Smoothing Out the Peaks and Troughs

“Booms and busts are amplified when a select few control the allocation of money.”

William Stewart, just a second ago.

Here’s my question — does crowdfunding have the ability to help smooth out the peaks and troughs of an economy over time?

In any market, or more generally any economy, enthusiastic demand for things causes expansions (peaks) and underwhelming demand for things causes recessions (troughs).

Being a cub of the Celtic Tiger, I’ve lived through one of the most emphatic boom-bust cycles in history. I think I’ve picked up some learnings along the way. So here is my biased opinion.

The issue, as I see it, is that when a recession looms, the supply of things being created drops because the creators (businesses) start being starved of the capital investment they need to create things. And without things to buy, people buy less things — effectively supply influencing demand. A lot of this is down to banks and institutions holding the big buckets of cash money.

So in a financial system where the money, and therefore the investing power, lies in the hands of a few, we see a scenario spin out kinda like what happened in Ireland not so long ago. An unplugged but overflowing bath followed by a swift righty tighty of the tap.

But let’s say this scenario plays out within a purely (hypothetical) democratic financial system where everyone has the ability to make their own investment decisions. The kind of system that crowdfunding is helping create.

So in this crowdfunding friendly economy a recession looms; there’s some fear, anxiety and hesitation amongst The People.

Some of us will rein in our investing activity. We’ll look at the menu and our appetite to save is greater than our desire to invest in companies — fair enough. But, it’s not a widespread slam on the brakes that happens when there is centralised control, when the ‘big boys’ make decisions on everyone’s behalf.

In our scenario, there will still be those who want to put their spare money to use in a meaningful way. This may be by investing in companies which have the vision and ability to spur the economy, create value, jobs and all that good stuff. The key point is that, knowing that there are people like that out there (heaps more people than there are financial institutions), many companies won’t feel the need to shrink into themselves until the tide has turned and the institutional tap is turned back on. Instead they go out to their crowd and with their help, make the brave decision to continue to push, advance and overcome.

So could crowdfunding help ease the lows of this warped capitalist system we live in?

I reckon it could.

Instead of grinding to a halt and waiting for monetary policy and government incentivisation to restart the economy, crowdfunding helps cultivate a landscape of continual opportunity. It may be an idealised vision but, even in this emergent era of crowdfunding, the potential of open, accessible, inclusive and decentralised investment is mighty.

We’re already seeing the effect of shifting the power away from the few and to the many on PledgeMe.

If you had told me a few years ago that people would invest in a startup like Ooooby with no discernible profit, I might have laughed at you. But it happened, and they’re thriving, and having an impact which in itself will help protect us from global financial bad weather. Wow.

While the fat cat sits there, no ironing can be done.

While the fat cat sits there, no ironing can be done.

So what’s missing in order to establish a more democratic economic system?

Well here in New Zealand we’re already seeing crowdfunding taking off in a big way. But the kicker that would tip the economy in favour of this kinda direction is education.

There are heeeeaaaps of people out there at the moment who give their money to banks and other financial institutions to look after. And that’s cool and everything, but there are other options for those with some disposable income and a desire to have positive impacts. Getting the word out about equity crowdfunding and lending, and creating a demand for it is probably the best next step we can take in this direction. So get sharing our How To PledgeMe guides, and let’s help iron out some of those peaks and troughs!


Early last month, I spent two days in Melbourne and one day in Sydney meeting with local companies, co-working spaces, government, funders, and startup supporters.

Australia trip

My trip had two goals. Firstly to assess where Australia’s proposed legislation on equity crowdfunding was headed and secondly to get a sense (read sanity check) of whether PledgeMe should hop across the ditch.

Apart from realising that my American heritage felt strangely at home in the rule-focused country, here are my main findings:

Change of government is helping change the law

The Australian government has recently gone through a change of leadership (to the relief of most Australians it seems), and a shuffle of portfolios means there is a new minister in charge of the changes to their securities legislation. The Corporations and Markets Advisory Committee (CAMAC) which wrote the original report around equity crowdfunding has been abolished, leaving Australia with the mouthful of a moniker “crowd sourced equity funding” for equity crowdfunding. Now, after two rounds of submissions, the equity piece is slated to enter the innovation statement set to come out by December 2015.

There is a general sense of optimism around the changes. The new Prime Minister, Malcolm Turnbull, has a background in tech. This seems to leading the industry to believe he will make changes to support SMEs. He’s already shown he is capable of doing this with recent employee share scheme changes.

We believe that government’s role is not to tell citizens, let alone businesses, what is best, but rather to enable them to do their best.” Malcolm Turnbull

However, many predict Australia is more likely to follow the American way of equity crowdfunding. People I spoke to said as much: “Australians like rules”. This means there will probably be investor caps on how much individual investors can invest, both per campaign and per year. This stems, in part, from a general fear from institutional investors that retail investors would lose all their money in this space. New Zealand originally discussed investor caps, but decided not to go down that path. We agree with this. Caps on investment assume that retail investors need protection from themselves. This could be seen as somewhat patronising and counter to Prime Minister Turnbull’s above statement.

There has been some talk recently about the law change excluding debt/peer-to-peer(P2P),  and existing only for public companies. Both of these comments are strange, for the following reasons:



Debt crowdfunding, crowdlending, peer-to-peer, whatever you call it, is two thirds of the international crowdfunding market. Yep, bigger than all the equity crowdfunding and kickstarter-esque platforms combined. So it seems odd that it’s being left out of the conversation. In fact, in New Zealand, equity crowdfunding was actually an afterthought added after one of the P2P platforms made a side comment about it in a meeting in the lead up to our legislation changes. And, it’s a space that we’re really interested in ourselves as it helps more than just companies find funding – it supports individuals, other organisational set up, and social enterprises. So interested in fact, that we’re exploring an SME / organisational product for kiwis.

There are P2P platforms operating already in Australia, but under the old legislation with high compliance costs.

Public companies

Company structures in Australia are different to New Zealand.

In New Zealand, the companies coming through are private companies. They are not tied to the same continuous disclosures that a public company would be required to do, and are not required to create a public prospectus for funding. While equity crowdfunding may trigger the Takeovers Code (eg. a company has more than 50 voting shareholders) and a company may be required to audit their financials if their voting shareholders do not opt out, these companies are not classified as public.

In Australia, if you have more than 50 non-employee shareholders, you immediately move from being a proprietary (or private) company to being a public company (albeit unlisted). This means you are required to have 3 directors (2 need to be Australians) and are required to provide a directors statement, financials and an auditor’s report annually.



There is a need for funding (and a crowd)

Australia is seeing more Venture Capital funds coming through for tech, a maturing startup ecosystem, and a growth in impact investment. But, there was also a general sense that while Australia is generally wealthy, it is more likely to go into traditional investments (eg. asset classes), not currently into start ups. Also, Basel III has made it harder for SME’s to access bank loans. But there are some companies that need growth funding that aren’t supported by the current ecosystem, with 10% of Australian SME’s stating they have difficulty accessing capital to grow in a recent Deloitte report. Often, these companies either wouldn’t fall in the traditional investment space or would not choose to go down the traditional investment route.


My conversations made me realise that the other side of crowdfunding (the crowd) had been seriously downplayed in the discussions around legislation changes. Everyone was hung up on the funding (and potential to lose money) and overlooked the other skills, support, and insight a crowd of consumer investors could bring.

I told the story of Brianne from Sorbet pretty much on repeat. How she went out and raised $200k from her crowd in two weeks, but not only did she get cash from her crowd; she also had three chemists invest. There was a problem she’d been working on for weeks if not months, which they came in and fixed in half an hour.



It’s a big (and complicated) market

Australia is large compared to New Zealand. With five times the population, there is more individual wealth (one person ball parked 10x that of NZ), and there are more layers to bureaucracy (city, state, federal).

There was a comment that Australia is more likely to back Australian owned, and that we would need distinctive entry plans tailored to each city. Which really made us think that if we wanted to go to Australia, we’d need partners. Companies or organisations that reflect our values, but aren’t already in the crowdfunding space.



It’s a crowded market

There are quite a few players getting ready to launch in the space. Some platforms have already completed their technical development, and there is a sense of waiting to see how the legislation lands.

Some platforms believe  the changes could come through this year (as stated in one of the documents released by government) where others think it will still be at least 6 months before the first platform is licensed and launching campaigns.

There are a range of platforms getting ready to enter the space, some with project based crowdfunding experience, some currently in the equity crowdfunding space in NZ (Equitise, My Angel Invest) and some specific niche crowdfunders (all the property….).



Where to from here?

I feel like there is little sense for PledgeMe to try and enter the Australian market on its own. But, we are open to partnering with companies in Australia to set up a platform (with us bringing the tech / expertise, and a partner bringing the potential base of campaign creators / presence / brand recognition). Partnering would be a stronger proposition than setting up a new platform from scratch.

So if there are any folk that would like to continue conversations or start conversations, get in touch with me ([email protected]). We’re keen to support the democratisation of funding in Australia, and are actively waiting to see how the final legislation pans out.


Final thought

For all that’s good Australia, please don’t go down the path of over regulation. If you write 635 pages of guidance for platforms like the USA, you’ve already stifled the innovation of your 140 character fueled future.



a big thanks to everyone that took the time to meet with me and share their thoughts on the future of funding in Australia.

Breaking Ground

[A couple of months ago a bright-eyed Irish lad approached us. He had experience in financial markets and a thirst for a challenge. Barry is now PledgeMe’s Rad Debtor, looking at crowdlending and debt crowdfunding for us.]

Nine months ago, I peered across from the other side of the internet and a bright blue bubble caught my eye. We shared a glance and I approached nervously. My voice quivering, my hands shaking, my pits sweating — “hey what’s the story, PledgeMe?”

Barry sees PledgeMe from across the bar…

An artist’s impression of Barry’s first glance of PledgeMe. Original image by Beer by Bart and used under Creative Commons Attribution license.

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