New Zealand’s equity crowdfunding market has just completed its second full year, and ostensibly, the numbers look flat after a stellar first year with $10.8m successfully raised in 2016 versus $12.3m in 2015.
Whereas there was a success rate of 78% in the 2015 year, this has dropped to 57% on similar campaign numbers but the average successful capital raise increased from $590,000 to $720,000.
In addition, the average number of investors in any successful campaign has almost halved, from 152 to 82, but of those 82 investors, the average investment amount increased 65% from $4,300 to $7,100. This can be somewhat explained by at least four campaigns being partially led (“pre-arranged” funding) by a professional investor in the $100,000 to $400,000 range.
However, as you delve deeper into New Zealand’s equity crowdfunding industry, you will also note an increased level of diversification and sophistication that are not captured in the statistics in this article and infographic. These types of raisings appear to have increased since the 1st year. Our research indicates a further $6.7m in additional to the headline figure of $10.8m, a 42% increase year on year.
By way of background, CrowdReady has collated the equity crowdfunding campaigns between 1 August 2014 to 31 July 2016 (1 August 2014 to 31 July 2015 being the first year) with the following criteria:
- Public (available to be seen by anyone with an internet connection);
- Retail (available to all NZ potential investors, not just professional/sophisticated); and
- Within prescribed limits (i.e. In NZ, there is a retail maximum capital raise limit of $2m)
Thus, exclusive offers to sophisticated investors or to professional investors (angels, venture capital funds) without retail involvement or are private or closed, are excluded in the infographic.
As you may be aware, companies pursuing equity crowdfunding as a source of capital are required to provide a minimum and maximum target for their capital raise, with the corresponding increase in the equity allocation for investors. The maximum under New Zealand’s equity crowdfunding legislation for retail investors is $2 million and while there were two campaigns in the first year to reach this mark, there were none that reached this maximum in the 2016 year. PowerHouse Ventures came closest, raising $1.76m whilst Woop! was the only campaign to reached its self-imposed maximum limit of $800,000
Given the nature of equity crowdfunding, it comes as little surprise that technology companies were again the most prevalent industry to try to source money, nearly a third of all successful raisings over the two years were in this sector.
Whilst the success rate of campaigns has reduced year on year, the majority of campaigns were successful (57%) and the average raise amount was 22% higher than 2015. The higher average minimum and maximum subscription level being sought by successful companies of between $450,000 to $1,200,000 (compared to 2015: $280,000 to $1,060,000) was a factor in this change.
There have been a number of changes to the authorised equity crowdfunding platforms during the year, but it is still the main three – Snowball Effect, Equitise and Pledgeme – that are the largest and most successful.
The Snowball Effect platform had the most equity crowdfunding campaigns of 10 and was again the platform that raised the most with $6.7m, slightly down on last year of $8.5m but maintaining its success rate above 80%.
The Equitise platform raised $3.4m across five successful campaigns with about a 70% success rate while the number of Pledgeme’s equity crowdfunding campaigns reduced from 16 to five. Crowdcube NZ had three campaigns during the year.
What has been interesting has been the different value propositions between the three main platforms. Snowball Effect is a pure equity crowdfunding platform in New Zealand but has branched out into private offers and private broking with cornerstone investors. Equitise is a Trans-Tasman equity crowdfunding platform, to Australian and New Zealand investors and companies, and also offers private deals. Equitise’s collaboration with UK equity crowdfunding platform Seedrs for Skins, was an interesting development. Pledgeme was originally a rewards based crowdfunding platform that has branched out to equity crowdfunding and more recently to debt based crowdfunding.
A new entrant to the market in the AlphaCrowd platform, has differentiated itself by focusing purely on digital and technology companies. In other developments, MyAngelInvestment has withdrawn from the market after an unsuccessful campaign attempts, as has LiftOff NZ’s after an unsuccessful campaign, instead offers broader corporate advisory services. The two other registered platforms in Crowdsphere and Crowd88 are licensed but have yet to launch any campaigns.
Given the stagnant growth in published campaigns, there does not appear to be much scope for the six remaining platforms focused purely on New Zealand. Using the much larger UK equity crowdfunding market as an example, there are only three major players, each with their own differentiated market offering (entrepreneur-led, investor-led and nominee intermediary). It will be interesting to see which platforms remain in the current guise in 12 months’ time.
The average investment amount increased from $4,300 to $7,100. This significant increase, partly due to larger professional investors investing alongside retail investors (and through pre-arranged funding), also reflected in the average number of investors. The highest number of investors in any one campaign in 2016 was 156, which interestingly is only the 8th highest over the two years. At the other end of the scale, it took just 15 investors averaging $17,820 to successfully fund the relaunched Roam Car Sharing.
Investors and the industry at large will be looking towards a successful exit in the coming 12-18 months to prove, as has occurred in other jurisdictions with longer history, that this type of funding leads to success.
The average campaign pre-money valuation for 2016 was $5.7m, an increase of almost 50% on the 2015 comparison, but may have been skewed by both more mature businesses in PowerHouse Ventures and the pre-IPO HydroWorks ($25m and $17.5m respectively). Removing these two outliers, and the average valuation was $4.6m. In 2015, the highest valuation was Mad Group at $10m across 30 campaigns.
Technology companies across the two years had the second lowest pre-money valuation of $3.9m (based on a sample size of 19), companies with a product was the lowest at $3.4m and the highest being investment of $12.8m (again, skewed by PowerHouse Ventures and the small sample size of three).
The equity offered for new equity crowdfunding investors was similar in 2016 to 2015, ranging from equity offers of between 7% and 17% (average of 10%), whilst 2015 was equity offerings of between 9% and 18% (average of 14%).
The New Zealand Equity Crowdfunding market has matured in its second year with platforms leading a broader offering – private offers, syndicates, partnerships with other platforms, mixed with the equity crowdfunding captured in this analysis.
It may be its watershed year, with the first three months of the 2017 year having produced strong early results, raising a total of nearly $7m.
See New Zealand's equity crowdfunding first year in review