The Turnbull gov finally listens to what we've all been saying about crowdsourced equity funding - Terri Butler MP, Labor for Griffith

The Turnbull gov finally listens to what we've all been saying about crowdsourced equity funding

Read the full speech below. 

Ms BUTLER (Griffith) (17:14):  It is, of course, a pleasure to follow the member for Parramatta, who is well known in this place for her interest in innovation, in small business, in start-up businesses and in new and emerging corporate forms. It's always such a pleasure to see her at our events for the Parliamentary Friends of Innovation and Enterprise. She is a frequenter of such events and is well known to the innovation community. In making those observations, I draw a very clear distinction between small businesses and start-ups. They're very different things but nonetheless have some related interests. Some of those interests are at the heart of what this new bill is about.

It was very interesting to hear the thoughts of the member for Parramatta on what is the evolution of the corporate form. We here all know, don't we, that corporations and the corporate form are not things that were handed down from on high. They've evolved over the last few centuries. In fact, it was previously considered quite controversial to confer legal personality on an entity and to have limited liability for people who own shares in that entity, yet that's now the norm. It's reflected in our corporations legislation and seems almost natural because it has now been around for so long. But it's not set in stone; it's not immutable, and certainly not frozen in time. I'm sure that most people here will have had interactions with people who are now challenging the way we see the corporate form under our legal system.

The shareholder primacy model is being challenged by benefit corporations, a new corporate form that has been emerging, particularly in the United States, where they're seeking to move away from shareholder primacy models to genuine stakeholder models. It makes a lot of sense when you think about it, because, regardless of what their legal obligations might be, how many corporations do you know that consider only shareholders' interests in the decisions that they make? Of course they don't. Of course they consider—and have legal obligations to do so—the interests of their employees, their creditors and their customers. All of these stakeholder groups—or, as some people describe them, corporate constituencies—have a role to play in interacting with corporations, particularly corporations that exist so that a firm can operate within the law and take the benefit of the corporate regulation that we have.

It's not just the emergence of benefit corporations. The member for Parramatta talked about co-ops and mutuals, who play an incredibly important role in Australian society. I'm a member of one myself, the RACQ. It does absolutely sterling work in respect of road safety in Queensland for the benefit of its members. It's not a corporation in the same way that a trading corporation might be; it falls within the class of co-ops and mutuals. I'm very pleased to engage with the Business Council of Co-operatives and Mutuals, and I'm sure that people here will have met with them when they have been in parliament, including quite recently to talk about this alternative yet very common form in Australia.

When you talk about the continuously emerging and evolving way that corporations are organised, we're really talking about the way that people can get together collectively for the purpose of an enterprise or an undertaking. As I said, it's not just shareholders or directors; it's employees, creditors, customers, providers of finance and suppliers. Corporate constituencies are very broad, and that's very important because, when we're talking about how to increase economic activity, we need to recognise that sometimes our old laws aren't fit for purpose. In this case we're talking about laws to promote and encourage investment, particularly in early-stage high-growth start-ups. This is a very important issue, and it's something that Labor kicked off when we were in government. We sought the advice of CAMAC, the Corporations and Markets Advisory Committee, the same committee that, unfortunately, this Liberal government had legislation previously before the House to abolish. Nonetheless, we did seek advice from CAMAC to see what we could do in respect of allowing equity crowdfunding to operate here in Australia. It was really important, because, if you're an early-stage start-up, you're going to be looking for options to raise capital. Finding investors at that early stage when you've got an idea is quite a difficult thing to do. Maybe you've developed a minimum viable product but you're not yet at a point where your firm is sufficiently mature enough to convince investors necessarily that you are a fairly low-risk proposition, so you're looking for capital that has a slightly higher or a much higher appetite for risk.

Mr Deputy Speaker Irons, I'm sure you've been, as have I, to a lot of incubators and accelerators that provide support to early-stage start-ups and then try to connect them either with angel investors if they're very early-stage or, later down the track, with venture capital. Those are very important, but increasingly I am hearing entrepreneurs saying that they are not willing to go down the route of engaging with the incubator or the accelerator with a view to getting particularly venture capital for their firms because of the requirements that are usually imposed to give up large portions of the equity in the firm—in other words, to give up a large amount of ownership of the firm, to have people they don't know who haven't been part of the business from the ground floor getting involved in the running of the firm.

I've certainly been to accelerators and incubators in Jerusalem, in Yangon, in San Francisco and of course plenty here in Australia. It is quite common across these incubators and accelerators, particularly the for-profit ones, to seek to take a slice of ownership in the start-up once they've assisted them to obtain capital, and of course it's very common for venture capital, as a condition of providing the funding, to seek a slice of ownership of the firm. Once that starts to happen, you're giving over more and more control. So it's not really a surprise that founders in those sorts of firms would be looking at alternatives to raise capital that don't involve them giving up control over what's really their baby—this business that they're starting from the ground up.

We have a strong and growing angel investment sector in this country. We do have a lot of strength in venture capital, and I certainly would not seek to minimise the importance of venture capital or the role that venture capital plays in Australian innovation, whether it's traditional venture capital or some of the corporate venture capital that we're starting to see in firms like Qantas and Telstra, who of course pioneered corporate venture capital in Australia. I certainly do not seek to discount the role and importance of venture capital or, as I say, at a more early stage of angel investment. Access to equity crowdfunding is another string to bow for those early-stage, high-growth start-ups when they are trying to seek funding.

I've spoken in relation to equity crowdsourced funding in this place before. I've expressed a great deal of frustration at the fact that this government really did not have its act together when it came to crowdsourced equity funding. In fact it had a previous bill early last year, which you'll remember, Deputy Speaker Irons, which sought to set up an equity crowdfunding regime, but, as we said at the time, excluded proprietary limited companies. So only limited companies, only public companies that were able to bear the compliance obligations and costs of transforming into an Ltd company, had access to the regime under the coalition's previous legislation.

A number of us, including of course the shadow minister, the member for Chifley, who is here at the table—who has done an excellent job in leadership on this issue over many years—spoke out about our concerns about the previous version of this bill, because it was not workable. It was of no use. You had people from across the start-up sector saying, 'Why would we go to all the cost and compliance obligations of trying to change our corporate form to become limited companies rather than proprietary limited companies just to access this regime?' The sector was speaking out and we were speaking out. The government knew they had a problem, because they were foreshadowing that they'd need to come back with further legislation—which is what this bill is—in order to fix a very obvious and glaring problem, yet they went ahead with it anyway. It was just legislation by publicity. It was a triumph of publicity over common sense. What a shame that was to see the government so desperate for a headline and for a bit of good publicity that they rushed through legislation that was not workable and that was in receipt of significant criticism from our innovation ecosystem participants in this country.

So I am delighted—I'm quite moved—to be standing here on what is a red-letter day for this nation. Finally this government is showing some common sense. Well done, government. I am deeply moved and delighted to acknowledge that there has finally been a show of common sense from the Turnbull government. Now that we are seeing some common sense on this issue, maybe we'll start to see some common sense on some other issues.

Maybe we will see common sense on schools funding or corporate taxation or perhaps even not cutting university funding by $2.2 billion—which, by the way, is not particularly popular among the innovation ecosystem participants either. Maybe we will start seeing some common sense when it comes to pensions. Maybe we will even start seeing some common sense when it comes to ruling out any cuts to the GST for my home state of Queensland.

Ms Collins:  Or Tasmania.

Ms BUTLER:  Or Tasmania, says the member for Franklin from the table. I'm not going to hold my breath for more common sense because I am sceptical. It has taken a very long time to get to the point where we have legislation that is workable for the innovation ecosystem, that is workable for early-stage high-growth start-ups. It has taken a very long time to get to the point where we come here and say: 'Well done, government. Finally, you've got your act together. You've finally listened to us. You've finally listened to the sector. You've listened to Labor. You've listened pretty much everyone in the world, except for yourselves, who knew that this was a great big giant problem!' In fact, as I said earlier, the government knew it was a problem and did it anyway. Credit where it's due! Two thumbs up! It is quite a delight to acknowledge the common sense of the Turnbull government, finally, in bringing this legislation before the House.

This speech is not all about me saying I told you so. It's not all about a vindication of our earlier stated position. It's not all about placing on record that we had called for this much earlier. It's also a genuine acknowledgement that this legislation will help early-stage high-growth start-ups raise the capital that they need that is crucial for them to be able to grow and create jobs and create products and services that will help Australians and Australia. It is a very good thing that equity crowdfunding will now be available to those organisations—in particular, it is good that it will be available to them without having to change from being proprietary companies into limited companies. Accordingly, I am very happy to stand up and support this legislation from the Turnbull government. In so doing, it is of course deeply important to acknowledge that this legislation would be unlikely to be happening at all if it were not for the work of the shadow minister at the table, the member for Chifley, and the work of Labor in government seeking to obtain advice from CAMAC in respect of crowdsourced equity funding.

It was not just our view that the previous legislation was unworkable. It was not just the view acknowledged by the government, when they were moving the legislation, that it was unworkable. We had start-up founders criticising it at the time. One founder said, 'Switching to a public company to avail ourselves of the potential wider investable base is unthinkable.' Of course it was unthinkable; the additional compliance costs and obligations outweighed the potential benefits of the previous version of this legislation. In this new version, proprietary companies will be able to crowdsource equity fund and still meet the obligation of a proprietary company not to have more than 50 shareholders—because those who obtain shares through crowdsourced equity funding will not be counted towards that cap. People using this new regime will, nonetheless, have slightly higher compliance obligations than ordinary proprietary limited companies. It is important that those companies will be able to use this legislation.

The member for Chifley has moved an amendment seeking that the commencement of this legislation be brought forward by three months. The sector should not have to wait another six months. They have been waiting a very long time already as a consequence of this government's failure to get the bill right in the first place. I would encourage all members of this House to support the second reading amendment with a view to calling on the government to bring forward the operation of this regime by three months. I know that the sector would welcome that and I know that the entire innovation ecosystem would welcome that. There is no reason why a competent government couldn't bring this forward and allow it to commence operating in a more timely manner, particularly given how much time has already been spent by the government on this and how much time the sector has already been forced to wait as a consequence of the dilatory conduct and delay of this unfortunate Turnbull government.

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