Snowball may establish share market
Auckland's Snowball Effect is considering setting up a facility on its website that would help people buy and sell shares they acquired through equity crowdfunding.
The facility could make it more attractive for investors to get involved in equity crowdfunding by providing a secondary market for shares.
Platform head Josh Daniell said the development was "on its radar" but it would not resemble the NZX and investors should regard any investments as "illiquid" and for the long term.
New Zealand's first equity crowdfunding campaign opens to the public tomorrow, when people will be able to invest in Blenheim's Renaissance Brewing through Snowball Effect's online platform.
Renaissance Brewing aims to raise $700,000 by offering just over 12 per cent of the company to investors.
The minimum investment is $500. The offer has been open to "friends and family" since yesterday, with $88,000 invested by them in the first day.
Investors are also being offered discounts on its beer, an invite to an annual tasting and, for those investing more than $2000, an annual delivery of 12 free beers.
Although there is nothing to stop investors selling their shares, in the absence of a secondary market there will be no easy way for them to find buyers or establish their value.
Equity crowdfunding has been legal since April, but became possible only this month after the licensing by the Financial Markets Authority (FMA) of the first two platform providers, Snowball Effect and PledgeMe.
It allows companies to raise up to $2 million a year from the public without issuing a full prospectus or other usual regulatory oversights.
FMA spokesman Andrew Park confirmed crowdfunding platform providers could be allowed to offer a share-trading facility, though only with its permission.
"Conditions restrict all licensees to the activities they described in their licence application," Park said.
"This helps the FMA manage risks around licensees potentially setting up new services before we have had a chance to assess their capability to operate those services.
"If a licensed crowdfunding or peer-to-peer lending platform wants to offer a secondary market, then they need to talk to us first because they have a specific condition requiring them to do so.
"Provided they can demonstrate they have the necessary skills and capability to offer the service, then FMA will look to vary their conditions to allow them to do it."
Daniell said Snowball Effect would require a variation to its licence and it wasn't sure yet what its service would look like.
"It is a lot easier if the trading doesn't actually happen on the platform and it is just a noticeboard where people put up 'bid and asks' and transactions happen off the platform. That way you get around a whole lot of regulation and it's lower cost."
PledgeMe chief executive Anna Guenther said it had also thought about facilitating a secondary market in the shares of companies that used its online platform to sell equity, but had not made a decision.
Companies could facilitate trades themselves or use unregistered trading facilities such as Unlisted, she said.