Crowdfunding in New Zealand

Crowdfunding in New Zealand could make raising capital for SMEs quite a lot easier. While it is quite a new concept for us, it’s big overseas. At its most basic it enables a whole bunch of people – “the crowd”- to pool their resources together to raise capital for a company.

In recent months we have seen Kickstarter launch in New Zealand which allows entrepreneurs to crowd source funds for specific products.

Now companies will be allowed to crowd source capital up to $2 million in changes that came into force on 1 April. Equity will be rewarded with a shareholding. Importantly, there will no longer be any need to issue a prospectus and that’s a huge plus. The costs of full disclosure can be prohibitive.

In addition, the changes will allow peer-to-peer lending, which is essentially borrowing money using a crowd-sourced website.

If you think this all seems a little “wild west”, the equity crowdfunding platforms and peer-to-peer lenders need to be licensed by the Financial Markets Authority. It will be the platforms that are regulated and the platform operators must be approved.

Crowdfunding is already big overseas. Crowdfunder is probably the biggest site dedicated purely to for-profit companies but there are many others including Ulule and Cloudclan. We think it would be fantastic to see a New Zealand based site emerge focusing purely on the New Zealand market and we have heard of one or two already.

We are genuinely excited by the changes. It means that there’s a real option for firms to source equity from somewhere other than the stock exchange and to borrow from somewhere other than a bank. It will have a real impact with start-up business and SMEs alike.

Of course it is early days and it remains to be seen how popular the new regime will be. It might be that only passionate consumers or early adopters participate as funders or lenders. Or it may really catch on as an alternative to the traditional route of the NZX or banks. What is genuinely exciting is that the government has seen fit to provide a regime where business can trial alternatives.

We can only hope it is as successful as it has been in other markets.