Crowd funding gets go-ahead

Last updated 05:00 01/03/2014

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Enterprising businesses should get a double fillip from the start of next month, when new rules promoting crowd-funding and employee shares schemes come into force.

From April, businesses will be able to raise up to $2 million a year through licensed crowd-funding websites by issuing shares or other incentives to the public, or borrow up to $2m from non-professional lenders, without having to go through the rigmarole of issuing a prospectus.

They will also be able to issue shares to employees without the need for a prospectus or more onerous financial reporting obligations.

Commerce Minister Craig Foss said the Government had decided against imposing a cap on the amount individuals could invest through crowd-funding.

Anna Guenther, co-founder of Wellington-based crowd-funding firm, welcomed that, but said the fledgling industry was still waiting for the Financial Markets Authority to finalise what requirements intermediaries such as Pledgeme would need to fulfil to qualify for a licence.

FMA spokesman Tony Reid said it expected to issue those rules in the next two weeks.

Pledgeme has raised $2.4m for 531 projects since it launched two years ago, Guenther said.

Most had been arts, film and music projects, but its platform had also been used to fund some technology products, she said.

Until April, businesses are effectively prevented from offering backers anything much in return for their funding. Overseas, crowd-funding has frequently been used to pay for the development of software and gadgets.

Andy Baio, former chief technology officer of United States crowd-funding platform Kickstarter, said during a visit to Wellington last month that business was on the verge of what he described as an "indiepocalypse".

Crowd-funding would let budding entrepreneurs obtain finance and keep control of steady, lower-growth businesses that tended to be snubbed by venture capitalists, he said.

Kickstarter is the world's largest crowdfunding platform, having helped raise US$840 million for 56,160 endeavours.

Guenther is helping set up the New Zealand CrowdFunding Association to represent the fledgling industry.

MinterEllisonRuddWatts commercial lawyer Rodney Craig the changes to employee share scheme rules could benefit small businesses in any industry, but it was technology companies that were chafing at the bit.

"We have got a lot of clients who are gearing up to take advantage. They are mainly growing technology companies that need to provide extra incentives for talented staff.

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"If you were working for a software developer in Silicon Valley, they would have a share scheme. It is almost expected in that industry," Craig said.

Many listed companies already had employee shares schemes, since they created little or no extra paperwork or compliance costs for them, "but for smaller companies it has always been quite a major step", Craig said.

Some small businesses were also eyeing employee share schemes and the April changes as a way to manage succession, as they could let business owners transition ownership to a new generation, he said.


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