Changes to the rules governing capital markets could allow investment in start-ups through crowd-funding platforms, a government-backed venture fund says.
New Zealand Venture Investment Fund chief executive Franceska Banga said provisions in the Financial Markets Conduct Act permitting crowd-funding could have a positive effect on start-ups when they came into effect on April 1.
Crowd-funding uses the internet to collect small donations or investments from large numbers of people. Under the existing law any offer of shares through a crowd-funding platform would incur heavy compliance costs in meeting mandatory disclosure and governance requirements.
But the act creates a new category of "licensed intermediary" which can include crowd-funding platforms. Such intermediaries may make share offers worth up to $2 million a year that are exempt from the normal compliance requirements.
"We have watched the development of crowd-funding investment in the United States and believe it could have a positive impact on New Zealand start-ups," Banga said.
"The early-stage investment community, and particularly angel networks and investors, need to consider how crowd-funding can be integrated with existing investment platforms in order to increase the capital available to young start-up companies."
Banga said platforms such as Angel List in the United States were leading the way. Angel List enables start-ups which have received a certain level of angel investment to then be able to seek further capital from crowd-funding.
"The benefit of this sort of structure is that it opens up angel-backed companies to a much broader pool of investors," Banga said.
"People keen to invest through a crowd-funding platform might be more attracted to an investment proposition which has already attracted angel investors and due diligence has been done.
"They might also want the assurance that the investment is properly executed, and includes appropriate investor protections."
- Fairfax Media
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