Wynn Williams partner Hayley Buckley speaks with great passion about a client she’s been working with over the past two years, and she says what they offer lends huge opportunities to the New Zealand legal profession.
The specialist in the sale and purchase of businesses and helping companies raise funds got involved with the founders of a unique Kiwi online equity crowdfunding platform called Snowball Effect.
At the time, the concept of raising money by leveraging the public over the internet was just beginning to take the world by storm.
But in New Zealand, such an equity crowdfunding concept was not possible thanks to the legislation at the time – and new legislation hailed “a new era of financial market regulation” was in the process of being drafted.
Buckley worked closely with the three founders of Snowball Effect to prepare submissions on the early stages of this - what was then called the Financial Market Conduct Bill - and would eventually give the company the opening they needed to go to market when the Financial Markets Conduct Act was passed into law in September 2013.
Buckley told NZ Lawyer
it’s been all go ever since.
“The first extensive piece of work was the license application - the platform itself which comes under the supervision of the FMA, is relatively heavily regulated,” she says. “As a result, that legal process was quite extensive. There are then obviously continuing legal and regulatory obligations for Snowball Effect as a platform.”
These include the legal ramifications for overseas investors, and all the risks and issues associated with money laundering.
But Buckley says it’s proven a success, and on Monday the second company listed on Snowball Effect hit its funding target, giving the company two out of two wins.
It’s a pretty big deal. Monday night’s success was the first major feature film in the world to become equity crowd funded (as opposed to the reward crowd funded platform).
The film, The Patriarch
, has now reached 107% of its $300,000 target, and still has almost 15 days remaining on the platform.
It will be Once Were Warriors
’ director Lee Tamahori’s second New Zealand film, and is based on Witi Ihimaera’s novel Bulibasha.
Once Were Warriors
cost $2 million and returned $6.5 million to its New Zealand investors. The Patriarch
has the same team behind it, but with more experience and money.
The first successfully completed offer on Snowball Effect is New Zealand pioneer craft brewing company Renaissance Brewing.
It aimed to raise $600,000 to grow its craft beer business domestically and overseas, and hit its maximum target of $700,000 by the close of the offer.
Snowball Effect has big plans for the future.
“There are a number in the pipeline across different sectors so we can expect to see more going live very soon,” Buckley says.
“It’s exciting on the investor side and the NZ company side. There are some fantastic Kiwi businesses out there and some amazing Kiwis running those businesses as well; it’s bringing some of these companies out of the woodwork in a way that makes them more accessible to the general Kiwi public.”
She says it’s fascinating acting as legal counsel for the concept and she’s been interested to see unique characteristics emerging out of the New Zealand crowd funding market that haven’t been seen in other European models.
Thus far, there hasn’t been such a thing as a standard offer here, and Buckley thinks the legal side will continue to change from company to company.
The newness of it also makes future trends or challenges tricky to predict, she says, but building up consumer confidence after the recent bout of New Zealand finance company collapses will certainly be key.
One of the major legal considerations to date has been the Takeovers Code which proves particularly tricky for some smaller companies.
As this applies to companies with 50 or more shareholders (and share parcels), most companies utilising equity crowdfunding can expect it to apply to them unless they structure their offer in a way to take it outside the Takeovers Code, Buckley says.
She acknowledges that like any equity investment, it can be a risky business.
“There will always be risk, and there’s a measure and balance that each platform needs to undertake in relation to this,” says Buckley. “It will take time for investors to understand this new way of investing properly... It is important that we rebuild that confidence to the best extent we can.”
But to take advantage of the growing prospects in the equity crowd funding market, the New Zealand legal profession also need to buy into the idea and have confidence in it, she says.
It lends massive opportunities to lawyers with clients who are looking to raise capital but for various reasons the more traditional ways have not been appropriate for them.
“That’s the exciting opportunity for lawyers: Being able to say ‘here’s a more cost-effective and timely way you can test the market and look to raise capital’,” says Buckley.
“I think that given the fact the legislation went live on April 1 in regards to this and the first crowd-funding licenses were given in July… at the moment certainly I’m in a unique position. I expect that raising funds in this way will become mainstream overtime, and hope that most commercial and corporate lawyers will become involved with it.”