"Equity crowd funding" is the term used to describe small or start up businesses raising funds from the public by issuing shares in their company, via an online platform.
Equity crowd funding has captured headlines due to a recent legislative change and the Financial Markets Authority issuing New Zealand's first equity crowd funding licences, which allows the licence holder to offer shares in companies for subscription by investors without the need to issue an investment statement or prospectus. Potential investors are able to browse a platform for an investment opportunity, learn about the company and make a decision whether to invest, or not. The issuer may request a minimum level of investment, there is no maximum amount that may be invested (however there is an overall maximum that a company may raise, namely $2 million in a 12 month period).
Equity crowd funding is relatively untested in New Zealand. A number of countries still have regulations which prohibit outright, or otherwise restrict, equity crowd funding from functioning and growing. However, one country that seems to have embraced the concept is the United States. In 2012, $2.7 billion was raised by companies through equity crowd funding in the US, followed up with $5 billion in 2013, with over $9 billion forecast to be raised in 2014 [www.snowballeffect.co.nz]. Clearly this is somewhat of a revolution in the US investment sector.
As at the date of writing, one New Zealand company has managed to reach the point of registering their share offer. Renaissance Brewing, which plans to grow its craft beer business both locally and internationally, has made an offer via the Snowball Effect platform. The site features a video, a wide range of information on the company and details various investor rewards.
Time will tell whether New Zealand will enjoy the success that the US has experienced with equity crowd funding. Given New Zealand's reputation for innovation and entrepreneurship, it may be that it is the perfect location for equity crowd funding to succeed. Equity crowd funding certainly has the potential to grow rapidly and make a significant impact on the New Zealand investment sector.
Should you be considering utilising crowd funding for your company, please do not hesitate to contact one of our business law experts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.