News

15 June 2015

Equity crowdfunding’s strong start

Stuff.co.nz, Sunday Star Times

Fifteen young firms have raised a total of $8.7 million through three equity crowdfunding platforms since the low-strings fund-raising mechanism got the green light from regulators last year.

The sum may be small compared to the $55m that well-heeled “angel investors” pumped into high-growth businesses last year and to the $4.7b bigger businesses raised through the NZX stock exchange in 2014.

It looks even tinier when compared with the current value of bank loans to businesses, which stood at $80b in April, according to the Reserve Bank.

But Chapman Tripp corporate lawyer Bradley Kidd says the start is encouraging.

More platforms have been set up than he expected to support equity crowdfunding and there have been some “really good offers”, he says. “I’d say it has gone a bit better than I’d of expected.”

Equity crowdfunding lets companies raise up to $2m a year from selling shares to the public, without requiring they issue a full-blown prospectus and comply with other red tape.

Money needs to be raised through crowdfunding platforms, of which five have been licensed by the Financial Markets Authority (FMA) to date.

The idea was to make it easier for young “high-growth” businesses to get off the ground and hopefully to unleash a wave of innovation.

For investors, there is the lure of making an early punt on companies that may turn out to be the next Xero, Trade Me or Body Shop, or simply of participating in the development of a local business whose products they like.

An impressive 15 of the 19 equity crowdfunding campaigns that had closed by June 11 hit their minimum fundraising targets, with only four falling short. A further six were still open to investors.

Almost all the businesses raising money have been firms operating in the food and beverage, hi-tech and environmental sectors.

CHEERS TO SUCCESS

Blenheim craft brewer Renaissance, which was the first companies to raise money through equity crowdfunding in August, remains one of its best poster-boys.

Auckland public relations executive Conor Roberts is one of the 300 beer-lovers who put a “couple of thousand dollars” into the firm “for a bit of fun” following its well-orchestrated campaign.

“I liked the cut of the business’ gib and I am big fan of the company as well. I have tried their beers and enjoyed all of them,” Roberts says.

He hasn’t been disappointed with how the brewer has treated him since. “They send you a case of beer every year for being a shareholder, which is a great return. There are special offers and Facebook groups and they ‘crowdsourced’ a recipe for a special brew.

“That building up of a sense of community around the business is something those companies can do quite well.”

Snowball Effect co-founder Josh Daniell believes it will help the whole industry that Renaissance exceeded its first-year financial targets in June, when it posted a $225,000 operating profit on revenues of $1.8m. “The market needs that kind of confidence that what people say in offers has a decent chance of being met.”

Some believe the new hair on the tail of the finance market may even be about to wag the dog, or least prompt it to open a sleepy eyelid.

Xero head of accounting Grant Anderson argues that big businesses are struggling to get “cut-through” communicating with retail investors and could take a leaf out of the book of those that have turned to equity crowdfunding.

But companies that raised money direct from the public through equity crowdfunding are in some cases achieving “real shareholder engagement”, Anderson says.

An FMA survey last year found under-35s thought equity crowdfunding was less risky than investing in firms that were listed in the stock exchange. That could suggest better “engagement” is valued more highly by young people than traditional shareholder rights.