Equity crowdfunding platforms get the green light

Equity crowdfunding platforms get the green light

Snowball Effect and PledgeMe are out of the gate in the New Zealand equity crowdfunding race, with each set to launch as licensed providers mid this month.

The Financial Markets Authority granted each organisation their licenses under new law introduced in April, which allows companies to raise as much as $2 million in 12 months through share offers. Using this method, they no longer need to issue a prospectus.

The FMA says it will monitor the newly-regulated equity crowdfunding environment.

“It’s also our role to remind investors that these are higher-risk investments and that the public should do their homework before investing their money,” says FMA director of compliance, Elaine Campbell.

The licensed crowdfunding services have to provide information about their service and the risks of investing through the service, and have adequate disclosure arrangements in place so investors can find out about the companies offering shares on the crowdfunding website.

PledgeMe says the process of being licensed took longer than anticipated, but it now has a variety of companies interested in using its service.

It will launch on 15 August with events around the country and is asking companies interested in using equity crowdfunding to get in touch with a company and team description, what growth funds would be used for, future plans, financials and forecasts, a draft business plan, a valuation and funding goals. It will then supply an issuer agreement for directors to sign and will do background checks.

"Don’t forget – the first pledgers on any campaign will probably be the family, friends, and customers of the company first, followed by a wider crowd if it strikes the right chord," says PledgeMe CEO Anna Guenther in the blog.

It says average equity crowdfunding raises overseas stand at between $80,000 and $120,000 for equity stakes from of between 10 percent and 20 percent.

Snowball Effect says its arranging a launch for the week starting 11 August. Its first investor opportunity will be Renaissance Brewing, a craft brewery, offering 300,000-350,000 shares at $2, valuing the company at $5 million and representing 12.28 percent equity if the offer is fully subscribed.

Crowd loyalty venture Rippr is also gearing up to launch with Snowball Effect. Snowball Effect co-founder Simeon Burnett says more than 200 companies have been in contact about raising capital and it's actively working with 14 businesses to "bring them to market".

"Equity crowdfunding represents a paradigm shift in the way SMEs access funding for growth,” says Burnett. “And it also changes the market for investors by broadening and simplifying investment opportunities in New Zealand. 

“Snowball Effect will open up this high-growth sector in New Zealand to everyday investors – and they can take small or large stakes without paying brokerage fees. The pool of people who participate in New Zealand’s capital markets is suddenly going to get a lot bigger and that’s very exciting.”

However, he cautioned that high growth businesses typically had a higher failure rate than more mature businesses.

Another intermediary recently licensed was Harmoney, for peer to peer lending.