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Equity crowdfunding in Australia- Market size
Currently, equity crowdfunding in Australia is available to publicly listed companies only. However, the Australian Federal Government has submitted the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 to parliament for consideration, which would allow privately-held companies to participate in equity crowdfunding. Until this bill is passed into law, the served available market in Australia for equity crowdfunding is restricted to 21,029 public companies.
MARKET SIZE — TAM AND SAM
When the legislation was first introduced, only publicly listed businesses were eligible to access equity crowdfunding, representing 1 percent of Australian businesses. If the legislation passes both houses of parliament, it will allow excluded proprietary (private) businesses to access equity crowdfunding.
Most companies in Australia are proprietary or private companies and only 1 percent are public. In October 2016, there were 2,349,382 private companies registered in Australia and 23,047 public companies.
To identify the available equity crowdfunding market, we determined the proportion of eligible companies, as detailed below.
Public companies, listed or unlisted, must have less than 50 shareholders to access this method of equity fundraising.
To list on the Australian stock exchange (ASX) a company must have over 300 "non-affiliated" shareholders each holding shares with a value of at least AUD$2,000. Foreign companies, though not eligible to fundraise in Australia, can also list on the ASX.
Using the data provided by ASX on their listed companies and foreign entities, we excluded 2,018 companies from the addressable market. The ASX has 134 foreign entities out of the 2,152 companies listed on the exchange. Note that this excludes "wholesale and retail debt issuers." Since these are not Australian companies, we are excluding them from the calculation. 2,152 – 134 = 2,018 public Australian companies listed on the ASX which can be excluded from this report as they exceed the shareholder cap of 50.
23,047 – 2,018 = 21,029 public companies. The served available market in Australia for equity crowdfunding is 21,029 public companies.
Should the proposed legislation become law, this will bring the total addressable market to 2,370,411. 2,349,382 + 21,029 = 2,370,411 total addressable market.
MARKET VALUE
You advised us of the IBIS Financial Asset Investing report placing the market value at AUD$13.3 billion. We could not confirm that figure via our research and, without knowing the data points used, we cannot replicate their findings. Further research has not yielded available, relevant information that could be used to determine the potential market size value. Alternatively, we have found reputable information on business financing which should assist you.
The Reserve Bank of Australia (RBA) publishes a bulletin on the business finance availability. RBA sources its information from a variety of business types and industry sectors and, using data from the financial sector, assesses the capacity of businesses to access suitable finance.
It highlights businesses using "40 percent debt and trade credit" and the remaining 60 percent as equity liability to finance their operations.
Equity assets for the business sector are AUD$336 billion while equity liabilities are AUD$2,425 billion, with 29 percent (AUD$703.25 billion) of those equity liabilities being held by investment funds.
New businesses use internal funding to finance their business operations by reinvesting net profits. Debt and equity fundraising is used to a lesser degree, as the cost to raise funds externally are often prohibitive. This graph shows approximately 12 percent of business financing is internal with around 5 to 6 percent external equity funding.
The RBA identifies equity fundraising as being of greater benefit to small businesses and start-ups. This may present an area of opportunity for equity crowdfunding as many business owners rely on "founder contributions" and struggle to access finance through external sources such as banks and equity markets.
SOUND ECONOMY
The Australian Federal Government's "Why Australia" report for 2018 lists Australia as the 13th largest economy in the world at 1.8 percent of global gross domestic product (GDP) value of USD$84,375 billion, or USD$1,518.75 billion (84,375 * 1.8%).
Experiencing over a quarter of a decade of "consecutive annual economic growth" averaging 2.4 percent real GDP, Australia ranks 11 out of 62 economies as a competitive investment opportunity. Real GDP growth from 2018 to 2022 is forecast to be 2.8 percent.
Real gross value added by industry is AUD$1,576 billion with an average growth of 3.2 percent across sectors. A diversified economy means less negative overall market impact for businesses and their investors should any sector experience a downturn.
GROWTH IN RESPONSIBLE INVESTMENT
The Responsible Investment Association Australasia shows that Australia's approach to investing is showing solid growth for 2016 with AUD$33.6 billion assets under responsible management, up 36 percent from AUD$24.7 billion the year prior.
In the areas of impact investing and community finance, responsible investment growth was 10 percent over the same period, at AUD$4.1 billion up from AUD$3.7 billion. This growth may translate across to potential interest by investors in equity crowdfunding.
CONCLUSION
The served available market in Australia for equity crowdfunding is restricted to 21,029 public companies. With 60 percent of businesses using equity to fund capital purchases and the proposed legislative change to allow private companies to access this type of funding, equity crowdfunding is a feasible alternative for small businesses and start-ups. Should proposed legislation pass, the total addressable market can be calculated at 2,370,411 companies.