating good and services; CSEF; if managed properly- and
handled appropriately would resolve this problem in Australia.
7. Recommendation: To seek a balanced; an appropriate levels of regulation for CSEF.
IV. “(i)Whether (OR NOT?) to extend the crowd-sourced equity funding (CSEF)
(framework) to proprietary companies and (ii) What ‘MODEL’ to be ADOPTED for
CSEF for proprietary companies (in Australia).”
1. (i)Yes; to extend the CSEF frame work to proprietory companies;1.(Reason(s).Due
to the benefit of internet; in contempory time being made available; and alternative
source of Capital funding other than traditional sources; 2. To extend CSEF the
framework; to small and large Propriety company; due to the benefit of cheaper
source of capital via the internet. 3. Original reasons- take advantage of the
internet now and into the future for CSEF.
2. (And/or ); NO; NOT; 1. Reasons to Not extend CSEF framework; and To seek
“special exemptions” from the framework and models proposed; and to seek
exemptions for CSEF; for special category of proprietary companies and public
company- from the Statutory requirements reporting to investors;- why? Reasons; due
to CSEF Propriety Company are special companies – that have chosen this method of
Capital Finance and to be recognised for it under the law.
3. There are 3 models proposed 1.CAMAC model; 2 NZ model and 3. Status Quo;
There are strength and weakness to each model- the model most likely to be adopted
would be NZ Model with some variation to- and/or CSEF Propriety Company
exemption- Particular to Australia.;-
4. This model – is most likely to work; or arguably not work in Australia- depending on
the views of differing stakeholders. There have been many case examples and
discussion papers in Academic journals cases to support the model; for and against;
illustrating- the features and benefits of both sides; - see below of tables 1 and table 2
from parliamentary discussion papers.
and (ii)What “MODEL” to be ADOPTED for CSEF for proprietary companies( in
Australia)?- see table below;
13
Refer to ; Danae Ringlemann quotedin TomHarnish,‘CloudFundingOffers More than Pennies fromHeaven’ CrowdSource Capital (3
August 2010)<www.openforum.com/idea-hub/topics/money/article/cloud-funding-offers-more-than-pennies-from-heaven-1/>.

4. 4
Table 1: Key elements ofthe CAMAC and NewZealand models (continued)*(Complete model in
appendix 1)
Issue CAMAC model New Zealand model
Intermediaries (continued)
Lendingto CSEFinvestors Prohibited. Not specified in legislation.
Investors
Investment caps $2,500perissuer per 12-month period and Voluntaryinvestorcaps, with thelevel of
$10,000 in total CSEFinvestmentper disclosure dependent upon thelevel of
12-month period. any voluntary caps andthe amount of
funds theissuer is seekingto raise.
Risk acknowledgement Signature of risk acknowledgement Signature of risk acknowledgement
statements prior to investment. statements prior to investment.
and (ii) What “MODEL” to be ADOPTED for CSEF for proprietary companies ( in
Australia)?-refer to table below;
Table 2: Caps and thresholds recommended by CAMAC
Category Cap or threshold
Eligibilityto conducta CSEFissue Limited to certain companies with simple structures, with a cap of
$10 million in capital
Eligibilityto become orremain an exemptpublic company Limitof $5million in turnover per annumand $5 million in capital
Exempt public companies eligible for exemption from auditing Limited to companies thathave raised up to$1million in funds
requirements via CSEFor any other prospectus exemption and cumulative
expenses of$500,000
Cap on the amountof funds thatcan be raised viaCSEFor other Limitof $2million per 12-month period forany individual or
exemptions from disclosure requirements related group of companies
3. Status Quo; -Under option 3; There would be no change to the current requirements
under the Corporations Act for proprietary companies, public companies and for public
fundraisings.
These include: 1. the limit of 50 non-employee shareholders for proprietary
companies, and prohibitions on making public offers of equity, subject to certain
exemptions, including the small scale personal offer exemption;2. Financial reporting and
corporate governance requirements for public companies that are more onerous than those
that apply to proprietary companies; and 3. The requirement to provide a disclosure
statement when making public offers of equity.
QUESTIONS; - THAT ARISE WHEN COMPARING “MODELS BE ADOPTED” for
CSEF for proprietary companies?
1. What are the costs and benefits of each of the three options discussed in the
government consultation paper as per given?
2. Are the estimated compliance costs for the CAMAC and New Zealand models
presented in the appendix accurate in the consultation paper?
3. How many issuers, intermediaries and investors would be the expected take up online
equity fundraising in Australia under the status quo, the CAMAC model and the New
Zealand model?
4. Are there particular elements of the New Zealand model that should be incorporated
into the CAMAC model, or vice versa?
5. Are there particular elements of models implemented in other jurisdictions that would
be desirable to incorporate into any final CSEF framework?
1. According to; CAMAC found that the current law makes it difficult for CSEF to be
used in Australia, and that change to the Corporations Act would be required if CSEF
were to be facilitated in Australia.

5. 5
2. CAMAC considered (4)four options for facilitating CSEF in Australia for a model to
be adopted;- .Adjusting the regulatory structure for proprietary companies; This
option would involve increasing or uncapping the number of permitted offers under the
small scale personal offers exemption for public offers by proprietary companies and
substantially increasing the number of permitted shareholders of a proprietary company.
3. 2.Confine CSEF to limited classes of investors ;This option would involve limiting the
classes of investors that could invest in CSEF, for example, to sophisticated, experienced
and professional investors, as currently defined in the Corporations Act. 12
4. 3. Amend the fundraising provisions for public companies this option would involve
amending the fundraising requirements for public companies contained in Chapter 6D of
the Corporations Act, including the required level of disclosure.
5. 4. CAMAC recommended the creation of a new category of public company, to be
known as an ‘1415exempt public company’. Exempt public companies would be relieved
of some of the compliance requirements of public companies for a period of up to three to
five years.
6. Conclusion;-The 16cultural and 17economic promises associated with 18crowdfunding are
such that the practice should not be constrained in Australia and around the world; by a
hostile regulatory environment; to seek an appropriate MODEL to be ADOPTED; with
appropriate levels of regulation for CSEF in Australia.
7. Recommendation; to seek a balance; an appropriate levels of regulation MODEL TO
BE ADOPTED; for CSEF –and appropriate level of regulation; There are significant
potential upside to investment crowdfunding. The risk in Australia and externally are
manageable. AN ADOPTED HYBRID model that could be worked upon is Australian
crowdfunding exemption for propriety companies.
V. REFLECTION; Evaluated and analysed; are the problems/ legal and non-legal
associatedwith the actual problem of crowd soured equity funding of projects online; for
propriety companies; - In general and in particular case study examples; with the differ
basic crowdfunding models; refer to the table below.
191.2.3 The Basic Crowdfunding Models
Patronage Crowdfunding
(1) donation
(2) reward
(3) pre-order
Investment Crowdfunding
(4) lending
(5) equity
(a financial interest)
Table 1: basic crowdfunding models.
What are the actual problems for both sides- entrepeuar/inventor and investor?
Online; Entrepreneur/Inventors usually ask for; identified are the 3 different scenarios
that come up- and the legal problems that come up for entrepreneur/ inventor online.
14
Refer to; (ASIC); power to create a Class order: ; [146]
Corporations Act ss 238GA, 741, 992B, 1020F.
15
Refer to ; Stuart R Cohn, ‘TheNewCrowdfundingRegistrationExemption: GoodIdea, BadExecution’ (2012) 64Florida Law
Review 1433,1438.
16
Refer to Journal article on; http://www.austlii.edu.au/au/journals/JlLawInfoSci/2013/6.html; Vitins, Matt --- "Crowdfundingand
Securities Laws: What theAmericans Are Doingandthe Case for anAustralianCrowdfundingExemption"[2013]JlLawInfoSci 6; (2013)
22(2) Journal of Law, Information andScience 92
17
Refer to Journal article ; http://www.klgates.com/treasury-consultation-paper--another-step-towards-crowd-sourced-equity-funding/;
Australia Capital Markets andConsumer Financial Services AlertTreasury Consultation Paper – Another StepTowards Crowd-Sourced
Equity Fundingby AdamLevine,Andrea Beatty, Becki Tam7August 2015
18
Refer to Journal article on; http://www.probonoaustralia.com.au/news/2015/05/progress-crowd-sourced-equity-funding-too-slow#;
Progress on Crowd-sourcedEquity FundingToo Slow?
19
Refer to; Journal article on; http://www.austlii.edu.au/au/journals/JlLawInfoSci/2013/6.html; Vitins, Matt ---"Crowdfundingand
Securities Laws: What theAmericans Are Doingandthe Case for anAustralianCrowdfundingExemption"[2013]JlLawInfoSci 6; (2013)
22(2) Journal of Law, Information andScience 92

6. 6
1. Asking for Donations and Give rewards; for the projects. 2. Ask for Pre order/pre
purchase of a project/ or invention (that have been prototyped; 3. Ask for/ Sell – equity/
shares in company; for nominal amounts $1to large amounts (hundreds to thousands to
millions of dollars per project); - in order to get working capital; for their project to succeed in
the market place.
1.Legally asking for donations; and offering a perk or reward; for charitable cause;
historically has been well accepted and currently legal rules in term of solicitation; asking for
donations applies to causes and new inventions- and new projects such as movies; and
projects- for research and development. –on online plat form; no real legal problems as such.
1. Pre- order and pre chase of products or service; for sole traders; proprietary
companies; partnership and public companies; is generally well accepted/ generally
successful in their offerings;- it is cover in contract; even in case where the delay of
shipment of project can range from a fortnight; to 9months; is generally well accepted
by the general public for new inventions.- No real legal problem; However; there
have been reported cases of failed projects; that don’t deliver and are not able to
complete their orders; logically is would result in a refund of the pre payments by the
Entrepreneur/ inventor or the person in charge of the project.
2. Ask for; to sell equity and share in company- to gain working capital to complete
their projects; Often entrepreneur/ inventor- has nominal amounts of start- up capital
for their projects. – The market capitalization of their potential company is unknown-
thus is a high risk project. – There are legal implication to this type of offering by
entrepreneurs/inventors and passion projects.
3. Conclusion: The cultural and economic promises associated with crowdfunding are
such that the practice should not be constrained in Australia and around the world; by
a hostile regulatory environment; to seek an appropriate model; with appropriate levels
of regulation for CSEF in Australia.
4. Recommendations; To seek a balance; an appropriate levels of regulation for CSEF.

7. 7
Appendix.1.
1. Table 1: Key elementsofthe CAMACand New Zealandmodels2.
Issue CAMACmodel New Zealandmodel
Issuers
Eligible issuers Australian-incorporated issuers that must New Zealand-incorporatedcompanies.
be eithera publiccompany oran exempt
public company.
Limitedto certain small enterprises that
have not raised funds under the existing
public offer arrangements.
Relief from public company compliance Availableto exemptpubliccompanies, No CSEF-specificexemptions.
Costs with relieffrom a rangeofcompliance
requirements, including annualgeneral
meetings, andauditrequirements (up to a
certainthreshold).
Exempt status availablefor a period ofup
to three to fiveyears,subject to turnover
and capital thresholds.
Maximum funds an issuer mayraise Cap of$2 million inany12-month period, Cap of$2 million inany12-month period,
excluding funds raised under existing excluding funds raised under existing
prospectus exemptions for wholesale prospectus exemptions for wholesale
investors. investors.
Permitted securities One class offully paidordinaryshares. One class offully paidordinaryshares.
Disclosure requirements Reduced disclosure requirements, Minimum disclosurerequirements,with
including a template disclosure document. issuers andintermediaries to haveinplace
arrangements toprovidegreater
disclosure where there areno or high
voluntaryinvestor caps or the issueris
seeking toraise significantfunds.
Intermediaries
Licensing Hold an AFSL and comply with licensing Be licensed and comply withlicensing
requirements, including membership ofan requirements, including membership ofan
external disputeresolution scheme. external disputeresolution scheme.
Due diligence Undertakelimited due diligence checks on Undertakelimited due diligence checks on
the issuer. the issuer.
Risk warnings Provide genericrisk warnings toinvestors. Provide disclosurestatements andgeneric
risk warnings to investors.
Fee structures Prohibitedfrom being renumerated No restrictions onfee structures, although
according to the amountoffunds raised by fees paidby anissuer mustbe disclosed.
the issuer, or inthesecurities or other
interest oftheissuer.
Interests in issuers Prohibitedfrom having a financial interest Permitted toinvest in issuers using their
in an issuer using its website. platform, although details ofany
investments mustbe disclosed.
Provision of investment advicetoinvestors Prohibited. Not specifiedin legislation.

8. 8.
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