Crowdfunding road for start-ups: Budget promises to fill some potholes

Kickstarter, Indiegogo, Gofundme are all names we didn’t know five years ago, but are all in the limelight now and growing stronger.  These campaign-based fund raising platforms are a perfect way for entrepreneurs and start-ups to get the capital they need.

Historically new start-ups are likely to fail, mostly due to financial depletion, poor planning or lack of customers. With crowdfunding these traditional hurdles are being overcome. Start-ups are still only at a 50% success rate in the first few years according to the Australian Bureau of Statistics (ABS).

Crowdfunding is a way to finance your start up in Australia, but the regulatory requirements have put entrepreneurs at a disadvantage when it comes to growth capital. This new equity has been a bit of a challenge for the Australian Government and remains a tough issue to come to grips with.

Last week the federal budget offers a few new tax incentives for start-ups that may be beneficial to crowdfunding campaigns. The budget indicates that crowdfunding is “an emerging form of funding that allows entrepreneurs to raise funds online from a large number of small investors and has the potential to increase funding options available for entrepreneurs to assist in the development of their business”.

One of the new rules in place includes the ability to write off professional expenses when launching a new business or start-up. Treasurer Joe Hockey announced that $7.8 million will be spent on a new regulatory framework specifically designed for crowdfunding equity and how reports can be streamlined.

This new framework is just in the beginning stages but Australia may follow in the footsteps of New Zealand’s new crowdfunding model. The new framework should be introduced by the end of this year.

The New Zealand process might not be ideal as it has been described as too loose. There is a fear that potential Ponzi scams or criminals could take advantage and use the system in their favour. There will need to be a nice balance for the legitimate start-ups and consumer protection as well.

It is an interesting time for start-ups and the power of the internet. If you are an entrepreneur, there has never been a better time to use this amazing source of funds.  For now we will have to wait for the official word and framework to emerge. Until then, watch this space.

If you have a start-up business and need any financial advice or have any tax questions, our Caulfield tax agents and professionals are here to help.

Disclaimer:

Hillyer Riches Management Pty Ltd is a Corporate Authorised Representative (No 466483) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL / ACL No. 223135.This document contains general advice only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.