Once again, New Zealand is leading the way in business reform.
New laws allowing equity crowdfunding fundamentally change the way
that private companies can raise funds, and give them a meaningful,
cost effective and efficient way of doing so.
The recent implementation of the Financial Markets Conduct Act
2103 allows companies to raise up to $2 million from the New
Zealand public in a 12 month period, in return for shares in their
company, provided they do so via a licensed equity crowdfunding
Why is this so different?
To date raising capital from the public has been rigorously
regulated and accordingly, expensive, time consuming and often
unviable for companies.
Equally, it has been difficult for everyday New Zealanders to
access equity investments in exciting and up-and-coming businesses.
Historically, these opportunities have been available only to a
limited pool of wealthy angel investors.
What it's not
True equity crowdfunding is a brand new concept in New
It is not raising funds in return for some form of gift or other
reward (as has been made popular by companies such as PledgeMe and
Kickstarter). It is not companies raising money by way of a
It is about raising money in return for
shares from the general New Zealand
Risk and reward
Companies seeking to raise capital under the new law are
required to do so via a licensed equity crowdfunding provider. The
eligibility requirements for obtaining a licence are detailed, the
people involved with the provider are subject to rigorous scrutiny,
and there are ongoing and extensive compliance obligations for all
providers. To enable the costs of raising funds for a company to
remain comparatively low, the law shifts a significant level of
regulatory scrutiny to the licensed provider.
Investors are not limited in the individual amount which they
can invest in a participating company, provided the $2 million and
12 month thresholds are not exceeded. Some have argued that
individual investor caps should have been introduced to protect
investors; however there are compelling reasons why policy makers
decided not to cap individual investment amounts. These include the
fact that such individual caps could stifle the growth of equity
crowdfunding by limiting cornerstone investors investing through
the crowdfunding platform (a proven metric for success on global
platforms seeking to attract the 'crowd'). In addition, the
ability for investors to circumvent such caps would likely render
it a practically meaningless protection. Supporters of the current
law also correctly note the relative lack of any regulation or
oversight over the ability to gamble, and the inequality of the law
then doing so for equity crowdfunding.
Investments are not risk free by their very nature, and the new
law does not purport to remove all risk for investors investing via
equity crowdfunding providers. Instead, the new law recognises a
significant gap in the market for companies looking to raise funds,
the fundamental role of the internet in business and communities,
and giving the public and businesses more flexibility and control
over their investment decisions. It also recognises the fundamental
principle that an equity crowdfunding provider's success will
be directly aligned with the quality and success of the companies
which raise funds through them – this in turn means success
The Financial Markets Authority is now accepting licence
applications for equity crowdfunding providers.
As part of the Government's wider business growth agenda, we
welcome the new law and the development to New Zealand's
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.
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