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Equity crowdfunding may soon be reality

posted Jul 12, 2014, 10:57 PM by Siamak Ebarhimi

Kiwi entrepreneurs will soon be able to sell company shares directly to their customers in small-scale 'crowdfunding' campaigns.

PledgeMe founder Anna Guenther says the new financial model gives start-ups a chance to work directly with the people who support them, skipping the traditional funding methods.CrowdFunding marketing

The Wellington businesswoman is one of five entities vying for an equity fundraising licence after a law change in April, which made it legal for companies to crowd-source up to $2 million.

"Basically it's a company going out publicly and selling shares in their company," she says.

"It's basically just lowering the barrier to entry [...], making the process more transparent and hopefully easier."CrowdFunding advertizing

Crowdfunding has traditionally been used help artists, creators and producers request financial support for specific projects. The applicant sets a specific target – which must be met in a certain timeframe – and donors are offered a range of small trinkets or benefits in return.

Equity crowdfunding follows the same model, but offers donors part of the company as an incentive.Kickstarter Marketing

"Instead of just getting a reward, you're getting a share and the potential for financial return in the future," Ms Guenther says. "Whether its dividends, trade sales, whatever, they have ownership.

"The only thing is there's no secondary market attached to it, so people are investing in a company, buying shares, but the liquidity isn't there, they're really investing and waiting to see what happens."Indiegogo Marketing

The businesswoman says she has been approached by hundreds of companies about the idea and has around 30 projects ready to launch when the licence comes through. She admits its risky territory for investors but says that's to be expected.

"The reason people are investing is varied, some are customers who want a sense of ownership, others have pure financial motivations. But we're seeing the mix in the middle as the most exciting – 'I want a financial return, but I also love this company'."crowdfunding websites

Under the new equity model, businesses are required to outline their project and offer a valuation of the company. PledgeMe would force them to show how they reached the figure, and then leave the market to decide which prospects are worth supporting.

The model is popular overseas and has been used extensively in Britain, raising hundreds of thousands of dollars for a range of different businesses.

Ms Guenther spoke at the annual Nethui conference in Auckland yesterday, discussing the prospects with a crowd of around 30 people. The event was put together by non-profit group InternetNZ and attracted around 500 attendees over three days.kickstarter project

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By David Khorram