Equity financing platforms, like Jibrel.com, are a revolution in early-stage company financing. They allow startups and growing companies to conduct IPO-like offerings to the general public. For the first time:
1) Startup founders could raise a funding round in a fraction of the time
2) Retail investors could invest in a basket of startups alongside top Venture Capital firms
Although such platforms are available around the world, different countries take different approaches to regulating them. We will discuss some of them here.
The United States
In 2012, the JOBS Act was signed into law, effectively superseding Rule 501 of Regulation D of the Securities Act of 1933 to allow the “crowd” to participate in equity investments. In 2016, Title III allowed U.S.-based early-stage companies to use equity financing platforms to raise capital. However, the law restricted investment companies and special purpose vehicles (SPVs) from taking advantage. This meant that Title III was only for direct company investments and not for managed funds. Alternatives to Title III include regulations such as Reg A+and Reg D offerings, which helped push the industry into full swing within the country.
United Kingdom
The United Kingdom has the world’s most developed startup equity financing industry. The Financial Conduct Authority has taken a fairly relaxed regulatory approach to oversight. Nevertheless, the screening process for startups that are on-boarded onto such platforms is rigorous. After all, scams and failed businesses would be quite detrimental to the reputation and trust of the platform.
The U.K has further boosted its industry by creating attractive tax incentives for startups and investors.
For startups: The U.K has done so through the Seed Enterprise Investment Scheme (SEIS) for seed-stage early-stage companies.
For Investors: Those investing through private startup equity financing platforms can write off their investment against other income.
Australia
With legislation first passed in May 2017, the country was a late entrant into the industry. Regulations were quite restrictive at first and only allowed public and proprietary companies to use these platforms. This meant that startups often had to go through a cumbersome process of restructuring their companies to raise capital. However, in 2018, new legislation was passed to open up the funding methods to a much larger pool of companies. Nevertheless, the country still imposes funding limits with eligible companies. To qualify for an equity financing platform funding round, a startup cannot have more than $25 million in gross revenue and can raise only up to $5 million a year.
Canada
With rules far more restrictive than the previous three countries, each of the different Canadian provinces has various regulations. This has led to 13 different sets of rules, which has significantly impeded the growth of the industry. While startups do not have to provide a full IPO-like prospectus to their investors, the costs and disclosure requirements of conducting these offerings are often too much to be a viable option for many startups.
New Zealand
Investors in this country have shown significant interest in the startup equity financing market. Institutions and retail investors see this market as a staple of their investment portfolios. Thus, unlike in the U.S and Australia, there are no limits on what individuals can invest. The Financial Markets Authority has also created very light disclosure requirements for startups seeking this method of financing. While this places a higher burden on investors, such laws have helped push the industry forward rapidly.
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