Crowd funding gets govt sign off

Crowd funding raises money online through large a group of people investing small amounts of money in exchange for a share in that company. Photo / Thinkstock

Small businesses should find it easier to raise money from April after the Government gave the green light to new regulations for crowd funding and peer to peer lending.

Commerce minister Craig Foss said this morning Cabinet had given its seal of approval to the new rules which will come into force on April 1 as part of the Financial Markets Conduct Act.

Up until the change companies have needed to issue a prospectus or investment statement before raising money from the public in New Zealand, a situation that made it cost prohibitive.

Foss said there would be no investor caps for equity crowd-funding but companies would be limited to raising $2 million a year.

Crowd funding raises money online through large a group of people investing small amounts of money in exchange for a share in that company.

New Zealand companies currently have to look outside of the country to fund their ventures in this way.

Last month former All White Tim Brown found success using Australian crowd funding site Kickstarter.

His fledgling company Three Over Seven took just over 24 hours reach its $30,000 target in a bid to take his idea of a sockless woollen running shoe one step closer to being a commercial reality.

Peer to Peer lending is also done online through a facilitating company.

Foss said the law change was 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."

Simeon Burnett a director of soon-to-launch equity crowd funding provider Snowball Effect welcomed the new rules and said the decision not to cap how much investors can put in was good news.

"We opposed the introduction of investor caps, because we believed that investors would easily be able to circumvent such controls by investing in foreign crowd funding platforms, or investing through entities which do not reveal the ultimate owner.

"We also believe that individuals should be allowed to make their own decisions about their money."

Burnett said there were other ways to protect investors including the requirement for share issuers to seek funds only through licensed providers, the requirement for licensed providers to conduct background checks on issuers and directors, and the requirement to make investors aware of the inherent risks associated with investment via equity crowd funding.

Websites which provide a platform for crowd funding and peer to peer lending will be regulated by the Financial Markets Authority and will have to gain a license before they can begin operating.