INITIATE: Pacific Crowdfunding Symposium
By Kat Jenkins
On November 15, 2013 the inaugural INITIATE: Pacific Crowdfunding Symposium was held at the National Library in Wellington, New Zealand. The event was the first of its kind to be held in the Australasian and Pacific region. Local crowdfunding platforms PledgeMe, givealittle, Boosted, and ThrillCapital were represented by their operators and owners, with UK equity crowdfunding infrastructure platform CrowdValley also participating with COO, Paul Higgins giving the key note via video link.
Equity was the word of the day. With the release of New Zealand’s draft Financial Markets Conduct Regulations, equity crowdfunding will soon be a reality on our shores. It was the topic of the key note address as well as several of the sessions throughout the day. Paul Higgins spent some time telling us what is working, and what isn’t in the UK. On the positive side, he highlighted that equity is thriving in Europe, and that many equity crowdfunding sites are finding success by specialising in niche areas, such as real estate and green technologies. This idea of niche service providers is already in play in New Zealand through ThrillCapital, who focus on sport and entertainment investment, but his comments did underline real potential avenues for people aiming to jump on board the equity bandwagon early.
He warned about the problem of potential market size – a real issue for New Zealanders looking to launch in the area. Most legislation puts a geographic border around who is able to contribute to any equity crowdfunding campaign. This was also highlighted in a later workshop on risk taken by Geraint Bermingham of Navigatus Consulting. Our small population, and the legislative checks and balances in the draft legislation present a huge risk in terms of whether equity crowdfunding is viable in a country such as ours.
This view was backed throughout the day by many attendees, including Sacha Judd, of law firm Buddle Findlay. She was sceptical of equity crowdfunding. While she highlighted that crowdfunding, particularly rewards-based crowdfunding, had huge potential for ventures with passionate communities such as music and film, equity presented its own set of problems. She discussed potential risks for the platforms, the investors, and the companies themselves, concluding that a good company would have no problems going to an angel investor round, or raising capital through more traditional means. She feared that the “lemons” would end up on the platforms, therefore diluting the power of the equity model.
Tui Te Hau of CreativeHQ agreed, going on to also warn that those looking to raise capital through equity crowdfunding should do so with caution. Highlighting risks to IP and the unknowns, such as who would be responsible for due diligence in an equity model, she also discussed how angel investors and venture capitalists viewed the model with scepticism. Like Judd, she could see a future for crowdfunding in the rewards and fundraising sectors, but was doubtful when it came to equity models.
When I arrived at the symposium, I knew very little about equity crowdfunding as a model, or its specific applications within the New Zealand environment. When I left, I felt that we are trying to bang a square peg into a round hole. Throughout the day, many astute industry, business, and legal minds had opinions on the model and the legislation that highlighted the huge risks involved all round. My take-away from this discussion was that the legislation will only succeed in providing a veneer of safety to a potential investor. This view was influenced by Morris Altman, Head of the School of Economics at Victoria University. He stressed that equity crowdfunding – much like every other form of investment – is a gamble. In every investment activity there is a chance that you will lose it all. If we have learned anything from the 2008 financial crisis, it’s that there’s very little legislation can really do to change that. Rather than encouraging a new model while providing a fence for people to operate within, the legislation specifies criteria and processes that amount to hoops for investors and platform operators to jump through.
And hoops don’t gain a crowd. Gary Mersham of the Open Polytech of New Zealand spent time discussing how the people who invest in any crowdfunding campaign will always expect something – even if it is only communication. His comments were supported by many of the platform owners, including Anna Guenther of PledgeMe who spelled out how a campaign can gain success through transparency, honesty and connecting with their audience. The sessions on the legislation in the afternoon only served to highlight how far away from those principles the current legislation is. The risks are being managed through legislative red tape, as opposed to forced transparency, boundaries and investor education.
All in all, I left with a lot to think about. I’m really glad I attended and had the opportunity to learn more about the current and future crowdfunding opportunities in New Zealand, and the benefits and risks associated with them. I found the symposium utterly valuable for both the faces it put on the industry within my country, and for the in-depth, well considered views of the experts in the field during a time of such opportunity. With the new regulations due to come into effect on April 1 2014, crowdfunding is about to get really exciting in New Zealand.