Equity crowdfunding arrives in NZ

twitter-bg-2New Zealand’s first ever equity crowdfunding offer was successfully completed in August when Renaissance Brewing raised $700,000 through Snowball Effect.

A few of the highlights:

  • First equity crowdfunding offer in NZ
  • $700,000 raised from 287 Kiwis in less than 2 weeks
  • $218,102 raised in a single day
  • Average investment of $2,436
  • 2 single investments over $50,000

The second offer, a Lee Tamahori film called The Patriarch, is now in overfunding after passing its initial funding target on 29 September.

 

What is equity crowdfunding?

Crowdfunding is a method of raising funds that is growing rapidly around the world. Globally, crowdfunding platforms raised an estimated US$5 billion in 2013, and are expected to raise over US$9 billion in 2014.

Crowdfunding is a process where many people (the crowd) contribute relatively small amounts of money to support a business or project.

Equity crowdfunding is one of the three main types of crowdfunding. It lets businesses efficiently raise funds by selling shares to the public online through an equity crowdfunding platform. Relevant provisions in the Financial Markets Conduct Act 2013 and corresponding Regulations have been enacted to enable this form of raising funds in New Zealand.

 

3 main types of crowdfunding

Crowdfunding can be split into 3 types – rewards crowdfunding, debt crowdfunding, and equity crowdfunding.

  • Rewards crowdfunding: Supporters pledge money in return for rewards, or simply make donations (through platforms like Kickstarter).
  • Debt crowdfunding: Investors loan their money and receive interest on their loans in return (also known as “peer to peer lending”).
  • Equity crowdfunding: Investors receive shares in a business, and share in the success of that business. This is the form of crowdfunding that Snowball Effect will provide.

Through licensed equity crowdfunding platforms, each Kiwi company can raise up to $2 million in any 12 month period by offering shares to the general New Zealand public. This enables companies to raise funds from a large pool of potential investors, including their customers, users, and other supporters. Investments in early stage and growth companies have generally been restricted to “high net worth” and “institutional” investors, but the new regulations will allow everyday investors to back a Kiwi business.

 

Benefits

Crowdfunding investors are often early adopters of a company’s products, and become even stronger advocates for that company once they’re shareholders. They buy more of the product, and tell their mates about it. The early data from overseas experience show startling revenue increases for crowdfunded companies after successful offers. The crowd can bring more than just money – it can bring a groundswell of support to accelerate growth.

Another benefit for companies is efficiency. A company can get a good steer as to whether it’s suitable for equity crowdfunding from an initial meeting. And suitable companies could be raising funds within 6 weeks from that meeting.

Equity crowdfunding promises to improve access to finance for growing businesses, and to provide everyday investors with the chance to back some of New Zealand’s most exciting businesses. But let’s be clear – equity crowdfunding is not right for all companies and investors. Some companies will fail to meet financial expectations after they successfully raise funds. Others may go on to be highly successful and handsomely reward those who backed these companies when given the chance. The risks will be high, but our research has told us overwhelmingly that Kiwis are eager to back young companies that they believe have the potential to flourish.

 

How to get involved

New Zealand’s second equity crowdfunding offer is a Lee Tamahori film called The Patriarch.  The film is based on Witi Ihimaera’s novel Bulibasha, and the last 5% of the funding is being sought via Snowball Effect. Click here to view the offer.