Investors already have exposure to foreign listed stocks and bonds through the public markets – in fact, practically every diversified managed portfolio, including superannuation savings accounts, engage in cross-border investment. However, other asset classes have been stifled by well-intentioned, but unhelpful regulation. This is particularly true of direct ownership of real-estate and private companies.
When red tape stops or hinders offshore investment, investors are not provided with the opportunity to seek the best returns. Nor can they hope to gain the degree of diversification that is so critical to intelligent portfolio construction. Those who own nothing but local assets are highly exposed to nation-specific risk factors such as natural disasters, unfavourable regulatory change and erosion of purchasing power through inflation and currency movements.
And from the perspective of investee companies, only having access to local capital pools limits the investor audience when conducting a fund-raising. Access to a more diverse set of investors provide entrepreneurs with more choice, higher achieved valuations, and a better chance of success.
With the advent of the internet, visa liberalisation and comprehensive free trade agreements, the old national borders are disintegrating in many areas of economic life. Innovation is now (at last!) touching the field of investing. Cross-border crowdfunding portals are enabling new and exciting offshore crowdfunding opportunities.
In August, Equitise partially crowdfunded the initial public offering of Chinese agricultural giant Dongfang Modern. This capital raise enabled exposure to an IPO without the usual broker relationship, and was open to eligible Australian investors and New Zealand members of the public. Investors have enjoyed a 50% increase in the price since the shares listed.
Each jurisdiction has its own crowdfunding regulations that determine who can invest.
- Seedrs allows investment from within the EU and, in limited circumstances, internationally. They have also opened an office in the United States, but American securities regulations are famously restrictive.
- Symbid, operating under the liberal Dutch regulations, accepts investment from within the EU and internationally, however admits that investment from outside the EU is a grey area.
- Companisto, headquartered in Germany, allows investment from anywhere except the United States, however it is unclear whether habitual / high net worth investor restrictions from jurisdictions abroad can be circumvented.
- Invesdor, headquartered in Finland, was first to receive a European-wide licence to operate crowdfunding activities across all 31 European Economic Area counties. Recently they have opened an office in the UK as part of their cross-border crowdfunding strategy.
- Equitise is the only platform with trans-Tasman operations, and accepts cross-border crowdfunding investment from New Zealand and eligible Australian investors.
Equity crowdfunding is disruptive to traditional financial institutions because it finds smart new ways to adhere to regulation, and also becomes a force for change in those regulations which had protected the incumbents.
On the adherence side, equity crowdfunding allows ID verification, risk acknowledgements, and payments to be accepted… all online. Innovative platforms also take advantage of “passporting” rules that allow companies to access investors from offshore in a cost effective manner. All of this makes it easier for businesses to reach their funding goals.
As a force for change, equity crowdfunding will help move us towards further regulatory harmonisation. With platforms beginning to operate across borders, consistency and compatibility between jurisdictions is becoming an ever-increasing priority for regulators.
Some of this will happen through existing intra-national political organisations such as ASEAN and the European Union. The crowdfunding industry bodies that represent platforms from the countries within these regions also have a part to play; Crowdfunding Asia and the European Crowdfunding Network being two of the most important.
For tangible evidence of what’s already happening, Therese Torris featured an article where she explained that the UK, with its liberal equity crowdfunding regime approach is driving change within Europe. Meanwhile, Australia, New Zealand, South Korea and Japan have committed to creating an “Asia Region Funds Passport” to facilitate cross-border investments.
Although it will be undoubtedly easier from a compliance standpoint for platforms to restrict themselves to locally-domiciled companies and local investors, facilitating cross-border crowdfunding is the more far-sighted move. Imagine the social impact of Australians being able to finance important infrastructure projects in South America, Canadians gaining access to real-estate holdings in South-East Asia, or Europeans investing directly in the latest Silicon Valley unicorn.
Get ready, because equity crowdfunding is becoming a powerful medium for moving capital in a more efficient, cheaper way, with transparent, open processes that transcend national borders.
Nathan Rose, Assemble Advisory
Will Mahon-Heap, Equitise