New Zealand Equity Crowdfunding 1st Year in Review
New Zealand was the southern hemisphere’s first country to introduce legislation that enabled and promoted equity crowdfunding for all investors.
It has now been 12 months since the first equity crowdfunding campaign successfully raised $700,000 and two platforms granted a licence to operate campaigns on 30 July 2014.
In summary, the first year has been a great success – in terms of the number of campaigns, the success of those campaigns and the broadness of the investor base – and the New Zealand government, regulatory body and industry participants should be applauded.
In one year, $12.4 million was successfully raised in over 21 New Zealand companies, with two campaigns reaching the regulated maximum limit of $2 million and another six reaching their own, lower self imposed maximum capital raise targets.
With a population of 4.5 million people, it was an outstanding first year for equity crowdfunding in New Zealand.
In fact, the first equity crowdfunding campaign successfully raised $700,000 in 13 days (Renaissance Brewing).
The Equity Crowdfunding Campaigns
There has been a high level of success in terms of equity campaigns – 78% of completed campaigns - which is very positive given the nature of startups and the historic difficulty in raising capital.
However, there were six campaigns that have failed to reach their minimum target and therefore investors were returned their commitment and there are five campaigns presently open (two of which have already reached their minimum investment target and for these purposes, are considered “successful” campaigns).
The average successful capital raise was $590,000 on a pre-money valuation of $3.85 million, equating to an average of 14% equity to crowd investors in the underlying business.
But with equity crowdfunding, there are minimum capital raising amounts (for a campaign to be successful) and a maximum capital raising amount (under NZ law, this is a maximum of $2 million), and the successful campaigns offered between 9% and 18% equity to crowd investors. Only seven campaigns reached their maximum, albeit equating to one-third of successful campaigns, but the average successful campaign reached 100% more than their minimum equity raise. That is, there was generally a wide range between the minimum and maximum capital amounts, with the average successful campaign targeting between a minimum of $280,000 and a maximum of $790,000, or 2.8 times their minimum amounts.
The campaigns that were unsuccessful generally exhibited higher average minimum amounts ($420,000 v $280,000) and higher maximum amounts ($1,050,000 v $790,000) but the pre-money valuation differential between successful and unsuccessful campaigns was negligible. Note that this is from a small sample size of six unsuccessful campaigns.
Industry wise, the technology companies represented the most number of campaigns with 43% whilst the food/beverage raised the most money in New Zealand with $3.8 million despite only 17% of campaigns being companies in this industry.
Given that equity crowdfunding in New Zealand is only one year in, it was interesting to note that there was the first ‘follow-on’ investment. PledgeMe, the equity crowdfunding platform, successfully raised $100,000 in its own company via a crowdfunding campaign at a $600,000 pre-money valuation in 2014 and has reached its minimum target of $250,000 in its second raise that is currently open, at a $2.1 million valuation. Equity crowdfunding investors in 2014 could perhaps increase the valuation of their initial investment by three times.
The licencing of two equity crowdfunding platforms, Snowball Effect and Pledgeme, in July 2014 preceded the licencing of another five platforms during the year to July 2015. It has been these early movers, Snowball Effect and Pledgeme that have raised the most amount of funds and had the most number of campaigns, respectively. Equitise and CrowdCube NZ are the other two platforms to successfully raise some monies via their sites. The other three platforms, MyAngelInvestment, Liftoff NZ and Propellar have yet to initiate a campaign at the time of writing having only been licenced in 2015.
Snowball Effect had the first New Zealand successful equity crowdfunding campaign with Renaissance Brewing raising its maximum of $700,000 in just 13 days. In fact, Snowball Effect also had the two largest equity crowdfunding campaigns (both reaching their maximums of $2 million) out of the 10 campaigns on its platform during the year. It successfully raised nearly $8.5m during the year.
PledgeMe had the more than half the New Zealand equity crowdfunding campaigns on its platform during the year with 16 out of 30 campaigns and also the most success in terms of the number of campaigns. The equity raisings were all less than $1 million as were the three other successful campaigns on the Equitise and CrowdCube NZ platforms.
A total of 3,503 investors pledged money to equity crowdfunding platforms in New Zealand’s first full year. Although our statistics do not cover those investors who invested in more than one campaign, important information can be gleaned from New Zealand’s newest type of investor.
Despite some early controversy regarding no investor caps for retail investors in equity crowdfunding, of the 3,503 investors, the average commitment on any campaign was $4,300 and the successful campaigns averaged slightly less, at $4,100 per campaign. This indicates that investors are placing smaller amounts in relatively large numbers – most likely as the New Zealand government had hoped for equity crowdfunding. Whether this suggests that investors have read the disclaimers and risk disclosures and are investing smaller amounts, or whether this indicates, as is most likely the case, that people can simply make their own decisions.
Of the 3,503 total investors, 3,194 have committed monies to successful campaigns, whilst 224 have had their money returned as the company failed to reach their minimum (currently 85 investors have committed monies to campaigns that have yet to reach their minimum or close).
The average number of investors per successful campaign was 152, with the outliers of Collect and TRNZ Digital Travel Guides raising their minimum from only 33 and 30 investors respectively, while the highest investor numbers were seen in the campaigns of Invivo and Punakaiki Fund with 439 and 392 investors respectively (note that these two campaigns were also the two largest campaigns in terms of capital raised).
As noted, the successful campaign’s business had an average pre-money valuation of $3.85 million and offered 14% equity in their businesses to crowd investors.
The highest valuation for a business was the Mexican restaurant chain, Mad Group, with nearly $10 million as its pre-money valuation, however it failed to reach its minimum capital target of $750,000 and the $458,900 pledged was returned to the crowd investors. The lowest pre-money valuation was actually the first round of funding in PledgeMe with a pre-money valuation of $600,000, and a $50,000/ $100,000 minimum / maximum capital raise target.
In terms of equity offered to crowd investors, the average minimum and maximum capital raise would provide between 9% and 18%. But the range was high with as low as 2% offered at a minimum capital raise and as high as 56% for the maximum capital raise.
With such a promising start, it will be interesting to see how the New Zealand equity crowdfunding market develops over the next twelve months with seven competing platforms, increased confidence in this form of equity raising and the general international growth in equity crowdfunding expected to be over 100% per annum for 2015/2016.
See New Zealand's equity crowdfunding 2nd year in review