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Are equity crowdfunders a safe bet for SMSFs?

Equity crowdfunding, IPO, initial public offering, SMSF, Self-managed super fund, superannuation, retirement planning, retirement management, retirement planning, wealth management, Townsend lawyers, business and corporate lawyers, Peter Townsend,

A law firm has cautioned SMSFs to be prudent when considering investing in companies through an equity crowdfunding platform.

From 29 September 2017, SMSF members will be able to take part in equity crowdfunding rounds – where investors fund the growth ambitions of start-up businesses in exchange for equity in the company.

Under the current legislation, passed by Parliament in March this year, retail investors (meaning investors with less than $250,000 of income or less than $2.5 million in assets for each of the last two financial years) can invest $10,000 through a crowdfunding platform per company per year.

Peter Townsend, the principal of Townsend Business and Corporate Lawyers, noted that similar crowdfunding systems have already become immensely successful overseas, particularly in the UK and the US, but warned investors that “the need for SMSF trustees to do due diligence is substantial”.

“Crowdfunding sites may have limited operating records, may not have robust compliance or governance systems, or do inadequate checks on companies on their platform; investing in emerging companies, through speculative equity crowdfunding platforms, unnecessarily adds to risk,” he said.

Despite this additional risk, Mr Townsend said the number of SMSF trustees looking to invest through equity crowdfunding platforms had seen a “sharp increase”, but urged potential investors to be smart about making such an investment.

“SMSFs appear keen on an exposure to this type of asset but should act from a prudent investment approach rather than a ‘get-rich-quick’ mentality,” he said.

Are equity crowdfunders a safe bet for SMSFs?
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