Crowdfunding to come under microscope in securities law overhaul

Film director Taika Waititi

(BusinessDesk) The revamp of New Zealand's 34-year-old securities law looks set to capture a relatively new way of raising small amounts of money from hordes of people if it strays into the territory of offering returns.

Crowdfunding, where individuals turn to large, primarily web-based networks for small donations, has mainly been used to pay for community projects and artistic endeavours.

The most famous local example was when film director Taika Waititi used it to help pay for the US distribution of his hit movie Boy.

The international experience has seen crowdfunding drift into capital raisings, something the local financial markets regulator expects it will be able to keep tabs on through the passage of the Financial Markets Conduct Bill.

Parliament's Commerce Committee recommended Commerce Minister Craig Foss consider prescribing crowdfunding intermediary services to let providers apply for a licence in its report back on the legislation last month.

Financial Markets Authority head of legal Liam Mason told BusinessDesk local crowdfunding operations are typically for one-off community or creative projects, but that the new bill is flexible enough to cater for a shift into equity raising and would let the government license crowdfunding providers.

"If it takes the next step, and it seems probable, for small scale investment where you're directly getting an investment return, then it most likely will be through a licensed intermediary," he says. "It comes back to seeing how it evolves."

New Zealand's securities law overhaul comes as US policymakers introduced a crowdfunding exemption for its own legislation as part of its Jumpstart Our Business Startups Act.

The US exemption would let people raise capital through registered online funding portals or brokers, subject to other conditions such as an annual cap on how much one person can invest.

If New Zealand instituted similar regulations, that would see certain disclosure exemptions for people looking to raise money through crowdfunding portals.

Anna Guenther, cofounder of local PledgeMe, saysthe Wellington-based crowdfunding platform would not shy away from a licensing regime. It hasn't been used to raise investment capital, though Guenther said there are "people that want to do that sort of crowdfunding", mainly in the tech space.

PledgeMe has raised more than $460,000 for about 100 social projects, more than half in creative industries.

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Ridiculous rules and regulations for Internet innovation is doomed to failure. Are they trying to stop interesting cross-border trade that might arise from massively international crowd-funding? All they will do is stop NZ participating in what could be a huge future growth market. The crowd-funding sites of the future will just set-up in countries with the least rules, legislations and greedy lawyers and make their fortunes there .... and suck capital out of NZ.

All the tinkering is not going to drive any more economic activity in NZ ... what are they trying to achieve besides feathering their own nests?

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Crowd Funding has all the ethics of a Nigerian Email and the possibility of returns are as good as going to Sky City

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Crowdfunding by the likes of Kickstarter is NOT Investing. You dont get equity though you may get a good or service depending on the level you 'donate'.

It is not a securities act issue. More a consumer guarantees act issue.

I also wonder if the NZ versions have GST advice.

Crowd funding via Angel type networks is different and is a Securities Act issue which should be reviewed.

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As a co-founder of a recently launched crowd funding platform in New Zealand (, we have adopted the rewards based platform that has been successful in delivering rewards on time and project success.

With growth internationally, crowd funding is a market that needs to be developed soon in New Zealand and is a great opportunity to not only help raise funds but awareness.

As long as it is regulated, i think New Zealand should push for changes asap.

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Soon crowdfunding websites such as Paying Forward will become more sector focused and project defined to include Corporate Incentives – Crowd funding provides a much broader response to the social responsibility of corporates. Currently the Emissions Trading Scheme (ETS) provides corporates with a platform to satisfy environmental concerns through the trading of carbon credits. Paying Forwards process also allows and encompasses those economic sectors that are currently outside of the Emissions Trading Scheme (ETS) such as the agriculture sector to report such values in their bottom lines.
Paying Forward provides a more added value system to the reporting values of project sponsor companies’ bottom lines by providing a mechanism to report on social, cultural and environmental values contributions. Paying Forward also provides for any company that sells energy absorbing products such as car sales businesses and smaller energy absorbing or dispensing businesses who cannot afford to plant large forest plantations to ease environmental concerns the same ability. Paying Forward also provides for tourists to leave a greener footprint by contributing to its environmental projects.

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