Innovation: Riding the new wave of equity raising

Crowdcube joins Snowball Effect, PledgeMe and Equitise in the fast-growing crowdfunding market.
Crowdfunding succeeded for Invivo Wines co-founders Tim Lightbourne (left) and Rob Cameron. Photo / Steven McNicholl
Crowdfunding succeeded for Invivo Wines co-founders Tim Lightbourne (left) and Rob Cameron. Photo / Steven McNicholl

The latest member to join the equity crowdfunding market says they did so to disrupt the investment banking industry.

Armillary Private Capital director David Wallace launched Crowdcube here under a joint-venture model late last month following significant success for the platform internationally.

David Wallace.
David Wallace.


"We decided we wanted to set up an equity crowdfunding platform, so instead of building what we had decided plenty of other people around the world had already built, we went and found what we thought was the best of breed."

Equity crowdfunding was made possible through a shake-up in securities legislation last year and allows companies to issue shares to the public through online platforms.

It allows businesses to raise up to $2 million in any 12-month period without the burden and costs associated with a prospectus, giving the public access to investment opportunities previously only available to professional investors.

Crowdcube joins Snowball Effect, PledgeMe and Equitise in the equity crowdfunding market, which combined have raised more than $12 million over 21 projects.

Wallace said that Crowdcube's international success (the platform has raised more than £94 million since launching in 2011) combined with Amillary's experience in New Zealand's capital markets, bode well for the company against its competitors.

They launched Crowdcube in New Zealand after seeing the potential to disrupt the lower to mid-market investment banking space, he said.

"We decided to bring Crowdcube to New Zealand to ensure we were disrupting as opposed to being disrupted as well as allowing us to more efficiently service part of the market which has always been seen as hard to work in."

Recent Forbes research suggested crowdfunding and peer-to-peer lending would surpass the venture capital (VC) industry in 2016, if not 2015, for amounts invested, he said.

Many members of the professional VC market were yet to wrap their heads around the impact and potential that equity crowdfunding had, Wallace said.

"A lot of them probably haven't really sat up and understood where crowdfunding and peer-to-peer lending is in the market."

The model was well-suited to angel investor groups, as it can help them build their portfolios faster, he said.

"We're seeing some angels and VCs integrating equity crowdfunding as a step in their investment strategy."

However, Wallace said the current legislation prevented the model from posing a significant threat to the traditional VC market, such as the current $2 million cap, which he believed was "probably a little bit low".

Although crowdfunding offered exciting opportunities for both investors and fledgling companies, its success rates have been brought into question.

Wallace said Crowdcube in the UK had improved from around a 25 per cent success rate two years ago to around 40 per cent now.

"I think everyone's being really selective about what offers they're putting in the market to make sure there is a higher probability of success."

Blenheim-based craft brewery Renaissance Brewing is seen as the poster child for the capital raising model, after it raised $700,000 selling 12.3 per cent of the company, no small feat considering it was the first company to carry out such a campaign in New Zealand.

Other success stories include Invivo Wines, the first company in New Zealand to hit the $2 million crowdfunding limit, a feat later achieved by Punakaiki Fund.

The model relied heavily on the company as opposed to the platform to raise funds, Wallace said.

"If you look at something like Invivo or any of the boutique brewers, they're going to the market with 20,000 plus followers on Facebook and they're who they're activating for the funding," he said.

"Those sorts of networks are really important for the process to work."

Crowdcube currently has two live campaigns - peer-to-peer car sharing marketplace Roam and retail and hospitality app suite Collect.

Equity crowdfunding

• Made possible under the Financial Markets Conduct Act in April 2014.
• Allows companies to raise up to $2 million in capital from investors, in exchange for equity in the business.
• Four equity crowdfunding platforms currently active in the market.
• More than $12 million raised over 21 projects.

- NZ Herald

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