Crowd-funding door opens for NZ corporates

Icehouse chief executive Andy Hamilton.

New rules enable firms to raise up to $2m a year without having to issue a prospectus.

Around a dozen companies have indicated interest in setting up crowd-funding or peer-to-peer lending platforms as new rules come into force making it easier for businesses to raise capital.

The first regulations in an overhaul of capital markets law came into effect yesterday, opening the door for these new platforms to be set up.

Equity crowd-funding involves members of the public providing capital to businesses in exchange for shares.

The new regulations introduced by the mammoth Financial Markets Conduct Bill, which came into force yesterday, enable companies to raise up to $2 million a year in crowd-funding without having to issue a prospectus. Peer-to-peer lending, which allows businesses or individuals to borrow funds from the public, usually through an online platform, is also covered by this new regime.

Both equity crowd-funding platforms and peer-to-peer lenders need to be licensed by the Financial Markets Authority. The FMA has already received around a dozen "expressions of interests" for these licences, which companies could apply for from yesterday, a spokeswoman said.

"While applications will not be processed overnight the process is expected to take a matter of weeks rather than months. However, this will also depend on the quality of information provided by applicants," she said.

As well as paving the way for equity crowd-funding, the new regulations also allow for companies to raise up to $2 million from 20 investors in a year without needing to issue a prospectus or investment statement.

New Zealand Private Equity & Venture Capital Association executive director Colin McKinnon said this "small offer" provision would make the capital raising process easier and mean there aren't as many hoops to jump through.

The Icehouse chief executive Andy Hamilton said the provision would save the likes of the Ice Angels investment network "a substantial" amount of time.

McKinnon said the capital-raising sections of the law would contribute "to a vibrant capital market from angels [networks] through to private ownership to the public market".

Law firm Simpson Grierson said both the crowd-funding provisions and the small offer provisions were "particularly relevant to start-ups" and would provide them with more options to raise money without having to go through the "expense of full disclosure".

While he called parts of the new regime exciting, Hamilton said it was unclear what sort of crowd-funding deals would be successful. "Is it going to be consumer-facing companies trying to take advantage of their band of loyal followers who might put in a few hundred dollars each or is it actually going to be a platform where you see bigger investment rounds being done?"

Market watchdog gets sharper teeth: expert

New Zealand's market watchdog now has an "immensely powerful, proactive toolbox" to stamp out misleading behaviour before people are harmed as new regulations kick in today, says Chapman Tripp partner Roger Wallis.

A centrepiece of the new capital markets rules is a section banning misleading and deceptive conduct and Wallis said this part was "immensely powerful". "Particularly when it goes hand in hand with the new tools which the FMA [Financial Markets Authority] have," he added.

If the FMA believes something has been misrepresented, rather than prosecuting someone five years after the fact it can stop the relevant material from being distributed.

"So, for example, if they don't like something they can basically put out a notice saying stop doing it ... let's say there's a backdoor listing out there. They [the FMA] don't think the disclosure's up to scratch, they could issue a notice requiring people to correct their disclosure or provide additional information," Wallis said.

"They could stop distribution of materials until the materials are brought up to scratch."