Over a century ago New Zealanders were among the boldest, most productive risk-takers in the world. For example we pioneered refrigerated exports and changed the way the world eats.

In the two decades to WWI, New Zealand was a rock star in the global economy, as entrepreneurism thrived, assisted by easy access to London's capital markets.

In 1901 alone (admittedly a boom year), our vibrant regional share markets could float more than 100 mining companies. Some returned huge profits. It needed only simple law and severe consequences for fraud and bad reputation to achieve a wealthy and dynamic society.

We shared that law, that willingness to save and that freedom to speculate on investment with our Anglo-sphere brothers - the US, Australia, and Canada. Our pioneering was not confined to bringing new land into production. Innovation was widespread.


In politics, it included votes for women, old age pensions and state capitalism to compete with overseas overlords (Bank of New Zealand, Public Trust, Railways). The state capitalism, however, proved to be an expensive educative experience.

Between 1938 and the 1980s, New Zealand remained among the most egalitarian and highest per capita income countries in the world. Yet even while we adopted protectionist industrial policies, company share and debenture capital raising remained unconfined. LV Martin and James Smith and other retail businesses offered you their shares and debentures in a pile of simple documents at the cash register.

The 1980s became a securities law watershed. 1983 was the start of ever-tightening constraints on the freedom of competent adults to ask other competent adults to share in productive risks.

In the other direction criminal prosecution and civil lawsuits against crooked business-people became harder, slower and more expensive. And worst of all, penalties for all kinds of crime became progressively more feeble. Fraudsters knew they would serve only one third of trifling sentences, their names would be suppressed during interminable delays, and it was often possible to defer justice for years with thin excuses for not proceeding.

Meanwhile, entrepreneurial companies became largely confined to the big end of town: private equity, and rich investors who qualify for the exemptions from securities law.

And as I can testify, several generations of lawyers and accountants have prospered from mastering the intricacies of preparing disclosure material that no one asks for, or would be prepared to pay for if they had a choice.

Contrast this micro management with the way the state regulates another form of "investment", gambling. The losers are often people who cannot control or afford their losses, yet pokies , the TAB and Lotto have total turnover of more than $10 billion a year. There is no control on insider trading. Risk statements are rudimentary.

While the state has chosen to make only cosmetic restrictions on gambling, a Byzantine regulatory maze faces companies seeking capital. It is stifling the kind of risk-taking that once elevated New Zealand to near the top of the OECD pops on a per capita GDP basis.


At last, equity crowdfunding is opening a window into the stuffy room.

The Financial Markets Conduct Act, which came into effect on April 1, allows businesses to offer equity of up to $2 million in any 12-month period without the burden and costs associated with issuing a formal prospectus.

With prohibitive costs and compliance risks lifted, once again adults will be free to take their chances by investing in productive enterprises. Investment and entrepreneurism have been re-democratised.

I look forward to being part of this rejuvenation. I've agreed to be a director of Snowball Effect, to help make it New Zealand's leading equity crowdfunding platform.

The Financial Markets Authority is expecting 12 applications for the necessary licences to operate as a crowdfunding provider. With luck and energy, our platform and others like it will enable some companies to soar. And the process will accelerate if the lucky ones who invest in the successes get stellar returns. They'll deserve them, because most crowd-funded businesses will not soar.

We won't need to apologise for investments that turn out to have been based on unfounded but honest optimism. But I do expect a successful platform to demonstrate determination to weed out any crooks looking to abuse these new opportunities.

Competition among the successful crowdfunding providers will be intense, as only a few of the platforms will reach the necessary critical volume to survive. So companies looking for funds will benefit from the increased offering and competition for their services.

Let the games begin. New Zealand will be a better place for it.

Stephen Franks is a lawyer and Snowball Effect independent director.