Snowball Effect – Recap of the last 3 years

AANZ member, Snowball Effect has recently released a three year update on the performance of their platform. It contains a wealth of fascinating insight and is really transparent about the money raised and the profile of their investors. It’s a timely provocation to all our members. This sort of data is critical to raising the profile, performance and reputation of early stage investment as an asset class worthy of attention.

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Over its first three years of operation, Snowball Effect has raised $29 million across 35 offers. 25 of these offers were made available publicly and 10 were made available privately. The public offers generated $23.1 million in investment and the private offers generated $6.1 million. The private offers are now the fastest growing part of the Snowball Effect marketplace.

Capital raised

The capital being raised in each offer is significant relative to the rest of the industry in NZ, with eight offers reaching over $1 million raised and the average public offer reaching $923k. This compares to a market average for public offers on other platforms of just $371k. Large public offers like Zeffer and Designer Wardrobe are attracting significant numbers of investors. The average number of investors into a public offer was 142 people and 14 offers have received investment from over 100 investors.

Investment sizes

There have been 3,935 investments made through Snowball Effect. The largest portion of the amount invested came from investments in the $10k to $50k range, with $8.9 million worth of investments from this range. The largest single investment was $1.25 million and 632 investments were over $10k. At the smaller end of the scale, the largest number of investments was in the $1k and $5k range, with 2,162 investments in this range.

Investor behaviour

The platform now has an audience of 15,509 of whom 2,413 have made an investment. So far, 27% have made more than one investment and 7.5% have made four or more investments. 17 people have invested in more than 10 offers and the most active investor has invested in 25 offers.

Investor demographics

The average age is 45, the youngest investor is 18, and the oldest investor is 88. So far, 24% of active investors on the platform are female, which compares to a national average in 2005 of 5% for angel investor networks in 2012 (according to the Angel Association of NZ).

Wholesale investors

There are 896 wholesale investors registered on the platform. Wholesale investors are eligible to receive a wider range of investment offers because of their net-worth, experience with private investments, or financial sophistication. The average investment into a private offer is $35k and there are 48 investors who have invested over $100k.

Additional services

Snowball Effect launched the first public offer using the equity crowdfunding rules in New Zealand. In company’s second year, it introduced a private offer service and added a nominee service that lets companies manage multiple investors through a single legal entity. This year it introduced an investor profile that lets investors control what types of private offers they get access to and a director matching service that helps companies find independent or non-executive directors. 80 people have completed their independent director profile. Snowball Effect has also introduced a share registry management service which is currently tracking the shareholding of 468 investors.

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NXT-listed G3 Group uses equity crowdfunding marketplace to raise funds

The Angel Association has been encouraging investors to manage their angel portfolios more actively for returns. Workshops have focussed on the acquisition process – looking at aspects like working with investment bankers, positioning companies effectively, and setting up quality deal rooms.

IPOs are another liquidity option, and there have been some developments recently in the New Zealand market (with the launch of the NXT Market) and the Australian market (with ASX preparing to introduce more stringent criteria around the listing of early stage ventures).

G3 Group was the first company to list on the NXT market 15 months ago, is now raising up to $3m, primarily to fund further acquisitions.

The offer at $0.75 per share went live yesterday at at 6.25% discount to the last traded market price, and is being made available to the public through AANZ member Snowball Effect. This is the first time that a listed company has used an “equity crowdfunding” marketplace to raise funds in New Zealand.

This is an interesting development for New Zealand’s capital market, especially given the importance of the listing pathway to angel investors, and the ability for young listed companies to raise capital efficiently and fund further growth. Here’s a summary of the key details and parties involved.

Background to G3

G3 assists businesses, including a growing international customer base, to manage their data, documents, and customer communications, deploying new technologies for maximum reliability and efficiency.

G3 began life 10 years ago as a small domestic provider of business mail services under the New Zealand Mail brand. Through a series of acquisitions, including Pete’s Post and Fastway Post, it now commands annual sales of over $40m and across its chosen markets of NZ, UK, and Australia.

Since listing on the NXT market 15 months ago, G3 has done what it said it would do – achieve growth targets, expand via acquisition into document and data management, and expand into Australia. In its recent 2016 financial statements, G3 reported an increase in revenue of 8.4% to $43.95m, and an increase in profit before tax of 12.2% to $2.14m.

G3 has completed 8 successful acquisitions in the past 4 years, and is currently looking at a number of new acquisition opportunities. Acquisitions will be focused on businesses which complement existing operations, and data management technology companies that enable G3 to leverage the strong revenues and customer base from its traditional operations towards emerging digital opportunities.

G3’s growth strategy responds to increasing global trends for compliance and chain-of-custody around managing business documents. “Document management affects all businesses large or small” comments G3 CEO Mark Brightwell. “The cost and effectiveness of document workflows is critical to all businesses, and compliance is becoming increasingly complex especially as businesses attempt to run traditional paper based workflows in tandem with new digital systems.” G3’s service expansion strategy is designed to help businesses with this transition from old to new technologies.

The offer is for up to $3 million by way of new ordinary shares at $0.75 per share listed on the NXT Market. This represents a 6.25% discount to the last traded market price. The capital raised will be leveraged with cash reserves and bank debt (as appropriate) to fund acquisitions in targeted growth markets. Click here to view the offer.

NXT Market

NXT is a stock exchange designed for small and mid-sized companies. It is owned and operated by NZX. G3 was the first company to list on NXT, and is now accompanied by Marlborough Wine Estates Group, Oceania Natural, and Snakk Media.

NXT provides a cheaper and simpler alternative to the NZX main board for growth companies by reducing the complexity of the listing and disclosure rules.

Snowball Effect

Snowball Effect has facilitated around 70% of the equity crowdfunding market in New Zealand, and has amassed an investor audience of more than 10,000 investors in 2 years. The marketplace helps cash-hungry growth companies raise capital from the public, or from its network of high net worth investors, many of whom seek active involvement within the businesses they invest in. This new distribution channel enables companies to raise funds efficiently, and provides investors with a simple way to discover and invest in growth companies.

Snowball Effect last made headlines in April when Squirrel raised over $3.4m through its marketplace – beating the previous record of $2m.

G3’s offer will mark another milestone as the first time that a listed company has used an “equity crowdfunding” marketplace to raise funds in New Zealand.

Why is a listed company raising funds through an equity crowdfunding marketplace?

Listed companies are required to comply with ongoing disclosure obligations, which provide investors with recent information regarding the historic and expected performance of each company. Given the ongoing disclosure, listed companies have much simpler regulatory requirements when offering securities (such as shares) that are the same as its securities which are already listed. This generally makes it easier to raise funds by issuing new shares.

Despite the legal and disclosure obligations being simplified for a listed company, the economics are still difficult for a raise of this size in New Zealand. The large brokers provide the key distribution infrastructure to investors in the capital market, but a raise of this size is too small for the large brokers to participate in. Given the lack of distribution infrastructure to support a small public offer, companies raising small amounts are typically forced to consider private funding channels. They often end up looking for local high net worth investors or offshore investors. The capital raising process can end up being expensive and lengthy, and there is significant opportunity cost as management focus is diverted away from growing the business.

The aim is to use Snowball Effect as a simple and efficient channel for G3 to distribute its offer and tap into New Zealand’s capital market.

Snowball Effect launched the first equity crowdfunding offer in New Zealand in August 2014. Over the past 2 years it has evolved into a marketplace for a range of offers, including public, private, and wholesale investor offers. G3’s offer is not technically an equity crowdfunding offer because it is not relying on the equity crowdfunding regulations. However, it is using Snowball Effect’s marketplace as an efficient channel to reach a wide investor audience.

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How crowdfunding is changing business

Two years after craft beer maker Renaissance Brewery kicked off the first licensed crowdfunding offer, another high-profile brewer – ParrotDog – is tapping the crowd for at least $1.2 million to expand.

However, the platforms haven’t limited themselves to craft beer – among 44 successful deals from 59 offers are the sale of shares in a film production, a hydro-turbine maker and a mortgage broker.

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Hutt’s Technology Valley renewal dependent on crowdfunding

Crowdfunding and crowd lending will play a major role in the success or otherwise of the Hutt’s rejuvenated Technology Valley initiative that is to be relaunched on June 9.

“For Technology Valley to grow it will require a great deal new investment and this can be achieved through new developments in crowdfunding and crowd lending”, says Professor Gary Mersham, a digital business technology researcher based at the Open Polytechnic.

The reason, he says, is that start-ups, accelerators, angel investing, crowdfunding and crowd lending are increasingly becoming part of an interlinked, newly emerging ecosystem for funding businesses at various stages of growth as they turn away from traditional funders like banks.

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Platform’s aim to allow angels to fly into enterprise online

Bay of Plenty start-up funding group Enterprises Angels plans to launch an online crowdfunding platform aimed at eligible investors within the next month.

“The investment world is shifting and changing all the time and we’re seeing more and more investment opportunities being made available online,” executive director Bill Murphy, told an Enterprise Angels meeting this week.

However, most equity crowdfunding opportunities were open to all. Early stage investments were typically high-risk, with a high failure rate.

Mr Murphy said the Enterprise Angels platform would aim to offer deals that had gone through a strong level of due diligence to a wider platform of qualified investors across New Zealand.

“We saw a real opportunity in the market to take angel-backed high quality investment opportunities that have already had the full scrutiny of Enterprise Angels’ and make them available more widely.”

The deals would only be available to people who were qualified as eligible investors under New Zealand securities regulations, he said.

Enterprise Angels, which had almost doubled to more than 200 members over the past year, was both numerically and in funding terms the strongest of New Zealand’s angel groups and included members from Rotorua, Taupo, Tauranga and Hamilton. Its deals were frequently syndicated through other angel groups around the country.

Mr Murphy said the Angel Association of NZ and other angel groups throughout the country had been kept informed about the proposed platform.

Enterprise Angels had formed a strategic partnership with Tauranga-based Locus Research to develop the platform.

Locus managing director Timothy Allen, who is on the Enterprises Angels board, said that as with other aspects of life, digitisation of funding was occurring because it was easier and more efficient.

New Zealand-based company crowdfunder Snowball already offered an option for qualified wholesale investors, he said.

“Our point of difference is that we will be solely focused on eligible angel investors, and the deals we present will bring the depth of experience and due diligence available through the Enterprise Angels membership and processes,” he said.

First published on nzherald.co.nz 7 April 2016

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Swiss sportswear company launches global equity crowdfunding offer including NZ platform

Australian-founded, Swiss-based premium sportswear brand Skins has launched a global equity crowdfunding campaign today incorporating New Zealand, Australia, the UK, and Europe.

The offer involves raising a minimum of $800,000 in New Zealand and Australia through the Equitise platform and the rest in a parallel offer on the UK-based platform Seedrs. The company hopes to attract $4.42 million from retail investors in an overall fundraising of $9.8 million.

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Crowdfunding laws a turnoff for venture capitalists

Any business that raises capital using equity crowdfunding laws that passed the House Of Representatives on February 10 will have no chance of attracting venture capital investors in future, a leading angel investor says.

Adrian Bunter, a prominent member of the Sydney Angels investor group, says venture capitalists won’t want the hassle of investing in businesses with potentially hundreds of underlying shareholder agreements.

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Winging it with crowdfunding

Some fascinating perspectives about the intersection of crowdfunding and angel investment are discussed in Lesley Springall’s article written off the back of ABAF.

The old and the new went head-to-head at the recent Angel Summit, as equity crowdfunding took to the platform to sell its case to more traditional start-up investors.

Internationally-known Scottish angel investor and angel fund manager Nelson Gray has travelled the world discussing best practice in early stage investment, to help encourage more business people to dig deep, don wings and take the early stage investment plunge.

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Equity Crowd Funding #ABAF15NZ

#ABAF15NZ: Equity Crowd Funding

Presenters from three platforms spanning UK, Australia and New Zealand look at current developments and dynamics of both accredited and unaccredited equity crowd funding. They also discuss its impact on angel investment and advances made by early-stage companies to change the world.

Moderator – # Ashley Krongold (Our Crowd, AUS)

# An intro to crowd funding in Australia

Slides available here

# Josh Daniell (Snowball, NZ)

# David Wallace (Armillary Private Capital and Crowdcube, NZ)

Click here to wtch video on youtube

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Crowdfunding – Today & Tomorrow #ACAAngelSummit15

Angels Connect NZ series – Chris Twiss from NZVIF reports from ACA Conference 2015

There was a palpable tension in the room between equity crowdfunding operators and traditional Angel groups/operators for Track 1 at the ACA Conference.

Setting the stage Bill Payne outlined how crowdfunding has been reported in the media as everything from ‘the end of the road for Angels’ to being ‘doomed to failure’ itself – which explains the tension.

For some more concrete perspective Bill began his presentation by laying out some facts and figures around current crowdfunding activity in the World, US and UK/Europe for all forms of crowdfunding; Donation based; Rewards based; Lending based; Real Estate based (Equity and Debt); and finally Equity Crowdfunding (EC) which can either be from accredited and/or unaccredited (i.e. the general public) investors.

Quoting figures from Tabb Group;
– total crowdfunding worldwide in 2014 ran at about US$10bn.
– the bulk (60%) came from US, 30% from Europe followed by Oceania at 3%
– by far the biggest category stateside in 2014 was lending based crowdfunding (50% of the US total of $8.0bn or so)
– a mere 5% of the total investment was Equity Crowdfunding, which at @$0.3bn was only 2% of the size of the US Angel investment market
– In the UK, where equity crowd funding to the public is permitted (it still isn’t in the US) equity crowd funding is a relatively small proportion of the total amount of early stage funding activity. Bill suggested, based on this data, that it is therefore not obviously “taking off” – at least not yet.

Having delivered the numbers Bill gave up the stage to Matthew LeMerie an ex McKinsey analyst now working with the Keiritsu Forum who outlined some scenario planning work that he had recently done on the likely near future of EC.

The overall outcome the scenario planning identified two critical uncertainties for EC.

First, the regulatory environment – and within that the question of whether it will become more or less supportive in the future; and second, the failure rate in EC (i.e. numbers of companies funded though EC that will fail).

Matthew’s personal view was that the regulatory environment will get less supportive for EC overtime – largely because regulators will find that they have been too “lite” with the current regulatory settings.  The antcipated outcome is this will lead to the significant consolidation of EC operators and the emergence of a small number of big players as the hurdles end up becoming too great for small and even mid-sized operators to cope with.

Speaking to the second point the predicted uncomfortably high rates of “failure” will manifest because the key things that need to be done to mitigate that risk when doing this type of investment (i.e. appropriate levels of DD, strong terms setting  – including appropriate valuations, and post investment monitoring etc) will not be done well enough by the majority of EC platforms.

There will be winners and losers. The winners will be those able to demonstrate that they have robust risk mitigating processes in place and, critically, be totally transparent about their failure rates.

Mathew’s analysis was crowdfunding is still a fairly/very modest part of the early-stage funding landscape, and the EC market overall is in borderline wild-west territory in terms of current levels of integrity of process and overall risk mitigation for investors.

Those views were explored further by the third presenter from Seedrs (UK based EC platform) CEO Jeff Lynn. In the ensuing Q&A he passionately rebuked much of what had been said before.

In short, Jeff’s view was in general the future impact of EC was totally underestimated – and disruptive to the current Angel investment models being practiced around the world. He believes that EC has the potential to deliver better investment returns.

Why? The answer was not clear, maybe because having 300 extra people to help your company out leads to greater investment outcomes – right?

And so the debate continued… the crowd shuffled out of the room, ready for the next instalment of it, somewhere nearby, a few sessions later.

 Chris Twiss

 

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Equity crowdfunding’s strong start

A strong start for equity crowdfunding platforms reflects a genuine appetite to support inspirational NZ businesses. It’s important that these companies get more than just support in the form of capital but also with value and market growth strategies.

Fifteen young firms have raised a total of $8.7 million through three equity crowdfunding platforms since the low-strings fund-raising mechanism got the green light from regulators last year.  The sum may be small compared to the $55m that well-heeled “angel investors” pumped into high-growth businesses last year and to the $4.7b bigger businesses raised through the NZX stock exchange in 2014.

It looks even tinier when compared with the current value of bank loans to businesses, which stood at $80b in April, according to the Reserve Bank.

But Chapman Tripp corporate lawyer Bradley Kidd says the start is encouraging.

More platforms have been set up than he expected to support equity crowdfunding and there have been some “really good offers”, he says. “I’d say it has gone a bit better than I’d of expected.”

Read more on www.stuff.co.nz

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New blood a boost for biotech firm

Congrats to Breath Easy in securing a high profile Chairman, demonstrating the power of angel investment to provide critical connections and contacts.
Tech industry veteran Gary Pace appointed to lead board of Breathe Easy Therapeutics.

New Zealand’s Breathe Easy Therapeutics has made a high-profile addition to its board as it advances plans for medical trials of its cystic fibrosis therapy.  The company, which is in the middle of a Snowball Effect equity crowdfunding campaign, has appointed Gary Pace – a more than 40-year veteran of the technology world – as independent chairman.

Pace, a San Diego-based Australian, also sits on the board of ASX-listed medical device maker Resmed and Nasdaq-listed pharmaceutical firm Transition Therapeutics.  Breathe Easy’s Citramel therapy is administered via inhaler for the treatment of cystic fibrosis, a genetic illness that affects the lungs and digestive systems of about 75,000 people worldwide.  The drug is being positioned as a core therapy to improve lung function and potentially enhance the effectiveness of other therapies such as antibiotics.  Citramel’s potential market is estimated at US$1 billion ($1.33 billion).

The Snowball Effect campaign, which had successfully raised $374,818 by yesterday afternoon and closes on Monday, is part of a $2 million funding round.  In addition to the crowdfunding cash, more than $1 million has been raised from local angel investors, investment firm Pacific Channel, and the Government-backed New Zealand Venture Investment Fund.

“With that [$2 million] capital we should be able to demonstrate the clinical feasibility of the product,” Pace said.  “It would take it through the initial clinical trials [in New Zealand].”

Early signs of efficacy have been shown in a patient who has been on Citramel for close to two years.  Pace said it would cost at least $50 million to get Citramel to market.  “We’re designing the [clinical feasibility] study to make it attractive to potential larger groups that could fund it or buy it, such as a venture capital company or a mid to large-sized pharmaceutical company that’s active in the cystic fibrosis area.”

That next stage of investment would probably come from the United States, Pace said.  New Zealand was well placed to run clinical trials of locally developed therapies, but moving into the US market was key to success.  “There’s been a strong resurgence of investment in the biotech industries in the US with last year showing the highest levels of investment in 14 years,” Pace said.  “Kiwi companies are known globally for their ability to innovate and while they seem to understand that US commercialisation in life sciences is key to success, I haven’t seen many make any real impact in this space.”  He said the US biotech industry received US$8.6 billion in investment last year.

“It’s the US’ second biggest sector for investment so this market is key for any New Zealand firm with international aspirations,” Pace said.  “What Kiwis need is a clear US focus from a clinical, regulatory and business perspective, and for that you need people on the ground here with experience. Breathe Easy has that potential.”

Paul Tan, the former chief science and medical officer of ASX-listed Living Cell Technologies, has also joined Breathe Easy as chairman of its scientific advisory board.  Living Cell’s treatments for diseases including Parkinson’s involve transplanting pig cells into humans.

As published in NZ Herald 16 May 2015

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Equitise raises $211k in first campaign

Equity crowd funding closes another deal in NZ. Equitise, together with PledgeMe and Snowball have now raised $8m for their ventures. It was clear at the recent Angel Capital Assn conference in San Diego that these platforms are bringing valuable additional funding into the early stage funding market. We need to be sure we keep reminding those taking part of the risk inherent in these investments.

Equity crowd-funding platform Equitise has closed its first campaign after successfully raising $211,000 for Tourism Radio NZ.

The company, which provides location-specific digital travel guide commentary through mobile devices in motor homes and rental cars, says it will use the cash to develop technology, expand its sales force and prepare the business for expansion into Australia.

The 30 investors that took part in the crowd-funding campaign, which valued the firm at $1.2 million, now hold a combined stake of 18.2 per cent in Tourism Radio.

The company, which had revenue of over $950,000 last year, said the investment would drive future revenue growth of 50 per cent year-on-year.

Equitise managing director Jonny Wilkinson said the platform had received a lot of interest from potential issuers since completing its first campaign.

“People have obviously seen that out first deal has closed [successfully] and that has provided some certainty and surety in people’s minds,” he said.

Equitise gained authorisation to operate from the Financial Markets Authority in December.

Wilkinson said Equitise expected to announce its second campaign within the next few weeks.

Equity crowd-funding, which became possible in New Zealand last year through a once-in-a-generation overhaul of securities legislation, allows companies to issue shares to the public through online platforms.

More than $7 million has been raised by three local equity crowd-funding providers – Snowball Effect, PledgeMe and Equitise – since August.

As published  NZ Herald 6 May 2015

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Innovation: What turns a dream into reality?

Tim McCready makes some great points in this article about the need for those with great ideas seeking funding to be “investment ready” and suggests some organisations which can help.

What does it take to turn a dream into a reality? The answer inevitably involves money, and usually quite a lot of it.

Many New Zealand businesses choose to grow organically, either by bootstrapping, where revenue is reinvested into the business for growth, or through small amounts of funding obtained from the bank, family, or friends.

However, a business built on innovation nearly always requires a significant injection of capital from a third party, and traditionally through venture capital or angel investment.

Aside from money, these sources of investment can bring additional spillover benefits to advance a business.

Angels and venture capitalists will typically invest in opportunities where they can add value using their networks, bring knowledge and a new perspective, or impart first-hand experience. When it comes to innovation, you cannot have enough of any of these.

New Zealand’s ‘no. 8 wire’ mantra is not just rhetoric. Over the last few years I’ve seen an increase in international funds and multinational organisations taking an interest in New Zealand.

They recognise us as a pool of largely untapped potential and are coming to see what we have to offer.

There is plenty of exciting innovation happening here, but it is probably fair to say that many businesses are not ‘investment ready’, and don’t present themselves in the best light to make an attractive funding proposition. There is some truth that money is hard to get. Not just from New Zealand, but anywhere.

Venture capitalists and angel investors hear about opportunities to spend their money continuously – it’s their job.

They want to see solid business opportunities and investment pitches that are professional, polished, and concise.

It is arguably for this latter point that many businesses unwittingly make the challenge more difficult than is necessary and struggle to get their foot in the door.

New Zealand Trade & Enterprise’s Better by Capital programme addresses this by explaining the capital raising process, allowing a business to identify and access the investment required to expand and internationalise.

Better by Capital partner with private sector specialists who have capital raising experience to help businesses get ‘investment ready’ and prepare a capital plan. NZTE’s capital team can then assist with their global investor networks to identify and access domestic and international sources of funding.

Callaghan Innovation, the government-backed innovation hub, provides more than $140 million in funding a year to businesses to use for their R&D projects to encourage innovation.

R&D Growth Grants provide 20 per cent public co-funding for R&D expenditure, capped at $5 million per annum. R&D Project Grants are targeted at businesses who are new to R&D where Callaghan provides funding for 30-50 per cent of R&D costs.

R&D Student Grants provide funding to cover the salary of a university student or graduate to work on an R&D project within a business for up to six months.

For early stage, high-growth businesses, Callaghan Innovation has an Incubator Support programme.

The incubators are privately owned businesses that can assist with all areas of innovation, including access to networks, market and technology validation, intellectual property assessment, access to capital, and advice on strategy and governance.

The introduction of this programme last year is the result of a push from the Government to get more innovation off the ground in high-tech sectors, which they rightly recognise as crucial to growing New Zealand’s economy beyond commodities.

Aside from the time required for the application process, government grants have few drawbacks and are a useful way for a business to make their cash go further.

R&D grants from Callaghan are non-dilutive, meaning that they don’t affect the ownership structure of the company. If your business is eligible, this funding should be at the top of your list.

Technology entrepreneur Sam Morgan has been known to criticise the government’s overzealousness when awarding grants, however he concedes that “it would be irresponsible not to try to get some”.

Not only does this help the balance sheet, but showing support from the New Zealand government and having access to extra cash for projects will undoubtedly help when talking to third parties about further investment.

It would be remiss to talk about capital raising and not mention crowdfunding. Equity crowdfunding is a relatively new method of raising capital, and is becoming an increasingly popular buzzword since a change in New Zealand’s securities legislation last year allowed it.

The Financial Markets Conduct Act allows a business to efficiently crowdfund up to $2 million without having to put together a costly and time consuming prospectus, prompting the launch of equity funding from PledgeMe, Equitise, and Snowball Effect. Donors pledge their support online, where their investment level can be of almost any size.

Crowdfunding relies on an opportunity reaching a large audience, which means it tends to work best if the project is something the mass public can get behind exciting technology or niche healthcare innovations have done particularly well on these platforms internationally.

As crowdfunding becomes more mainstream, having an opportunity that stands out and entices investors will inevitably become more challenging.

Finding funding for innovation is notoriously difficult and takes a significant amount of time.

But like so many things in business, funding is about networks, and you can’t do it alone. There are tools and services in place to help make it easier – you just need to know where to look.

•Tim McCready is Director of Business Development & Trade Correspondent for NZ INC. He has worked in the public and private sector in New Zealand and offshore growing businesses internationally.

First published NZHerald 26 March 2015

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Angels & equity crowdfunding

The oldest equity crowdfunding market in the world is the UK. That market began in 2011, and has grown with an average annual growth rate of 410%.

It took until 2013 for angels and VCs to take much notice of equity crowdfunding in the UK. Now it is commonplace to see co-investment. In the UK 43.3% of angels invested through equity crowdfunding in 2014. 30% of seed investment in the UK was sourced through equity crowdfunding platforms in 2014. That figure is estimated to be 50% in 2015.

We’ve seen the first publicly listed company raise funds through equity crowdfunding. Currently we’re watching the first offer from a company that intends to list immediately after the offer closes.

We’re keen to shortcut the time taken to get angel / VC buy-in to equity crowdfunding in New Zealand.

Here are my thoughts on how angels and equity crowdfunding can benefit from working together in 2015.

Inspiring new angels

The AANZ and angel networks across the country do a good job of shining a spotlight on funding early stage businesses. However general awareness is still low, and angel networks can appear exclusive or inaccessible to many investors eligible to participate.

Equity crowdfunding inspires new angels in a number of ways:

  • Accessibility: Investment opportunities are broadcast widely, reaching many who would otherwise not hear about these opportunities.
  • Small investments: Most equity crowdfunding offers have a small minimum investment amount, such as $500 or $1000. This enables people to start investing in this asset class earlier in their lives. You can easily diversify $10,000 across a range of investments.
  • Learning: One problem with growing the number of angel investors is education. People will be reluctant to invest if they don’t feel that they know enough about the space. Equity crowdfunding gives newbies access to the same offer information, Q&A, and commentary as experienced investors. So everyone is part of the same conversation about an opportunity.

Many future members of angel networks will first invest in unlisted equities through equity crowdfunding. Angel networks should look at this future state identifying ways to use equity crowdfunding platforms as a feeder for their membership.

Referrals

Equity crowdfunding is carving out its space in the funding ecosystem. It will never replace angel investment or the other funding sources. That’s because some businesses are simply better suited to private angel investment or other channels.

At Snowball Effect we’ve had expressions of interest in equity crowdfunding from nearly 600 Kiwi companies. We always ask ourselves what value the company should be trying to capture alongside the cash. If that value is deep domain expertise from experienced individuals, for example, we’ll discuss whether introductions to suitable angel investors is the better path.

Further, we believe that very early stage businesses are generally not suited to public offers. Companies best suited to funding through convertible notes are not right for equity crowdfunding (the regulations don’t permit offers of convertible securities).

Companies should be aware of the range of funding options, and they should pursue the option which provides most value to their business. We’re committed to referring companies elsewhere if appropriate, and hope angels acknowledge and understand the equity crowdfunding option and can provide the same guidance to companies.

Co-investment

Each offer through Snowball Effect has attracted multiple individual investments of $50,000 or more. Private investors are using this channel, and we’ll continue to build that part of the market.

2015 will be the year where we see the first official co-investment between equity crowdfunding investors and an angel group.

The benefits are clear:

  • For angel networks, it provides an efficient way to top up a funding round.
  • For equity crowdfunding investors, it provides comfort that sophisticated investors have assessed the opportunity and have committed.
  • For the company, it’s an opportunity to harness the benefits of wide brand exposure and shareholder advocates that come with a public offer.

We’d love to hear your feedback on these collaboration opportunities.

Please get in touch with any thoughts or comments at [email protected]

This is a guest post by Josh Daniell who blogs regularly here.

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Consumer Watch: Prosper by following the crowd

Congratulations to the crowd funding guys – Snowball and PledgeMe – who are getting some great profile at the moment and providing another source of capital for early stage ventures.

Fancy a slice of a New Zealand company with its sights set on growth? Backing businesses in their first growth phases were once for mega-wealthy angel investors but since the Financial Markets Conduct Act made crowdfunding investment possible it has opened up to “mum and dad” investors.

Previously, only charitable crowdfunding was permitted, in which people did not want anything in return for their money except maybe a copy of the new album they were helping to record.

But people can now buy shares in companies that should aim to eventually pay dividends. So far licences have been granted for crowdfunding equity platforms Snowball Effect and PledgeMe.

Snowball Effect has closed two offers, one for funding Renaissance Brewing, which raised $700,000 from 287 investors, and one for a new Lee Tamahori film The Patriarch, which raised $468,800 from 182 investors.

It has one offer, for as much as $1.5 million for cleantech company CarbonScape. If the offer raises $400,000 then 4.32 per cent of the company will have gone to crowdfunding investors. If it gets $1.5m, almost 14.5 per cent will be in the hands of the funders.

PledgeMe has two equity offers open, for investment in tourism company H2Explore, which wants to provide hovercraft trips on the Tasman River, and computer museum Techvana.

PledgeMe also runs a “projects” arm that offers more traditional crowdfunding, helping fund projects in return for small, non-financial rewards. Another company, Liftoff, is still waiting for a licence.

Tim Langley, of Carbonscape, said crowdfunding was an accessible way for people with relatively small investments to be involved. It had been difficult to raise capital under the old rules.

“We saw moves being made last year to amend the rules to enable crowdfunding and thought it was an opportunity.”

Carbonscape uses microwave technology to turn carbon in waste wood into products such as high-quality coking coal.

The company wants the money to build a pilot plant to supply New Zealand Steel.

Snowball Effect spokesman Shaun Edlin said crowdfunding was a way to “democratise” investment. “It’s allowing mum and dad investors to get on board. They previously didn’t have the opportunity to invest in companies that weren’t making a public offer.”

Edlin said most offers could be described as high risk but high return. “This is a great way to broaden a portfolio with some investment in small to medium businesses at an early stage in their growth.”

Crowdfunding offers don’t have the same disclosure requirements as most financial products so investors should have a clear idea of what they are getting into. The shares may not be easily traded if you want out.

Claire Matthews, of Massey University’s school of economics and finance, said investors should understand what returns were expected. “If you’re expecting a return, do the normal analysis: what are the risks, what is the risk I’m not going to get any return or I’m not going to get my money back?”

Adviser Liz Koh said the fact investments could be small meant the risk would be spread.
First published on nzherald.co.nz 9 November 2014

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Pledgeme starts crowdfunding equity

Anna Guenther from Wellington, founder of two-year old crowdfunding platform PledgeMe, has announced the move into equity crowd-funding.

There would be no investor caps for equity crowd-funding, although there was a $2 million cap on what a company could raise through crowdfunding each year.

Companies no longer needed to prepare a prospectus or investment statement before raising funds from the public.

Ms Guenther, a graduate of the University of Otago’s Masters of Entrepreneurship programme, said PledgeMe’s equity platform could start trading anywhere from mid-April.

”We definitely see ourselves as almost the Trade Me of social good, helping people fund things they care about,” she said.

There was plenty of interest in equity crowd-funding and Ms Guenther believed the challenge was to educate both investors and businesses in what it meant and how it worked.

Read more from Otago Daily times

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Crowdfunding door opens for NZ corporates

First published in New Zealand Herald Wednesday April 2, 2014

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.”

Read the original article from New Zealand Herald

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NZ fashion firm crowdfunded to $170k

Kiwi clothing brand start-up which set out to raise $20,000 through a crowdfunding campaign has been left stunned after receiving more than eight times that amount.

Ohakune-based Opus Fresh was looking to get off the ground with enough money to fund the initial production run of its locally-sourced merino wool clothing line.

After turning to US crowdfunding website Kickstarter, the company has ended up raising US$139,000 (NZD$172,000) from 638 backers, with two days still to go in the two-month long campaign.

James Simpson, who founded the brand with partner Laura Currie, said people from all over the world had bought into the brand story and the product.

“We’ve got a good product but I think the story we sold was something a little different to what everyone else has done.”

Opus Fresh aims to produce garments for fashion-conscious travelers and outdoor enthusiasts. The brand tagline is ‘Adventurewear that doesn’t look like adventurewear’.

The massive funding boost meant the business could take its product to the market as a self-funded entity.

“We’re now in a pretty strong position not having to give up as much of the company. If we were to try and raise US$140,000 from scratch just off the idea or business plan, most likely we’d have had to give up 51 per cent of the company.”

Backers do not get shares in the company, but are given rewards ranging from a thank – you video for people putting forward small amounts to clothing packages for backers pledging US$79 or more.

Most backers were in the 25-40-year old age bracket and 98 per cent had pledged enough money that they were effectively pre-purchasing items of clothing.

We’ve heard from a lot of people who want to stock it but our sole focus at the moment is delivering to backers.”

Crowdfunding websites raised US$2.7 billion worldwide last year, an 81 per cent increase on 2011, according to a study conducted by research firm Massolution.

First published in the New Zealand Herald on Friday May 31 2013

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Timelapse camera gadget raises double on crowd-funding site

Instead of hitting up banks for loans or approaching angel investors and venture capital players, Queenstown entrepreneurs Chris Thompson and Ben Ryan listed on Kickstarter, an internet-based platform that solicits donations in exchange for a rewards – to create their dream camera gadget – a motion control timelapse device.

Genie, the flagship product of design company Syrp, has blown all expectation out of the water.

Within six days of listing on Kickstarter the Genie had hit its funding goal of US$150,000. Just two days later it was at US$220,000.

This week the campaign closed with US$636,766 pledged to the project – double the “dream amount” of US$300,000 they hoped to raise.

Ryan says pledges, consisting mainly of pre-sales, provide validation for what they are doing.

It was proof that there was a genuine market for the Genie, that gave Kickstarter the edge over traditional funding methods.

They did consider getting an investor on board but decided it was expertise and passion for the product that was more important than a cash injection.

Increasingly it’s technology entrepreneurs using Kickstarter as a way to get funding and test the market appetite for products.

Not every crowdfunding campaign has been a roaring success – about 44 per cent of Kickstarter projects hit their financing target last year – which may also reflect the challenges of crowdfunding as well as project viability.

The online buzz around Genie has created some “crazy marketing benefits”, Ryan says.

“You’re instantly known by the whole film community and your product is just out there in the whole global market within four to five weeks, so that’s a massive advantage.

“Something you could spend a year or two trying to do, through Kickstarter it’s done and happening in a week.”

Thompson, an industrial designer, has prior experience dealing with Chinese manufacturers and is using established contacts to produce the Genie.

“It’s not uncharted territory for us,” Ryan says.

The pair is also likely to crowdfund future updates and accessory add-ons to the Genie.

For them, Kickstarter has meant their dream gadget has become a reality.

Kickstarter and Indiegogo, two of the most popular “in-kind” funding platforms take pledges as small as US$1 in exchange for rewards, most commonly the end product of the campaign. Campaigns on Kickstarter are only funded on an all-or-nothing basis. People who only receive $2000 worth of funding aren’t expected to complete a $5000 project.

It also allows people to test concepts in the market without having to follow through if it doesn’t receive enough support.

There are no up-front fees but Kickstarter takes 5 per cent of the final amount raised if the goal target is hit and Amazon, which processes the payments, takes 3 to 5 per cent.

People creating a campaign on Kickstarter don’t have to be a US citizen but permanent US residency, social security number, bank account and other credit criteria need to be met to enable payments via Amazon.

Since launching in 2009 more than 24,000 projects have been funded to the tune of US$250 million by 2 million people.

Indiegogo is more accessible to international projects, with Pay Pal and bank wire services handling payments, but non-US projects attract additional fees.

First published in the New Zealand Herald on Saturday July 7 2012

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