Kiwis show the way with equity crowdfunding, Anna Guenther says
PledgeMe is a crowdfunding platform based in New Zealand, where the legal framework and new regulations surrounding equity-based crowdfunding were introduced last year.
Guenther says this has had a huge impact already.
“The traditional size of a normal campaign is $NZ5000, the traditional size of an equity campaign is $260,000,” Guenther says. “Equity campaigns are definitely huge for us.
“We’ve already nearly tripled what we did last year in the last six months, and that’s predominantly because we got equity crowdfunding going and those campaigns are a lot larger.”
Equity crowdfunding allows contributors to provide money to a campaign and receive a stake in the business instead of the usual rewards.
Crowdfunding campaigns are becoming increasingly popular for startups, often providing an efficient way to test a product and gain market traction. But in Australia currently it’s mostly contained to this rewards-based system, rather than contributors being able to obtain equity in the business.
At the moment in Australia only ‘sophisticated’ investors with assets of at least $250,000 can participate in equity crowdfunding, shutting the option off to most Australians.
Loosening the laws in New Zealand
In New Zealand any company can raise up to $NZ2 million each year through equity crowdfunding, and anyone can contribute.
The regulations came into force last year, and PledgeMe was one of two platforms to first receive a licence.
The Wellington-based startup closed its own funding round through the platform within less than a day, while beer brewers Yeasty Boys raised half a million dollars in half an hour through an equity campaign.
“It’s a lot more relaxed here than what the Australian regulators are proposing,” Guenther says.
“The platforms are licensed by our regulators, and there are some rules to ensure the campaigns aren’t false or misleading, but it’s up to us how to do that.
On the agenda in Australia
It’s become a point of interest in Australian politics recently, with the federal government flagging intentions to loosen the laws in this year’s budget as part of the small businesses package.
A consultation paper was released in August outlining plans for the regulatory changes and extending equity crowdfunding to proprietary companies.
Under the changes a $5 million cap will be placed on the amount a company can raise in a year, much higher than the equivalent in New Zealand. Investors will only be able to contribute $2500 per campaign with a total limit of $10,000 over the space of a year.
Guenther says this could provide a pain point for companies and investors, and was something that was rejected in New Zealand.
“The government originally had the same thinking with the same caps and they just got the feedback that it’d be too hard to manage and check across platforms,” she says.
“The traditional view of sophisticated investors doesn’t really account for crowdfunding.”
Placing this cap on what investors can do will make the whole process a lot more difficult and inefficient, she says.
“It seems like needless worry,” Guenther says. “It’s not like they’re capping how much people can go and gamble. They’re capping certain areas and not actually understanding it.”
“I definitely think that they’re being quite extreme, similar to the US. There are countries where it’s taken off where it’s really relaxed.”
The government is expected to make the final announcement on its intentions with equity crowdfunding within the next year.
It’s hoped that the discussed changes would provide great benefit to the Australian startup ecosystem, with more opportunities for investments from broad groups of people.
A local alternative
PledgeMe is a hyperlocal crowdfunding platform focused solely on New Zealand, and this is what gives them an edge over the likes of Kickstarter and Pozible, Guenther says.
“It’s not just an online platform, it’s an offline community,” she says.
“Being hyperlocal means you can have New Zealand campaigns and build a community around it, instead of just being one of thousands of campaigns on Kickstarter.”
With equity crowdfunding all sorted, Guenther says they’re now looking at bonds-based crowdfunding and have been given encouraging signs from the regulators.
A launch in Australia might also be on the cards.
“Our point of difference here is our local knowledge. We’ve had some interest from there,” Guenther says.
“If we were to go there we’d want people on the ground. We wouldn’t want to just go there and say ‘we’re experts’.”
StartupSmart attended Lean15 as a guest of Positively Wellington Tourism.