Chapman Tripp partners Roger Wallis and Rachel Dunne discuss the advantages of crowd funding over traditional raising methods.
The rise and rise of crowd funding and peer to peer lending
The role of crowd funding and peer to peer lending
was expanded when the Financial Markets Conduct Act (FMCA) came into
force and equity crowd funding became subject to financial regulation in
April last year. Under the regulations, issuers are limited to
raising no more than $2 million annually from the public. The crowd
funding platform acts as the intermediary between the issuers and
potential investors and must be licensed by the Financial Markets
Authority (FMA). There is no limit to how much investors can invest
using these platforms. The FMA monitors the compliance of crowd funding providers with their licences.
Advantages of crowd funding over traditional fund raising methods
Crowd funding opens up new opportunities for small
businesses to raise growth capital. Offers are exempt from the normal
disclosure and governance requirements associated with a “full blown”
initial public offering so issuers are able to tap into a wider pool of
potential investors more quickly and cost-effectively than through
traditional capital raising methods. The campaigns are often highly
visible and generate much in the way of PR and marketing, which is
particularly beneficial to start-ups.
We may see an increase in the amount of available venture capital across the board thanks to equity crowd funding platforms.
Current and future crowd funding landscape
New Zealand is at the forefront of the worldwide equity crowd funding movement and it is garnering more and more momentum. Chapman Tripp designed the legal advice which saw G3 Group become the first listed company to raise funds via an equity crowdfunding marketplace.
NZX (the New Zealand stock market operator) is closely watching the crowd funding space with a view to building a pipeline of companies that may list in the future.
If anything, the licensed crowd funding market is becoming crowded. Since Snowball Effect and PledgeMe launched their platforms in August 2014, another five firms have been licensed (Equitise, Crowdcube, Liftoff, Alphacrowd and Propellar), though the market is still dominated by Snowball Effect – with 70% market share – followed by PledgeMe and Equitise.
Another platform called AngelEquity was recently
launched, but as its offers target wholesale investors, it is not
required to be licensed as an equity crowdfunding operator under the