Equity crowdfunding gets green light from the Minister – no individual investor caps
Cabinet has today approved the regulations for equity crowdfunding which will come into force on 1 April. Equity crowdfunding will allow businesses to raise up to $2 million from investors, via a licensed crowdfunding platform, without the need for a formal prospectus or prescribed investment statement.
Commerce Minister Craig Foss announced today that there will be no individual caps on the amount any investor may invest in a company raising funds via a licensed equity crowdfunding platform, provided however that a company will only be permitted to raise up to $2 million in any year.
Wynn Williams has made a number of submissions on investor caps, as well as meeting with MBIE and Minister Foss, and has voiced strong support of no individual investor caps.
Companies that have been successful in raising funds through global equity crowdfunding platforms have demonstrated that initial momentum is critical in a successful capital raise. Attracting cornerstone investors, and channelling them through the crowdfunding platform, is an important part of providing this initial momentum. Individual investor caps could hinder this initial momentum and affect the viability of equity crowdfunding in New Zealand.
Investor protection is important, and the licensing regime under the Financial Markets Conduct Act 2013 and the regulations will provide a necessary level of investor protection.
Wynn Williams' Partner Hayley Buckley
has been working for two years alongside client Snowball Effect, an equity crowdfunding platform launching on 1 April 2014, to provide meaningful input into this new area of law.
Cabinet Press Release:
Commerce Minister Craig Foss today announced Cabinet has approved regulations for crowd funding and peer-to-peer lending as part of the Government’s financial market overhaul.
Mr Foss has announced that there will be no investor caps for equity crowd-funding, other than the previously announced $2 million cap that a company can raise through crowd funding each year.
“Crowd funding provides a platform where contributors receive shares in the businesses they invest in, providing a new avenue for early-stage and growth companies to source the risk-capital they need to grow,” says Mr Foss.
Under the new regulations, offers engaging in equity crowd funding and peer-to-peer lending will no longer need to prepare a prospectus or an investment statement before fund raising from the public.
“This is an exciting development for both start-up businesses and investors. With the regulations coming into force on 1 April, New Zealand will lead the Asia-Pacific region is the development of crowd-funding regulation.
“Crowd-funding is one of several changes the Government is making to support confident and informed participation in New Zealand’s financial markets.
“Implementing the Financial Markets Conduct Act is a key component of the Government’s Business Growth Agenda to build New Zealand’s capital markets and drive business growth, exports and jobs,” says Mr Foss.
For more information on the Financial Markets Conduct Act implementation, visit www.fma.govt.nz/keep-updated/the-future-of-financial-markets.