When Wellingtonian Anna Guenther needed a thesis topic for her masters degree, she chose the new phenomenon of crowd funding.
It was a good idea for a business, so she went ahead and started it. Last year, her website raised more than $750,000 for 175 projects. It is called PledgeMe and some are saying it is the type of thing that could, one day, mean the end of banks.
That is a little way off. At the moment it works like this: You have a project; say you want to make a video for your garage band. It costs $700, but you have no money. You home-make a little video of yourself doing your thing and write a couple of paragraphs about the extent of your awesomeness. PledgeMe will load this on its site, where it will sit on display alongside similar things. There is a graph showing how much you have raised and how long your appeal has got to run. If people like the cut of your jib, they give you money. In return, you offer fun rewards - a copy of the video, a signed set of drumsticks, a song about them, for instance - each getting tastier as the amount given increases and limited only by your imagination and applicable legal limits. If your thing reaches its funding target, you get to keep the money. PledgeMe takes about an 8 per cent nibble of this. If it doesn't fly, no-one gets anything and you are publicly humiliated.
Guenther says 52 per cent of projects looking for between $1000 and $3000 are funded. This seems to be the scale Kiwis are most comfortable with. Projects that fall outside this funding band are much less successful. Only 3 per cent of projects that look for more than $10,000 get what they want and only 13 per cent of those that look for less than $500 get it.
There are competing models now. The Arts Foundation's Boosted site is focused on the arts. Givealittle is funded by the Telecom Foundation and fee-free. It supports charities and features lots of sick children and desperately unlucky adults.
Guenther is not fazed by the increasingly crowded space.
"There is room to grow. If you look at Creative New Zealand, the success rate of applicants is only about 20 per cent. They had $80m of projects they couldn't fund. A lot of people that we are helping don't even bother going down that route now."
In five years she wants to be able to say the site has raised $100 million for the creative sector in New Zealand. But none of this is going to upend the financial system.
What might is equity funding, something Guenther wants to see happen here.
This involves startup businesses using sites like PledgeMe to pitch to the public. But instead of a neat prize, the giver becomes an investor and gets a piece of the profits - if any. A further development is debt funding - lending money to established businesses that want to expand in return for interest. Just like banks do. Guenther says progress is slow.
"The Government reviewed the Securities Act recently and said crowd funding is something they are thinking about and they want to keep an eye on it. But nothing is happening in that space in New Zealand, at least for another year or two. We will watch and wait."
Cambridge-based David Tomlinson is waiting, too. His ThrillPledge site focuses on funding sports and entertainment on similar terms to PledgeMe. But there is also a ThrillCapital site where "accredited investors" can give money to support a budding race car driver in the hope of a monetary return one day.
An accredited investor is an expert money manager, or an expert in the sector, or officially rich as defined by law - with an income of $200,000 for the past two years or $2m in net assets. That cuts most people out of the game. At the moment, that's a good thing.
"They are tremendously risky investments," says Tomlinson. "A key part of why people invest in people like this guy is emotional returns like when you invest in a racehorse.
"If you are going to put it out there online, there has got to be a certain amount of transparency. We don't want people raiding the Christmas fund to invest in an athlete. It would be better if reasonable investments could be offered to ordinary people. It is something that I want to see happen for New Zealand and I am agitating very hard for it right now. I feel very, very strongly there is a need to galvanise support for sport and talent - which is fun and groovy - but also," he waves at the cafe we are sitting in, "for mum-and-pops to be able to invest in a business like this."
He has approached John Banks and Sport and Recreation Minister Murray McCully. He is angling for a meeting with Commerce Minister Craig Foss. A well-connected law firm has asked for $10,000 to help him lobby. "I think they should do it for nothing," he says.
He trades his own account in the financial and currency markets. He has a BSc and a BE and an MBA in IT and e-commerce from Rutgers and has spent a lot of time working overseas. He sees the same model applying here as was proposed in the United States.
Non-accredited investors - ordinary people - will be limited in what they can invest during one financial year so they cannot blow mortgage money on some dodgy deal. But even the Americans are dragging their heels. Laws were supposed to be made last year to allow equity funding to happen. But that now will not happen until at least next year. Tomlinson suspects vested interests are throwing the anchors out. The next step, debt funding, would cause even more waves.
"Essentially, it would bypass the bank. I think there is a lot of pushback from the traditional financial services community."
The US says it is being slow and careful because of the opportunities crowd funding presents for fraud. "The financial services industry has acted deplorably over the last few years and there has been scarce value add," says Tomlinson. "But I think there is going to be a return to the grassroots where capital and securitisation are not a dirty words."
He thinks crowd funding will be the catalyst for this instead of a bonanza for thieves. "If you are going to put it out there online there has got to be a certain amount of transparency. The wisdom of the crowd cuts through, and I don't think I'm being too naive here. I think you would see some healthy debate about the merits of a particular company."
He sees it as the solution to another emerging problem - the "barbell economy". This is a job market with high-flying, high-paying jobs at one end and dead-end, low-paying service jobs at the other. With not much in between.
"The one-percenters have cash. The middle class is being decimated. I feel that crowd funding could be a way to reverse the balance and give them a piece of the action."