Law change to kick start capital raising

Simeon Burnett (left) and Richard Allen are the founders of Snowball Effect, an online crowdfunding system.

Investors will soon be able to take stakes in small Kiwi businesses through an online crowdfunding system which hopes to "liberate the New Zealand economy".

Snowball Effect, a local start-up, is due to launch in April when a law change will allow firms to offer equity for capital through crowdfunding services.

Crowdfunding is a modern alternative to traditional funding avenues and enables the likes of artists, politicians, charities and businesses to raise money from a large number of backers, usually through an internet-based campaign.

Crowdfunding sites - such as locally owned PledgeMe - are growing in popularity and the world's largest, US-based Kickstarter, is due to launch here next month.

One of Snowball Effect's directors, Richard Allen, said the platforms already in New Zealand were focused on philanthropy - a sort of "internet busking" - while his start-up was strictly focused on equity investment.

When the system is live, a company would be able to approach Snowball Effect and raise capital through the platform from members of the public, who in return take a stake in the business.

Another of Snowball Effect's directors, Simeon Burnett, said the system would reduce the cost and complexity of raising capital and would let New Zealanders easily invest in small businesses.

"What this is about is opening up and liberating and democratising the whole investment process.

"One thing which has really come through strongly in the work that we've done is Kiwis love the idea of being able to back New Zealand businesses. They're hugely passionate about that. So this is opening up an opportunity for New Zealanders to absolutely get in there and support businesses they like the look of," Burnett said.

Snowball Effect would perform due diligence on a business looking to raise capital to ensure it was reputable and help it put together a prospectus and go through the valuation process.

"Most businesses don't really know where to start when it comes to that sort of thing," Burnett said.

To begin with, Snowball Effect expects to focus more on companies with a public face.

"Either recognisable brands or services which consumers can go, "Yes, I know that brand, I want to back it, I trust it.' But over time I think that will evolve as people get more accustomed to equity crowdfunding," Allen said.

Snowball Effect is still looking to refine its revenue model but Burnett said that around the world these platforms typically took a percentage of capital raised and charged registration or monthly fees.